Auditing Fundamentals: Definitions, Standards, and Procedures, Exams of Accounting

Download Auditing Fundamentals: Definitions, Standards, and Procedures and more Exams Accounting in PDF only on Docsity! ACCT 5125W Midterm 1 questions with correct answers Occurence - ANSWER: ✔✔Assertions about classes of transactions and events for the period under audit: TERM means the transactions and events that have been recorded have occurred and pertain to the entity. Completeness - ANSWER: ✔✔Assertions about classes of transactions and events for the period under audit: TERM means all transactions and events that should have been recorded have been recorded. Authorization - ANSWER: ✔✔Assertions about classes of transactions and events for the period under audit: TERM means all transactions have been properly authorized. Accuracy - ANSWER: ✔✔Assertions about classes of transactions and events for the period under audit: TERM means amounts and other data relating to recorded transactions and events have been recorded appropriately. Cutoff - ANSWER: ✔✔Assertions about classes of transactions and events for the period under audit: TERM means transactions and events have been recorded in correct accounting period. Classification - ANSWER: ✔✔Assertions about classes of transactions and events for the period under audit: TERM means transactions and events have been recorded in the proper accounts. Existence - ANSWER: ✔✔Assertions about account balances at the period end: TERM means assets, liabilities and equity interests exist. Rights and obligations - ANSWER: ✔✔Assertions about account balances at the period end: TERM means the entity holds or controls the rights to assets, and liabilities are the obligations of the entity. Completeness - ANSWER: ✔✔Assertions about account balances at the period end: TERM means all assets, liabilities, and equity interests that should have been recorded have been recorded. Valuation and allocation - ANSWER: ✔✔Assertions about account balances at the period end: TERM means assets, liabilities, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded. Occurence and rights and obligations - ANSWER: ✔✔Assertions about presentation and disclosure: TERM means disclosed events, transactions and other matters have occurred and pertain to the entity. Completeness - ANSWER: ✔✔Assertions about presentation and disclosure: TERM means all disclosures should that should have been included in the financial statements have been included. Classification and understandability - ANSWER: ✔✔Assertions about presentation and disclosure: TERM means financial information is appropriately presented and described and disclosures are clearly expressed. Accuracy and valuation - ANSWER: ✔✔Assertions about presentation and disclosure: TERM means financial and other information are disclosed fairly and at appropriate amounts. Auditing - ANSWER: ✔✔Which is the most narrow: auditing, attesting, or assurance? Assurance - ANSWER: ✔✔Which is the most wide: auditing, attesting, or assurance? Auditing (definition) - ANSWER: ✔✔A systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of What is 'Purpose' within the Principles Underlying an Audit (ASB)? - ANSWER: ✔✔To express an opinion on the financial statements prepared by management, whose responsibility is to prepare the financial statements and to provide the auditor with information necessary to conduct the audit What is 'Responsibilities' within the Principles Underlying an Audit (ASB)? - ANSWER: ✔✔Have competence and capability; comply with ethical requirements; maintain professional skepticism; exercise professional judgment What is 'Performance' within the Principles Underlying an Audit (ASB)? - ANSWER: ✔✔Sufficient appropriate audit evidence supporting reasonable (not absolute) assurance that the financial statements are free of material misstatement What is 'Reporting' within the Principles Underlying an Audit (ASB)? - ANSWER: ✔✔Express an opinion, in the form of a written report, based on an evaluation of the audit evidence obtained; or state that an opinion cannot be expressed Corporate Governance (definition) - ANSWER: ✔✔The oversight mechanisms in place to help ensure proper stewardship over an entity's assets; management and the board of directors play primary roles, and the independent auditor plays a key facilitating role Board of Directors (defintion) - ANSWER: ✔✔Persons elected by the stockholders of a corporation to oversee management and to direct the affairs of the corporation Audit Committee (definition) - ANSWER: ✔✔A committee consisting of members of the board of directors, charged with overseeing the entity's system of internal control over financial reporting, internal and external auditors, and the financial reporting process; members typically must be independent of management Internal Control Audit (defintion) - ANSWER: ✔✔Implemented with Sarbanes-Oxley Act of 2002 requiring public companies to engage an external auditor to provide an opinion on the effectiveness of internal control in addition to an opinion on the financial statements Compliance Audit (definition) - ANSWER: ✔✔Determines the extent to which rules, policies, laws, covenants, or government regulations are followed by the entity being audited Operational Audit (defintion) - ANSWER: ✔✔A systematic review of part or all of an organization's activities to evaluate whether resources are being used effectively and efficiently Forensic Audit (definition) - ANSWER: ✔✔Used to detect or deter fraudulent activities Can you perform an audit for an organization that hasn't paid you for the last engagement? - ANSWER: ✔✔No - creates a conflict of interest! What should you ask the previous auditor during the client acceptance step? - ANSWER: ✔✔Why did you leave? What was the reason for the change in auditors? Tolerable Misstatement (defintion) - ANSWER: ✔✔Materiality used to establish the scope for the audit procedures for the individual account balances or disclosures What should an auditor use in determining overall materiality when planning the audit? - ANSWER: ✔✔The entity's income before taxes for period-to-date (e.g. 6 months). Who signs the engagement letter? - ANSWER: ✔✔The partner in charge of the audit and the chair of the audit committee What are 'Risk Assessment Procedures'? - ANSWER: ✔✔Used to obtain an understanding of the entity and its environment, including its internal control What are 'Tests of Controls'? - ANSWER: ✔✔Directed toward the evaluation of the effectiveness of the design and operation of internal controls What are 'Substantive Procedures'? - ANSWER: ✔✔Detect material misstatements in a transaction class, account balance, and disclosure component of the financial statements What does the substantive procedure 'Test of Details' do? - ANSWER: ✔✔Tests for errors or fraud in individual transactions, account balances, and disclosures What does the substantive procedure 'Analytical Procedure' do? - ANSWER: ✔✔Evaluates financial information through analysis of plausible relationships among financial and non-financial data When can the auditor conclude that the financial statements are fairly presented? - ANSWER: ✔✔Once it is determined that the aggregate misstatements are less than the overall materiality What is the purpose of assessing the business risks? - ANSWER: ✔✔-To understand the entity's business and transactions -To identify financial statement accounts likely to contain errors When is something considered material? - ANSWER: ✔✔When there is "a substantial likelihood that the...fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available."