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ACCT 460 Chapter 1
Auditing 460
44
Accounting
04/02/2010

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Term
Information risk
Definition
The risk that the information used by investors, creditors, and others to assess business risk is not accurate
Term
Integrated Audit
Definition
As required by the Sarbanes-Oxley Act and the Public Company Accounting Oversight Board, an audit that includes providing assurance on both the financial statements and internal control over financial reporting
Term
Assurance Services
Definition
A broad range of professional services, performed by CPAs, that improve the quality of information for decision makers
Term
Attest Engagement
Definition
An examination, a review, or an agreed-upon procedures report on subject matter (or an assertion about subject matter) that is issued by a practitioner
Term
Audit
Definition
A process of gathering evidence sufficient to provide a high level of assurance that a client’s financial statements follow GAAP (or another appropriate basis)
Term
Financial Statement Audit
Definition
type of audit to determine whether financial statements have been prepared in accordance with GAAP
Term
Operational Audit
Definition
type of audit to evaluate the efficiency or effectiveness of a business process
Term
Auditing Standards Board (ASB)
Definition
The ___ of AICPA issues Statements on Auditing Standards (SASs) for audits of financial statements. Standards apply only to audits of non-public companies.
Term
AICPA
Definition
The ____ issues Statements on Standards for Attest Engagements (SSAEs) for attest engagements other than financial statements
Term
Accounting and Review Services Committee
Definition
The ____ of AICPA issues Statements on Standards for Accounting and review Services (SSARSs) – for reviews and compilations of financial statements
Term
Statements of Position (SOPs)
Definition
____ express the AICPA’s position on the appropriate method of accounting for certain events or transactions
Term
Financial Accounting Standards Board (FASB)
Definition
The ____ is designated by the AICPA as having the authority to establish GAAP for entities other than governments
Term
Governmental Accounting Standards Board (GASB)
Definition
The _____ was formed in 1984 to establish and improve the standards of financial accounting for state and local government entities
Term
Federal Accounting Standards Advisory Board (FASAB)
Definition
The ____ was established in 1990 to develop accounting standards for the US government
Term
Agreed-upon procedures engagement
Definition
An attest engagement in which the CPAs agree to perform procedures for a specified party and issue a report that is restricted to use by that party
Term
Assertion
Definition
A representation or declaration made by the responsible party, typically management or the entity
Term
Business risk
Definition
The risk assumed by investors or creditors that is associated with the company's survival and profitability
Term
Compliance audit
Definition
An audit to measure the compliance of the organization with some established criteria (e.g., laws and regulations, or internal control policies and procedures)
Term
c. It created the Public Company Accounting Oversight Board (PCAOB) as a replacement for the Financial Accounting Standards Board.
Definition
Which of the following is not correct relating to the Sarbanes-Oxley Act?
a.It toughens penalties for corporate fraud.
b.It restricts the types of consulting CPAs may perform for audit clients.
c.It created the Public Company Accounting Oversight Board (PCAOB) as a replacement for the Financial Accounting Standards Board.
d.It eliminates a significant portion of the accounting profession's system of self-regulation.
Term
b.Different interests may exist between the company preparing the statements and the persons using the statements.
Definition
Which of the following best describes the reason why independent auditors report on financial statements?
a.A management fraud may exist and it is more likely to be detected by independent auditors.
b.Different interests may exist between the company preparing the statements and the persons using the statements.
c.A misstatement of account balances may exist and is generally corrected as the result of the independent auditors' work.
d.Poorly designed internal control may be in existence.
Term
a.Future improvements to accomplish the goals of management.
Definition
Operational auditing is primarily oriented toward:
a.Future improvements to accomplish the goals of management.
b.The accuracy of data reflected in management's financial records.
c.The verification that a company's financial statements are fairly presented.
d.Past protection provided by existing internal control.
Term
a. Agreed-upon procedures report.
Definition
A summary of findings rather than assurance is most likely to be included in a(n):
a.Agreed-upon procedures report.
b.Compilation report.
c.Examination report.
d.Review report.
Term
A.Auditing Standards Board.
Definition
The Statements on Auditing Standards have been issued by the:
A.Auditing Standards Board.
B. Financial Accounting Standards Board.
C. Securities and Exchange Commission.
D. Federal Bureau of Investigation.
Term
A. Business Risk.
Definition
The risk associated with a company's survival and profitability is referred to as:
A. Business Risk.
B. Information Risk.
C. Detection Risk.
D. Control Risk.
Term
C. Statements on Auditing Standards (SASs).
Definition
The serially-numbered pronouncements issued by the Auditing Standards Board over a period of years are known as:
A. Auditing Statements of Position (ASPs).
B. Accounting Series Releases (ASRs).
C. Statements on Auditing Standards (SASs).
D. Statements on Auditing Principles (SAPs).
Term
B. Conducts operational audits and reports the results to Congress.
Definition
The Government Accountability Office (GAO):
A. Is primarily concerned with rapid processing of all accounts payable incurred by the federal government.
B. Conducts operational audits and reports the results to Congress.
C. Is a multinational organization of professional accountants.
D. Is primarily concerned with budgets and forecasts approved by the SEC.
Term
C. Members, regardless of whether they are in public practice, are required to meet such requirements.
Definition
Which statement is correct with respect to continuing professional education (CPE) requirements of members of the AICPA?
