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Auditing Concepts and Procedures, Exams of Nursing

Chamberlain College of NursingNursing

Various auditing concepts and procedures, including the roles and responsibilities of different auditing professionals, the structure and objectives of an audit, the principles of quality control, the differences between business failures and audit failures, the concept of audit risk, the legal defenses available to auditors, the concepts of privity and foreseeability in third-party liability, the use of generalized audit software, the audit objectives for accounts receivable, and the importance of cutoff procedures. A comprehensive overview of the key elements of the auditing process and the legal and technical considerations that auditors must navigate.

Typology: Exams

2023/2024

Available from 10/21/2024

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750 Final Exam 1 Questions with Answers Latest Update
2024 Graded A+
three size categories used to describe CPA firms: Correct Answer - big four
international firms
- national and regional firms
- local firms
Common activities offered by a CPA firm Correct Answer - accounting and
bookkeeping services
- tax services
- management consulting and risk advisory services
three main factors influence the organizational structure of all firms: Correct Answer -
the need for independence from clients
- the importance of a structure to encourage competence
- the increased litigation risk faced by auditors
six organizational structures available to CPA firms Correct Answer - proprietorship
- general partnership
- general corporation
- limited liability company
- limited liability partnership
0-2 years, performs most of the detailed audit work Correct Answer staff assistant
2-5 years, coordinates and is responsible for the performance of audit procedures,
including supervising and reviewing staff work Correct Answer senior or in-charge
auditor
5-10 years, helps the in-charge plan and manage the audit, reviews the in-charge work,
and manages relations with the client. A manager may be responsible for more than
one engagement at the same time Correct Answer manager and senior manager
10+ years, reviews the overall audit work and is involved in significant audit decisions,
they are an owner of the firm and therefore has the ultimate responsibility for conducting
the audit and serving the client Correct Answer partner
board created by the sarbanes-oxley act; oversees auditors of public companies and
broker-dealers, including establishing auditing, attestation, and quality control standards
and performing inspections of registered accounting firms Correct Answer Public
company accounting oversight board
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Download Auditing Concepts and Procedures and more Exams Nursing in PDF only on Docsity!

750 Final Exam 1 Questions with Answers Latest Update

2024 Graded A+

three size categories used to describe CPA firms: Correct Answer - big four international firms

  • national and regional firms
  • local firms Common activities offered by a CPA firm Correct Answer - accounting and bookkeeping services
  • tax services
  • management consulting and risk advisory services three main factors influence the organizational structure of all firms: Correct Answer - the need for independence from clients
  • the importance of a structure to encourage competence
  • the increased litigation risk faced by auditors six organizational structures available to CPA firms Correct Answer - proprietorship
  • general partnership
  • general corporation
  • limited liability company
  • limited liability partnership 0-2 years, performs most of the detailed audit work Correct Answer staff assistant 2-5 years, coordinates and is responsible for the performance of audit procedures, including supervising and reviewing staff work Correct Answer senior or in-charge auditor 5-10 years, helps the in-charge plan and manage the audit, reviews the in-charge work, and manages relations with the client. A manager may be responsible for more than one engagement at the same time Correct Answer manager and senior manager 10+ years, reviews the overall audit work and is involved in significant audit decisions, they are an owner of the firm and therefore has the ultimate responsibility for conducting the audit and serving the client Correct Answer partner board created by the sarbanes-oxley act; oversees auditors of public companies and broker-dealers, including establishing auditing, attestation, and quality control standards and performing inspections of registered accounting firms Correct Answer Public company accounting oversight board

a federal agency that oversees the orderly conduct of the securities markets; the SEC assists in providing investors in public corporations with reliable information upon which to make investment decisions Correct Answer Securities and Exchange Commission apply to the securities act of 1933 and must be completed and registered with the SEC when a company plans to issue new securities to the public Correct Answer form S- report filed to report significant events that are of interest to public investors Correct Answer form 8-K report must be filed annually within 60 or 90 days after the close of each fiscal year, depending on the size of the company Correct Answer form 10-K report must be filed quarterly for all publicly held companies Correct Answer form 10-Q a voluntary organization of CPAs that sets professional requirements, conducts research, and published materials relevant to accounting, auditing, advisory services, and taxes Correct Answer American Institute of Certified Public Accountants four major areas in which the AICPA has authority to set standards and make rules are as follows: Correct Answer - auditing standards

