Term
| Management assertions related to account balances at period end: |
|
Definition
Existence
Completeness
Valuation and Allocation
Rights and Obligations |
|
|
Term
|
Definition
| All transactions and events that should have been recorded have been recorded. |
|
|
Term
| Which assertion is not associated with classes of transactions and events? |
|
Definition
|
|
Term
|
Definition
| Transactions and events that have been recorded have occurred and pertain to the entity. |
|
|
Term
|
Definition
| Amounts and other data relating to recorded transactions and events have been recorded appropriately. |
|
|
Term
|
Definition
| Transactions and events have been recorded in the proper accounts. |
|
|
Term
|
Definition
| Transactions and events have been recorded in the correct accounting period. |
|
|
Term
| Management assertions related to classes of transactions and events for the period under audit: |
|
Definition
Completeness
Classification
Accuracy
Cutoff
Occurence |
|
|
Term
|
Definition
| Assets, liabilities, and equity interests exist. |
|
|
Term
|
Definition
| Assets, liabilities, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation adjustments are recorded appropriately. |
|
|
Term
|
Definition
| The entity holds or controls the rights to assets, and liabilities are the obligation of the entity. |
|
|
Term
| Classification and Understandability |
|
Definition
| Financial and other information is appropriately presented and described and disclosures are clearly expressed. |
|
|
Term
| Management assertions related to presentation and disclosure: |
|
Definition
Occurrence
Rights and Obligations
Completeness
Accuracy and Valuation
Classification and Understandability |
|
|
Term
| Inherent Risk is evaluated to help the auditor assess... |
|
Definition
| The susceptibility of a financial statement assertion to a material misstatement assuming there are no inherent controls. |
|
|
Term
| Primary purpose of audit procedures: |
|
Definition
| To gather corroborative audit evidence about management's assertions regarding the client's financial statements. |
|
|
Term
| Terms of the engagement that exist between the client and the CPA firm: |
|
Definition
| Auditors assert that their primary responsibility is to plan and perform the audit in order to provide reasonable assurance as to the detection of material misstatement due to error or fraud. |
|
|
Term
| When a company's financial statements contain a departure from GAAP with which the auditor concurs, the departure should be explained in: |
|
Definition
| An explanatory paragraph after the opinion paragraph. |
|
|
Term
| When another firm audited parts of the financial statements, must the current auditor refer to this in the report? |
|
Definition
|
|
Term
All of the following would require an emphasis of matter paragraph except for:
a) the existence of material related party transactions.
b) important events occurring subsequent to the balance sheet date.
c) the lack of auditor independence.
d) material uncertainties disclosed in the footnotes. |
|
Definition
answer C
-because lack of auditor independence would need a disclaimer of opinion |
|
|
Term
| Under AICPA auditing standards, the primary auditor issuing the opinion on the financial statements is called the: |
|
Definition
|
|
Term
An auditor can express a qualified opinion due to a:
I. Departure from GAAP
II. Lack of sufficient evidence
III. Lack of consistency |
|
Definition
|
|
Term
| When the overall financial statements are so materially misstated that they do not present fairly the financial position or results of operations and cash flows in conformity with GAAP, which type of opinion is issued? |
|
Definition
|
|
Term
True/False?
When a qualified opinion is issued, an explanatory paragraph is added immediately after the opinion paragraph to explain the nature of the qualification that affects the opinion. |
|
Definition
|
|
Term
| When an adverse opinion is issued, a scope paragraph would be: |
|
Definition
|
|
Term
When there is a scope restriction, what type of audit report can be issued?
I. Unqualified opinion
II. Qualification of scope and opinion
III. Disclaimer of opinion
IV. Any of these |
|
Definition
|
|
Term
If the financial statements include an income statement and a balance sheet but exclude the statement of cash flows, the auditors:
a) should issue a qualified opinion due to the departure from GAAP.
b) should issue a qualified opinion because the missing statement of cash flows constitutes a scope limitation.
c) should include the statement of cash flows, modify the report and issue an unqualified opinion. |
|
Definition
|
|
Term
True/False
When an auditor discovers a highly material GAAP violation in the financial statements and the client refuses to correct it, the auditor should issue a disclaimer of opinion. |
|
Definition
|
|
Term
| The auditor performs analytical procedures to... |
|
Definition
| ...identify unexpected changes between his expectations for the current year and the prior year |
|
|
Term
| A higher control risk will mean that... |
|
Definition
| ...less internal control testing is done. If less internal control testing is done the auditor will gather more substantive evidence. |
|
|
Term
Which element(s) is/are pervasive to the application of generally accepted auditing standards, particularly the standards of fieldwork and reporting?
a) The elements of materiality and audit risk.
b) The element of internal control.
c) The element of corroborating evidence.
d) The element of reasonable assurance. |
|
Definition
| answer A: Materiality and audit risk |
|
|
Term
All of the following are inherent risk factors that are pervasive to the financial statements except:
a) Highly complex significant transactions.
b) Non-routine transactions.
c) Classes of transactions are not processed systematically.
d) Supplies inventory is difficult to count. |
|
Definition
| d) Supplies inventory is difficult to count. |
|
|
Term
| On the basis of audit evidence gathered and evaluated, an auditor decides to increase the assessed level of risk of material misstatement from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would: |
|
Definition
|
|
Term
| The primary responsibility for preventing fraud in an organization lies with _____. |
|
Definition
| The organization's management. |
|
|
Term
The auditor can respond to an increased risk of fraud by doing all of the following except:
Assigning more experienced personnel to the audit.
