Chapter 1 (Auditing and Assurance Services)

Question 1

AICPA created….

Answer 1

FASB

Question 2

Who is the general umbrella to standards board?

Answer 2

GAAP

Question 3

ASB

Answer 3

auditing standards board

Question 4

Sarbanes Oxley created….

Answer 4

PCAOB (public company auditing oversight board)

Question 5

If there is so much, where do CPAs start?

Answer 5

identifying the business risk is where the audit starts

Question 6

Forces creating demand-users demand for reliable information, users demand for…

Answer 6

reliable
relevant
timely information

Question 7

4 environmental conditions that increase user demand

Answer 7

complexity
remoteness
time sensitivity
consequences

Question 8

the risk (probability) that the information (mainly financial) disseminated by a company will be materially false or misleading

Answer 8

information risk

Question 9

When users want someone to lend credibility to the information, when we provide this credibility it is called….

Answer 9

assurance

Question 10

When assurance is for specific assertions made by management.

Answer 10

attestation

Question 11

When the assertions are embodied in a companies financial statements.

Answer 11

auditing

Question 12

a systematic process of objectively obtaining and evaluating evidence regarding assertions (financial statements) about economic acctions and events to ascertain the degree of correspondence between the assertions and established critic (GAAP) and communicating the results (auditor’s report) to interested users (creditors, investors).

Answer 12

auditing

Question 13

In the auditing definition, objectively is used because…

Answer 13

we as CPA’s are independent

Question 14

We judge our client’s accountant records against…

Answer 14

GAAP

Question 15

Process, purposeful, planned, based on logical structure.

Answer 15

systematic

Question 16

What is the purpose of obtaining and evaluating?

Answer 16

to obtain the degree of correspondence between the assertions and the established criteria

Question 17

What is the overview of the financial statement auditing?

Answer 17

we start with the objective outsider which is the independent auditor, then we obtain and evaluate evidence which is the knowledge of client’s business, then branches out to the assertions about economic actions and events which are the financial statements which are all under GAAP (FASB, APB, ARB, GASB, AICPA, AcSEC, EITF, SEC), then those two join together to produce the audit reports and other communication

Question 18

auditing deals with…

Answer 18

financial statements

Question 19

attestation services deals with…

Answer 19

primary financial information

Question 20

assurance services deals with…

Answer 20

an information

Question 21

Very specific definition
As a CPA you are fully certified to the SCC financial statements
Giving reliability for data
Actually have standards
Requires a written report
Things that are required by GAAP (B/S, I/S, C/F, Footnotes)

Answer 21

auditing

Question 22

We have standards
Requires a written report
Given reliability for data
This is were we do some sort of assurance that is not audit

Answer 22

attestation services

Question 23

intended for a very large audience
Very specific
Like consulting work
We do not have standards
No written report is required
Not providing reliability

Answer 23

Assurance services

Question 24

There critical components of assurance series…

Answer 24

Information or a process on which the assurance service is provided

A user or group of users who derive value from the assurance services provided

An assurance service provider

Question 25

Independent professional services that improve the quality of information, or its context, for decision makers. Can be provided to management or external users/

Answer 25

assurance services

Question 26

The breakdown of Professional

Answer 26

professional judgment - experience - education - license

Question 27

One in which a practitioner is engaged to issue or does issue a report on subject matter or an assertion about the subject matter that is the responsibility of another party

Answer 27

attestation engagement (subset of assurance and always involves a report that goes to a third party

Question 28

Agreed upon procedures Pro forma financial information Financial forecasts and projections

Answer 28

financial attestation engagement

Question 29

Compliance with contractual requirements Effectiveness of internal control systems Inventory quantities and locations

Answer 29

non-financial attestation engagements

Question 30

What is the basic assurance process?

Answer 30

First we are going to gather evidence about assertions, then evaluate the evidence agains an objective criteria. After that we are going to communicate the results to interested parties

Question 31

What do auditors do?

Answer 31

they provide reasonable assurance An auditor provides reasonable assurance that the financial statements are free of material error and fraud The expectation GAAP

Question 32

The Balance sheet goes with the...

Answer 32

existence assertion

Question 33

The income statement goes with the...

Answer 33

occurrence

Question 34

Footnotes have to be just right (How do we know that? that's just professional judgment)

Answer 34

Presentation and disclosure

Question 35

Applies to the balance sheet

Answer 35

existences (assets)

Question 36

Applies to the income statement

Answer 36

Occurrence (transactions)

Question 37

Remember this by owning/owing

Answer 37

rights and obligations

Question 38

Is everything recorded that should have been and based on cutoff. Income manipulation. Everything is in its proper period Is the account complete

Answer 38

Completeness/Cutoff

Question 39

Is inventory valued properly (i.e.: lower of cost or market based on FIFO etc., obsolete, damaged goods not included Did the accountant valuate the statements according to GAAP? Methodology of depreciation: SL, Sum of all year, double declining, MACR

Answer 39

valuation or allocation

Question 40

What procedures can you use to verify the answer?

Answer 40

PERCV (the 5 management assertions)

Question 41

An auditor's tendency not to believe management's assertions without sufficient corroboration.

Answer 41

professional skepticism

Question 42

Have to listen to people and take their word but, I am going to verify.

Answer 42

skepticism

Question 43

When do you stop auditing?

Answer 43

that is based on your professional judgment

Question 44

What are the three public accounting profession services?

Answer 44

assurance tax consulting consulting

Question 45

Types of audits and auditors.

Answer 45

financial (external auditors/CPAs) operational (internal auditors/CIA) Compliance (governmental auditors) Forensic (Fraud auditors/CFEs)

Question 46

Ensure that financial statements are accurate.

Answer 46

financial (external auditors/CPAs)

Question 47

Improve operational economy Improve operational efficiency

Answer 47

operational (internal auditors/CIAs)

Question 48

Ensure compliance with company and/or governmental rules and regulations

Answer 48

compliance (governmental auditors)

Question 49

Most audits are combinations of financial, operational, and compliance audits.

Answer 49

forensic (fraud audits/CFE's)