  • preparation, compilation, and review standards
  • other attestation standards
  • code of professional conduct statements issued by the international auditing and assurance standards board of the international federation of accountants to promote international acceptance of auditing standards Correct Answer international standards on auditing (ISAs) refers to AICPA auditing standards developed and issued in the form of Statements on Auditing Standards and codified in AU-C sections in the Codification of Auditing Standards Correct Answer generally accepted auditing standards pronouncements issued by the Auditing Standards Board of the AICPA applicable to audits of entities other than public issuers Correct Answer Statements on Auditing Standards applicable to entities outside of the United States Correct Answer international standards on auditing applicable to private entities in the US Correct Answer AICPA Auditing Standards applicable to US public companies and other SEC registrants including broker-dealers Correct Answer PCAOB auditing standards

the situation when a business is unable to repay its lenders or meet the expectations of its investors because of economic or business conditions Correct Answer business failure a situation in which the auditor issues an incorrect audit opinion as the result of an underlying failure to comply with the requirements of auditing standards Correct Answer audit failure the risk that the auditor will conclude after conducting an adequate audit that the financial statements are fairly stated and an unmodified opinion can therefore be issued when, in fact, they are materially misstated Correct Answer audit risk audit risk is unavoidable because Correct Answer auditors gather evidence only on a test basis and because well-concealed frauds are extremely difficult to detect the legal concept that a person has a duty to exercise reasonable care and diligence in the performance of obligations to another Correct Answer prudent person concept the three groups an auditor is most likely to rely on are Correct Answer employees, other CPA firms engaged to do part of the work, and specialists called upon to provide technical information Absence of reasonable care that can be expected of a person in a set of circumstances. For auditors, it is in terms of what other competent auditors would have done in the same situation. Correct Answer ordinary negligence Lack of even slight care, tantamount to reckless behavior, that can be expected of a person. Some states do not distinguish between ordinary and gross negligence. Correct Answer gross negligence the professional's obligation under the law to provide a reasonable level of care while performing work for those served Correct Answer legal liability four sources of auditor's legal liability: Correct Answer 1) Liability to clients.

  1. Liability to third parties under common law.
  2. Civil liability under the federal securities laws.
  3. Criminal liability. the most common source of lawsuits against CPAs is from ___________ Correct Answer clients The CPA firm normally uses one or a combination of four defenses when there are legal claims by clients: Correct Answer - lack of duty to perform the service
  • nonnegligent performance
  • contributory negligence
  • absence of casual connection

an auditor's legal defense under which the auditor claims that no contract existed to perform the disputed service Correct Answer lack of duty to perform an auditor's legal defense under which the auditor claims that the audit was performed in accordance with auditing standards Correct Answer nonnegligent performance an auditor's legal defense under which the auditor claims that the client failed to perform certain obligations and that it is the client's failure to perform those obligations that brought about the claimed damages Correct Answer contributory negligence an auditor's legal defense under which the auditor contends that the damages claimed by the client were not brought about by any act of the auditor Correct Answer absence of casual connection a common-law approach to third-party liability, established in 1931 in which ordinary negligence is insufficient for liability to third parties becuase of the lack of privity of contract between the third party and the auditor, unless third party is a primary beneficiary Correct Answer ultramares doctrine members of a limited class of users who the auditor is aware will rely on the financial statements Correct Answer foreseen users an unlimited class of users that the auditor should have reasonably been able to foresee as being likely users of financial statements Correct Answer foreseeable users The act makes it illegal to offer a bribe to an official of a foreign country for the purpose of exerting influence and obtaining or retaining business Correct Answer foreign corrupt practices act of 1977 liability for defrauding a person through knowing involvement with false financial statements Correct Answer criminal liability for accountants The AICPA and the profession can do a number of things to reduce practitioners' exposure to lawsuits: Correct Answer - seek protection from nonmeritorious litigation

