Definitions

Question 1

The risk that an entity will fail to meet its objectives. If the company fails to meet its objectives enough times, the company will ultimately fail

Answer 1

Business Risk

Question 2

The probability that the information circulated by a company will be false or misleading

Answer 2

Information risk

Question 3

Independent professional services that improve the quality of information or its context for decision makers

Answer 3

Assurance services

Question 4

The provision of an opinion on subject matter or an assertion about the subject matter that is the responsibility of another party

Answer 4

Attestation engagement

Question 5

The systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between the assertions and established criteria and communicating the results to interested users

Answer 5

Auditing

Question 6

Defined in the professional auditing standards as having an attitude that “includes a questioning mind and a critical assessment of evidence.” Essentially, it is an auditor’s tendency to NOT believe management’s assertions without corroboration

Answer 6

Professional skepticism

Question 7

Asserts that each of the balance sheet and income statement balances actually exist (general rule- relates to account balances)

Answer 7

Exsistence

Question 8

Asserts that each of the income statement events and transactions actually did occur. (general rule- relates to events, transactions, presentations and footnote disclosures)

Answer 8

Occurrence

Question 9

In financial statements, management asserts that they have property rights for all amounts reported as assets on balance sheet and amounts reported as liabilities represent the company’s own obligations

Answer 9

Rights and Obligations

Question 10

Management asserts that all transactions, events, assets, liabilities and equities that should have been recorded have been recorded.

Answer 10

Completeness

Question 11

Special classification of completeness referring to accounting for revenue, expenses and other transactions in the proper period

Answer 11

Cutoff

Question 12

Management asserts that the transactions and events have been recorded accurately and that the assets, liabilities and equities on the balance sheet have been valued in accordance with GAAP

Answer 12

Accuracy and valuation

Question 13

Refers to the appropriate recording of the transactions involving assets, liabilities and equities

Answer 13

Accuracy

Question 14

Management asserts that all transactions and events have been presented correctly in accordance with GAAP and that all relevant information has been disclosed to financial statement users, usually in the footnotes to the financial statements

Answer 14

Classification and Understandibility

Question 15

Disclosures must be relevant, reliable and understandable or transparent to financial statement users

Answer 15

Understandability

Question 16

Transactions must be classified in the correct accounts

Answer 16

Classification

Question 17

Appropriate competence and capabilities to perform the audit, complying with relevant ethical requirements, maintaining professional skepticism and exercising professional judgment, throughout the panning and performance of the audit

Answer 17

Responsibilities

Question 18

The extent to which others (particularly financial statement users) perceive auditors’ to be independent

Answer 18

Independent in appearance

Question 19

An auditors’ mental attitude and impartiality with respect to the client

Answer 19

Independent in fact

Question 20

Expertise, education, experience

Answer 20

Competence and capabilities

Question 21

A level of performance that would be exercised by reasonable auditors in similar circumstances; auditors are expected to possess skills and knowledge of others in their profession and are not expected to be infallible

Answer 21

Due care

Question 22

A state of mind that is characterized by appropriate questioning and a critical assessment of audit evidence

Answer 22

Professional skepticism

Question 23

The application of relevant training, knowledge and experience in making informed decisions about appropriate courses of action during the audit engagement

Answer 23

Professional judgement

Question 24

Responsibility principle (competence and capabilities/ relevant ethical requirements-independence)

Answer 24

Obtain (retain) engagement

Question 25

Sets forth general quality criteria for conducting an audit. Five elements: (1) reasonable insurance (2) planning and supervision (3) materiality (4) risk assessment (5) audit evidence

Answer 25

Performance

Question 26

Concept that a GAAS audit may not detect all material misstatements and auditors are not "insurers" or "guarantors" regarding the fairness of the entity's financial statement

Answer 26

Reasonable assurance

Question 27

(1) preparing an audit plan and supervising the work (2) obtaining knowledge of the client's business and (3) dealing with differences of opinion among the accounting firm's own personnel

Answer 27

Planning and supervising (engagement planning)

Question 28

As it relates to financial reporting, the dollar amount that would influence the lending of investing decisions of financial statement users

Answer 28

Materiality

Question 29

Stage of audit that requires an understanding of the client, its operating environment and its industry

Answer 29

Risk assessment

Question 30

Policies and procedures implemented by an entity to prevent or detect material accounting frauds or errors and provide for their connection on a timely basis

Answer 30

Internal control

Question 31

the probability that a material misstatement, either error or fraud will occur

Answer 31

Inherent risk

Question 32

the probability that a material misstatement, either error or fraud will not be prevented or detected on a timely basis by the entity's internal controls

Answer 32

control risk

Question 33

The final element of the performance principle requires that the audit team collects and evaluates sufficient appropriate evidence to provide a reasonable basis for their opinions

Answer 33

Audit Evidence

Question 34

The information that auditors use in arriving at the conclusions on which to base the audit opinion and includes the underlying accounting data and all available corroborating information

Answer 34

Evidence

Question 35

Evidence must be trust worthy (reliable) and must provide the audit team with information of interest (relevant). (evidence quality)

Answer 35

Appropriate

Question 36

Relates to the number of transactions or components evaluated. (evidence quantity)

Answer 36

Sufficiency

Question 37

Risk that the audit team's substantive procedures will fail to detect a material misstatement

Answer 37

Detection risk

Question 38

Based on the evaluation of the evidence obtained, the auditor expresses in the form of a written report, an opinion in accordance with the auditor's findings or states that an opinion cannot be expressed. Ultimate objective

Answer 38

Reporting Principle

Question 39

Set of criteria used to determine the measurement, recognition, presentation and disclosure of material items in the financial statements (ex: GAAP, IFRS)