A. Only members employed by the AICPA are required to take such courses.
B. Only members in public practice are required to take such courses.
C. Members, regardless of whether they are in public practice, are required to meet such requirements.
D. There is no requirement for members to participate in CPE.
Term
A. State Boards of Accountancy.
Definition
The right to practice as a CPA is given by which of the following organizations?
A. State Boards of Accountancy.
B. The AICPA.
C. The SEC.
D. The General Accounting Office.
Term
C. Compliance audit.
Definition
Which of the following terms best describes the audit of a taxpayer's tax return by an IRS auditor?
A. Operational audit.
B. Internal audit.
C. Compliance audit.
D. Government audit.
Term
A. Professional standards for CPAs.
Definition
Historically, which of the following has the AICPA been most concerned with providing?
A. Professional standards for CPAs.
B. Professional guidance for regulating financial markets.
C. Standards guiding the conduct of internal auditors.
D. Staff support to Congress.
Term
D. Securities and Exchange Commission.
Definition
The organization charged with protecting investors and the public by requiring full disclosure of financial information by companies offering securities to the public is the:
A. Auditing Standards Board.
B. Financial Accounting Standards Board.
C. Government Accounting Standards Boards.
D. Securities and Exchange Commission.
Term
c. attest services are a subset of assurance services
Definition
Which of the following best describes the relationship between assurance services and attest services?
a. While attest services involve financial data, assurance services involve nonfinancial data
b. While attest services require objectivity, assurance services do not require objectivity
c. Attest services are a subset of assurance services
d. Attest and assurance services are different terms referring to the same types of services
Term
a. Client's management
Definition
Which of the following has primary responsibility for the fairness of the representations made in financial statements?
a. Client's management
b. Independent auditor
c. Audit committee
d. AICPA
Term
a. Provide assurance to investors and other outsiders that the financial statements are reliable
Definition
The most important benefit of having an annual audit by a public accounting firm is to:
a. Provide assurance to investors and other outsiders that the financial statements are reliable
b. Enable officers and directors to avoid personal responsibility for any misstatements in the financial statements
c. Meet the requirements of government agencies
d. Provide assurance that illegal acts, if any exist, will be brought to light
Term
a. Establish independence standards for auditors of public companies
c. Establish auditing standards for audits of public companies
d. Sanction registered audit firms
Definition
The Sarbanes Oxley act created the public company accounting oversight board (ACAOB) which of the following is the responsibility of the board?
a. Establish independence standards for auditors of public companies
b. Review financial reports filed with the SEC
c. Establish auditing standards for audits of public companies
d. Sanction registered audit firms
Term
b. Review financial reports filed with the SEC
Definition
The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board (PCAOB). Which of the following is not one of the responsibilities of that board?
a. Establish independence standards for auditors of public companies
b. Review financial reports filed with the SEC
c. Establish auditing standards for audits of public companies
d. Sanction registered audit firms
Term
d. Public Company Accounting Oversight Board
Definition
Which of these organizations has the responsibility to perform inspections of auditors of public companies?
a. American Institute of Certified Public Accountants
b. Securities and Exchange Commission
c. Financial Accounting Standards Board
d. Public Company Accounting Oversight Board
Term
d. Compliance
Definition
Governmental auditing in addition to including audits of financial statements, often includes audits of efficiency effectiveness and:
a. Adequacy
b. Evaluation
c. Accuracy
d. Compliance
Term
c. Audit committee board of directors
Definition
In general, internal auditors’ indolence will be greatest when they report directly to the:
a. Financial Vice President
b. Corporate controller
c. Audit committee of the board of directors
d. Chief executive officer
Term
d. Ethical scandals at the AICPA
Definition
which of the following did not precipitate the passage of the Sarbanes oxley act of 2002 to regulate public accounting firms:
a. Disclosures related to accounting irregularities at Enron and WorldCom
b. Restatements of financial statements by a number of public companies
c. Conviction of the accounting firm of Arthur Andersen LLP
d. Ethical scandals at the AICPA
Term
c. The Federal Accounting Standards Advisory Board
Definition
which of the following organizations establishes accounting standards for u.s. government agencies?
A. The Financial Accounting Standards Board
b. The Governmental Accounting Standards Board
c. The Federal Accounting Standards Advisory Board
d. The Public Company Accounting Oversight Board
Term
d. Forensic audits are usually performed in situations in which fraud has been found or is suspected
Definition
which of the following is correct about forensic audits?
a. All audit engagements are forensic in nature
b. Forensic audits are performed by law firms; they are not performed by CPA firms
c. Forensic audits are equivalent to compliance audits
d. Forensic audits are usually performed in situations in which fraud has been found or is suspected
Term
a. To determine the nature, timing, and extent of audit testing
Definition
what best describes the purpose of the auditors’ consideration of internal control in a financial statement audit for a nonpublic company?
a. To determine the nature, timing, and extent of audit testing
b. To make recommendations to the client regarding improvements in internal control
c. To train new auditors on accounting and control systems
d. To identify opportunities for fraud within the client's operations
Term
b. An audit of a company's policies and procedures for adhering to environmental laws and regulations
Definition
which of the following is an example of a compliance audit?
a. An audit of financial statements
b. An audit of a company's policies and procedures for adhering to environmental laws and regulations
c. An audit of a company's internal control over financial reporting
d. An audit of the efficiency and effectiveness of a company's legal department