  • improve auditing to better meet users' needs
  • educate users about the limits of auditing federal law passed in 1995 that significantly reduced potential damages in securities- related litigation Correct Answer private securities litigation reform act of 1995 process for understanding internal control and assessing control risk Correct Answer
  1. obtain and document understanding of internal control design and operation
  2. assess control risk
  3. design, perform, and evaluate tests of controls
  4. decide planned detection risk and substantive tests

there is a reasonable possibility that a material misstatement of the financial statements will not be prevented, or detected and corrected, on a timely basis Correct Answer material weakness To determine whether a significant internal control deficiency or deficiencies are a material weakness, they must be evaluated along two dimensions: Correct Answer likelihood and significance A five-step approach can be used to identify deficiencies, significant deficiencies, and material weaknesses: Correct Answer - identify existing controls

  • identify the absence of key controls
  • consider the possibility of compensating controls
  • decide whether there is a significant deficiency or material weakness
  • determine potential misstatements that could result a control elsewhere in the system that offsets the absence of a key control Correct Answer compensating control audit procedures to test the operating effectiveness of controls in support of reduced assessed control risk Correct Answer tests of controls procedures for tests of control Correct Answer - make inquiries of appropriate client personnel
  • examine documents, records, and reports
  • observe control-related activities
  • reperform client procedures an optional letter written by the auditor to a client's management containing the auditor's recommendations for improving any aspect of the client's business Correct Answer management letter The auditor will issue an unqualified opinion on internal control over financial reporting when two conditions exist: Correct Answer There are no identified material weaknesses as of the end of the fiscal year. There have been no restrictions on the scope of the auditor's work. When one or more material weaknesses exist, Correct Answer adverse opinion A scope limitation Correct Answer Qualified or Disclaimer of Opinion testing internal control for nonpublic and smaller public companies Correct Answer - reporting requirements
  • extent of required internal controls
  • extent of understanding needed
  • assessing control risk
  • extent of tests of controls needed three approaches used to tests the effectiveness of automated controls when auditing through the computer Correct Answer test data approach, parallel simulation, and embedded audit module approach method of auditing an IT system that uses the auditor's test of data to determine whether the client's computer program correctly processes valid and invalid transactions Correct Answer test data approach When using the test data approach, auditors have three main considerations: Correct Answer - test data should include all relevant conditions that the auditor wants tested
  • application programs tested by auditors' test data must be the same as those the client used throughout the year
  • test data must be eliminated from the client's records audit testing approach that involves the auditor's use of audit software, either purchased or programmed by the auditor, to replicate some part of a clients' application system Correct Answer parallel simulation testing a method of auditing transactions processed by IT whereby the auditor embeds a module in the client's application software to identify transactions with characters that are of interest to the auditor Correct Answer embedded audit module approach Although auditors may use one or any combination of testing approaches, they typically use Correct Answer test data to do tests of controls and substantive tests of transactions; parallel simulation for substantive testing, such as recalculating transaction amounts and footing master file subsidiary records of account balances; and embedded audit modules to identify unusual transactions for substantive testing. computer programs used by auditors that provide data retrieval, data manipulation, and reporting capabilities specifically oriented to the needs of auditors Correct Answer generalized audit software Generalized audit software provides three advantages: Correct Answer it is relatively easy to train audit staff in its use, even if they have had little audit-related IT training the software can be applied to a wide variety of clients with minimal customization it has the ability to do audit tests much faster and in more detail than using traditional manual procedures

addressed to the debtor but requests a response only when the debtor disagrees with the stated amount Correct Answer negative confirmation The major factors affecting sample size for confirming accounts receivable fall into several categories and include the following: Correct Answer Performance materiality Inherent risk (relative size of total accounts receivable, number of accounts, prior-year results, and expected misstatements) Control risk Achieved detection risk from other substantive tests (extent and results of substantive tests of transactions, substantive analytical procedures, and other tests of details) Type of confirmation (negatives normally require a larger sample size)