Chapter 2 LO7

Question 1

SASs issued by AICAP have what two classification numbers?

Answer 1

1. SAS number shows what order it was issued 2. AU-C number indicating location in codification of auditing standards

Question 2

the AICPA code of professional conduct outlines the ethical requirements for CPA who do what (@)

Answer 2

1. practice in accounting firms 2. work in organizations as part of management

Question 3

auditing standards describe professional skepticism as what 3 t hings?

Answer 3

1. an attitude that inclueds a questioning mind 2. being alert to conditions that might indicate possible misstatements due to fruad or error 3. critical assessment of audit evidence

Question 4

When auditors want more specific guidelines, they can use what?

Answer 4

less authoritative sources

Question 5

T/F if auditor is convince that client has an excellent system of internal control, one that includes adquate internal controls for providing reliable data, the amount of audit evidence to be accumulated can be significantly less than when controls are not adequate

Answer 5

T

Question 6

when is a misstatement considered material?

Answer 6

if knowledge of teh misstatement will affect a decsion of a reasonable user of the financial statements

Question 7

if the cpa or thier assistants are not qualified to perform the work, a professional obligation exists to do one of what 3 things?

Answer 7

1. acquire the requistite knowlege and skills 2. suggest someone else who is qualified to perform the work 3. decline the engagement

Question 8

the auditors opinion is based on what?

Answer 8

the evaluation of audit evidence obtained and the auditors finding

Question 9

why is the auditors opinion important?

Answer 9

it enhances the users degree of confidence they can place in the information presented in the financial statements

Question 10

auditing standards by PCAOB are numbered how?

Answer 10

consecutively..they recently reorganized their standards by topic

Question 11

an understanding of the clients business helps the auditor identify what?

Answer 11

significant client business risks that impact the risk of significant misstatements in the FSs

Question 12

auditing standards are regarded as authoritative literature and every member who permforms audits of historical financial statements is required to follow them under what?

Answer 12

AICPA code of professional conduct

Question 13

The Code and auditing standards stress the need for _____ in an audit engagement

Answer 13

independence

Question 14

how is having the appropriate competence and capabilities to do an audit interpreted…what must the auditor have? (3)

Answer 14

they must have formal education in auditing and accounting, adequate practical experience for the work being performed, and continuing professional education

Question 15

the principles (purpose, responsiblitlies, performance, and report) are too general to provide meaningful guidance so auditors turn to what 2 things?

Answer 15

SASs (statements on auditing standards) issued by AICPA and ASs issued by PCAOB these 2 are more specific

Question 16

what are auditors responsible for when making judgements about the presence of material misstatments?

Answer 16

they are responsible for applying relevant training, knowledge, and experience in making informed decsions about the courses of actions that are appropriate in the circumstances of the audit engagement

Question 17

an auditor presumes that management will provide the auditor access to what?

Answer 17

all info relevant to the preparation and presentation of financial statments, including unrestricted access to persons within the entitiy from whom the auditor may obtain audit evidence

Question 18

according to the AICPA principal of auditing standards,,what are the reporting requirements of the auditor (reporting)

Answer 18

The auditor is responsible for expressing an opinion in the form of a written report about whether the financial statements are expressed fairly, in all material respects, in accordance with the applicable financial reporting framework.

Question 19

what should an auditor do if an opinion cant be expressed?

Answer 19

the auditors report should state that conclusion

Question 20

auditors are reponsible for fulfilling their duties _____ and _____

Answer 20

carefully diligently

Question 21

the structure of the codification for auditing standards is orgnaized around what 4 principles (principals in AICPA Auditing Standards)

Answer 21

1. Purpose- the purpose of an audit 2. responsibilities- personal responsibilities of the auditor 3. Performance- auditor actions in performing the audit 4. Reporting- reporting

Question 22

T/F The principles underlying an audit are not requirements and do not carry authority, but they provide structure for the Codification

Answer 22

T

Question 23

The ASB issued a Preface to the Codification of Auditing Standards containing the “Principles Underlying an Audit in Accordance with Generally Accepted Auditing Standards” (the principles). The principles provide a framework for the two objectives of conducting an audit of financial statements. what are the 2 objectives/

Answer 23

1. Obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error 2. Report on the financial statements, and communicate as required by GAAS, in accordance with the auditor’s findings.

Question 24

Materials published by the AICPA, including industry audit guides, provide assistance on what?

Answer 24

on specific questions

Question 25

an audit is conducted based on the premise that management is responsible for what 2 things?

Answer 25

1. the preparation of the financial statements in accordance withthe applicable financial reporting framework selected by management 2. designing, implementing, and maintaining internal control relevant to the preparation and presentation of financial statements that are free of material mistatements

Question 26

what are the 3 categoris for GAAS?

Answer 26

1. general standards 2. standards of field work 3. reporting standards

Question 27

the auditor is responsible for obtaining sufficient appropriate audit evidence about whether material misstatements exist by doing what?

Answer 27

designing and implementing appropriate responses to the assessed risks. (decisions about how much and what types of evidence to accumulate for a given set of circumstances requirel professional judgement)

Question 28

to adequately assess the risk of material misstatement , the auditor must have an understanding of what?

Answer 28

the client’s business and industry

Question 29

according to the AICPA principals of auditing standards, what is the purpose of an audit (purpose)?

Answer 29

The purpose of an audit is to provide financial statement users with an opinion issued by the auditor on whether the financial statements are presented fairly, in all material respects, in accordance with applicable financial reporting framework.

Question 30

Although auditing standards provide authoritative guidance for members of the profession, the amount of guidance is ?

Answer 30

limited

Question 31

The AICPA principles and auditing standards are ___standards of performance_

Answer 31

minimum

Question 32

according to the AICPA principal of auditing standards, what are the personal responsibilities of the auditor? (responsibilities)(3)

Answer 32

1. possess appropriate competence and capabilities to perform the audit 2. comply with ethical requirements 3. maintain professional skepticism and exercise professional judgement

Question 33

according to the AICPA principal of auditing standards,, what are the auditor actions in performing the audit in order to obtain reasonable assurance that the financial statments are presented fairly, and as a whole are free from material miststament (performance) (4)

Answer 33

1. adequate planning of work and proper supervision of assistants (less experienced staff members do most the work) 2. determine and apply an appropriate materiality level or levels(at what point do i care about something) 3. identify and assess risks of material misstatement based on understanding of entitiy and its environment, including internal controls 4. obtain sufficient appropriate audit evidence

Question 34

one of the most widely accepted concepts in the theory and practice of auditing is the importance of a client’s what?

Answer 34

system of internal control for : mitigating client business risks safeguarding assets and records and generating reliable financial information

Question 35

If standards seem impractical in a certain situation, the auditor may use an alternative course of action if they keep in mind that what?

Answer 35

the burden of justifying a departure from the standards falls on the auditor.

Question 36

what is the final step in the auditing process?

Answer 36

audit report

Question 37

T/F internal control can be so inadequate as to preclude conducting an effective audit

Answer 37

T

Question 38

T/F a limited number of specific audit audit procedure are required by the standards and there are no specific reequirements for auditors decisions

Answer 38

T