Heavily emphasizing the importance of professional skepticism.
Assigning more experienced personnel to the audit.
Increasing detection risk.
Taking steps to obtain more reliable evidence. |
|
Definition
| Increasing detection risk. |
|
|
Term
| Explain the audit risk model using a mathematical formula. |
|
Definition
AR = RMM x DR
AR = Audit risk
RMM = Risk of material misstatement
DR = Detection risk
Audit risk consists of:
1. The risk that the balance or class and related assertions contain misstatements that could be material to the financial statements when aggregated with misstatements in other balances or classes. These risks exist independently of the audit.
2. The risk that the auditor will not detect such misstatements (detection risk). This risk can be controlled by the auditor through the scope of the audit procedures performed. |
|
|
Term
| Practitioners who perform reviews and compilations are referred to in the SSARS standards as: |
|
Definition
|
|
Term
| The title of a review report issued for a public company's quarterly financial statements is titled what? |
|
Definition
| Report of Independent Registered Public Accounting Firm. |
|
|
Term
| An examination results in a conclusion that represents ________ assurance. |
|
Definition
|
|
Term
Which of the following types of engagement reports would provide positive assurance?
a) An examination.
b) A review.
c) An agreed-upon procedures engagement.
d) A compilation. |
|
Definition
|
|
Term
For reviews, an accountant does which of the following?
a) Obtain an understanding of internal controls.
b) Performs tests of controls.
c) Performs tests of transactions.
d) None of the above. |
|
Definition
|
|
Term
| Evidence for a review engagement consists primarily of: |
|
Definition
Analytical Procedures
(NOT inquiries or tests of details) |
|
|
Term
| An individual who is not party to the contract between a CPA and the client, but who is known by both and is intended to receive certain benefits from the contract is known as: |
|
Definition
| A third-party beneficiary. |
|
|
Term
| Privity of contract exists between: |
|
Definition
|
|
Term
| The assessment against a defendant of that portion of the damage caused by the defendant's negligence is called: |
|
Definition
| separate and proportionate liability. |
|
|
Term
| The assessment against a defendant of the full loss suffered by a plaintiff regardless of other parties' liability in the wrongdoing is called: |
|
Definition
| joint and several liability. |
|
|
Term
| The legal term for when an auditor issues an audit opinion, knowing that an adequate audit was not performed is a: |
|
Definition
|
|
Term
| The preferred defense in third party suits is: |
|
Definition
| non negligent performance. |
|
|
Term
Under the Securities Act of 1933:
a) any party who relies on the company's audited financial statements can recover from the auditors.
b) third-party users must prove that the auditor was negligent.
c) the burden of proof is on the defendant.
d) auditors face potential legal exposure for information contained in the Form 10-Q. |
|
Definition
| c) the burden of proof is on the defendant. |
|
|
Term
True/False?
Under the Securities Act of 1933, a third party plaintiff does not have the burden of proof that he or she relied on the financial statements or that the auditor was negligent or fraudulent in doing the audit. Rather, the plaintiff need only prove that the audited financial statements contained a material misrepresentation or omission. |
|
Definition
|
|
Term
| Under the Securities Exchange Act of 1934, most of the litigation against the auditor has been generated because of the auditor's involvement with the: |
|
Definition
|
|
Term
| Which of the auditor's defenses is ordinarily not available when lawsuits are filed by a third party? |
|
Definition
|
|
Term
| Proper segregation of functional responsibilities calls for separation of: |
|
Definition
| authorization, recording, and custody. |
|
|
Term
| Internal control reports issued by public companies must identify the framework used to evaluate the effectiveness of internal control. What is the most common framework in the U.S.? |
|
Definition
| Internal Control - Integrated Framework - COSO |
|
|
Term
| Narratives, flowcharts, and internal control questionnaires are three common methods of: |
|
Definition
| documenting the auditor's understanding of internal controls. |
|
|
Term
| To determine if significant internal control deficiencies are material weaknesses, they must be evaluated on their: |
|
Definition
| Likelihood and Significance |
|
|
Term
True/False?
A material weakness is always a significant deficiency. |
|
Definition
|
|
Term
True/False?
A material weakness is less significant that a control deficiency. |
|
Definition
|
|
Term
True/False?
A control deficiency is always a material weakness. |
|
Definition
|
|
Term
True/False?
A significant deficiency is always a material weakness. |
|
Definition
|
|
Term
Which of the following is not a likely procedure to support the operating effectiveness of internal controls?
a) Inquiry of client personnel.
b) Observation of control-related activities.
c) Reperformance of client procedures.
d) Completing an internal control questionnaire. |
|
Definition
| d) Completing an internal control questionnaire. |
|
|
Term
True/False?
Auditing standards prohibit reliance on the work of internal auditors due to the lack of independence of the internal auditors. |
|
Definition
|
|
Term
| How must significant deficiencies and material weaknesses be communicated to those charged with governance? |
|
Definition
| Written communication is required. |
|
|
Term
| Management assertions are: |
|
Definition
| directly related to the financial reporting framework used by the company, usually U.S. GAAP or IFRS. |
|
|
Term
| GAAP requires that changes in accounting principles be to a: |
|
Definition
|
|
Term
| PCAOB Auditing Standard No. 2 requires the audit of internal control over financial reporting to be integrated with: |
|
Definition
| the audit of the financial statements. |
|
|