Answer 39

financial reporting framework

Question 40

Opinion that concludes that the entity's financial statements present its financial condition, results of operations and cash flows in conformity with GAAP

Answer 40

Unqualified opinion

Question 41

Opinion that concludes that the entity's financial statements are not presented in conformity with GAAP (or other frameworks)

Answer 41

Adverse opinion

Question 42

Opinion that concludes that except for a relatively isolated (limited) departure, the entity's financial statements are presented in conformity with GAAP

Answer 42

Qualified opinion

Question 43

In some cases (ex: if auditor lacks independence), auditors may choose not to express an opinion

Answer 43

Disclaimer

Question 44

(1) perform procedures regarding the acceptance or continuance of audit client relationships (2) determine compliance with independence and ethics requirements (3) reach a contractual understanding with client for the terms and conditions of the audit engagement

Answer 44

Pre-engagement activities

Question 45

Decision whether or not to accept a new client or to continuing providing services to existing clients

Answer 45

Client acceptance or continuance

Question 46

The public accounting firm that has been terminated or has voluntarily withdrawn from an audit engagement

Answer 46

Predecessor auditor

Question 47

To reduce the risk of accepting a problem client, auditing standards require a prospective auditor to initiate contact with and attempt to obtain basic information directly from the predecessor regarding issues that reflect directly on the integrity of management

Answer 47

Communications with predecessor auditor

Question 48

The responsibilities principle requires auditors to comply with appropriate ethical requirements for each audit engagement: two important requirements (1) independence (2) due care

Answer 48

compliance with independence and ethical requirements

Question 49

This letter sets forth the understanding with the client, including in particular (1) the objectives of engagement (2) management's responsibilities (3) auditors' responsibilities (4) any limitations of the engagement

Answer 49

Engagement letter

Question 50

Comprehensive list of the specific audit procedures that the audit team needs to perform to gather sufficient appropriate evidence on which to case their opinions on the financial statements

Answer 50

Audit plan

Question 51

Should include all team members (engagement partner/quality assurance partner) and focus on the financial statement accounts that represent the highest risk of material misstatement. Also brainstorming sessions: (1) ensure that all audit team members are informed about potential risks in the engagement (2) increase team members' awareness for potential fraud

Answer 51

Staffing the engagement- planning team meetings

Question 52

External auditors should consider objectivity and competence

Answer 52

Internal auditors

Question 53

Standards that identify necessary qualifications and characteristics or auditors and guide the conduct of the audit examination

Answer 53

Generally accepted auditing standards

Question 54

The specialized actions auditors take to obtain evidence in an egagement

Answer 54

Auditing procedures

Question 55

The audit quality guides that apply to all audits

Answer 55

Auditing standards

Question 56

Audit procedures to gain understanding of clients and risks associated with the client

Answer 56

Risk assessment

Question 57

Audit procedures to test the operating effectiveness of internal controls

Answer 57

Tests of control

Question 58

Audit procedures to gather evidence about management assertions related to amounts and disclosures in the financial statements

Answer 58

Substantive procedures

Question 59

vouching, tracing, scanning

Answer 59

inspection

Question 60

An audit procedure in which an auditor selects an item of financial information, usually from a journal or ledger and follows its path back through the processing steps to its origin

Answer 60

Vouching

Question 61

An audit procedure in which the auditor selects a basic source document and follows its processing path forward to find its final recording in a summary journal or ledger. In practice, however, the term tracing may be used to describe following the path in either direction

Answer 61

tracing

Question 62

Audit procedure- way auditors exercise their general alertness to unusual items and events in clients' documentation

Answer 62

scanning

Question 63

Examining property, plant and equipment: inventory, and securities certificates. Physical inspection provides compelling evidence of existence and may provide tentative evidence of valuation

Answer 63

Inspection of tangible assets

Question 64

View clients' physical facilities and personnel on an inspection tour. Can produce general awareness of events in clients' office

Answer 64

observation

Question 65

Procedure that generally involves the collection of oral (sometimes written) evidence from independent parties and management

Answer 65

Inquiry

Question 66

Procedure that can produce evidence of existence and rights and obligations and sometimes of valuation and cutoff. Auditors typically limit use to specific transactions

Answer 66

Confirmation

Question 67

Used to provide evidence of valuation for all other financial data. Mathematical evidence can serve the objectives of existence and valuation

Answer 67

Recalculation

Question 68

Can involve any client control procedure. Auditor can verify that an accounts receivable aging schedule was prepared properly. Like recalculation but broader

Answer 68

Reproformance

Question 69

Auditors can evaluate financial statement accounts by developing expectations about what an account balance should be based on an analysis of relevant non/financial data. Required to use when planning and when performing review of financial statements near the end of the audit before audit report is issued

Answer 69

Analytical procedures

Question 70

The written basis for the auditors' conclusions that provides the necessary support for the auditor's assertions and representations made in the auditors' report

Answer 70

Audit documentation

Question 71

The audit documentation containing information of continuing audit significance for current and past audits of the same client

Answer 71

Permanent files

Question 72

Include all client acceptance or continuance documentation along with planning documentation for the year under audit (planning memorandum)

Answer 72

Current files

Question 73

The probability that the information circulated by an entity will be false or misleading

Answer 73

Information risk

Question 74

The risk that the auditor will express an inappropriate opinion when the financial statements are materially misstated (i.e. giving an unmodified opinion on fin state that are misleading b/c of material misstatements that auditors failed to discover)

Answer 74

Audit risk

Question 75

The deliberate fraud committed by management that injures investors and creditors through materially misstated information. Auditor is responsible to design procedures to provide reasonable assurance that frauds are detected

Answer 75

Management fraud risk