Deck 1: The Demand for Audit and Other Assurance Services

Question 1

Discuss the differences and similarities between the roles of accountants and auditors.What additional expertise must an auditor possess beyond that of an accountant?

Answer 1

The role of accountants is to record, classify, and summarize economic events in a logical manner for the purpose of providing financial information for decision making.To provide relevant information, accountants must have a thorough understanding of the principles and rules that provide the basis for preparing the accounting information.In addition, accountants must develop a system to ensure that the entity's economic events are properly recorded on a timely basis and at a reasonable cost.
The role of auditors is to determine whether the recorded information prepared by accountants properly reflects the economic events that occurred during the accounting period.Because U.S.or international standards provide the criteria for evaluating whether financial information is properly recorded, auditors must thoroughly understand those accounting standards.In addition to understanding accounting, the auditor must possess expertise in the accumulation and interpretation of audit evidence.It is this expertise that distinguishes auditors from accountants.Determining the proper audit procedures, deciding the number and types of items to test, and evaluating the results are unique to the auditor.

Question 2

The Sarbanes-Oxley Act is widely viewed as having ushered in sweeping changes to auditing and financial reporting.

Answer 2

True

Question 3

The criteria by which an auditor evaluates the information under audit may vary with the information being audited.

Answer 3

True

Question 4

Recording, classifying, and summarizing economic events in a logical manner for the purpose of providing financial information for decision making is commonly called:

A)finance.
B)auditing.
C)accounting.
D)economics.

Question 5

The criteria used by an external auditor to evaluate published financial statements are known as generally accepted auditing standards.

Question 6

The Sarbanes-Oxley Act applies to which of the following companies?

A)All companies
B)Privately held companies
C)Public companies
D)All public companies and privately held companies with assets greater than $500 million

Question 7

Any service that requires a CPA firm to issue a report about the reliability of an assertion that is made by another party is a(n):

A)accounting and bookkeeping service.
B)attestation service.
C)assurance service.
D)tax service.

Question 8

In the audit of historical financial statements, what accounting criteria is most common?

A)Regulatory accounting principles
B)Applicable international accounting standards
C)Applicable U.S.accounting standards
D)B and C
E)All of the above

Question 9

Which of the following is considered audit evidence?

A)
B)
C)
D)

Question 10

A correct relationship among the auditor, the client, and the external users is:

A)management of a public company hires the independent auditor.
B)the audit committee of a private company hires the independent auditor.
C)the client provides capital to the external users.
D)the external users can rely upon the auditor's report to reduce information risk.

Question 11

The Sarbanes-Oxley Act establishes standards related to the audits of privately held companies.

Question 12

An auditor must be competent and have an independent mental attitude.

Question 13

________ risk reflects the possibility that the information upon which the business decision was made was inaccurate.

A)Client acceptance
B)Information
C)Business
D)Control

Question 14

Evidence is paramount to audit and attestation engagements.List the four basic types of audit evidence.

Question 15

Explain what is meant by information risk, and list the four causes of this risk.

Question 16

The most common way for users to obtain reliable information is to:

A)have an internal audit.
B)have an independent audit.
C)verify all information individually.
D)verify the information with management.

Question 17

Three common types of attestation services are:

A)audits of historical financial statements, reviews of historical financial statements, and audits of internal control over financial reporting.
B)audits of historical financial information, verifications of historical financial information, and attestations regarding internal controls.
C)reviews of historical financial information, verifications of future financial information, and attestations regarding internal controls.
D)audits of historical financial information, reviews of controls related to investments, and verifications of historical financial information.

Question 18

In "auditing" financial accounting data, the primary concern is with:

A)determining whether recorded information properly reflects the economic events that occurred during the accounting period.
B)determining if fraud has occurred.
C)determining if taxable income has been calculated correctly.
D)analyzing the financial information to be sure that it complies with government requirements.

Question 19

An accountant:

A)must possess expertise in the accumulation of audit evidence.
B)must decide the number and types of items to test.
C)must have an understanding of the principles and rules that provide the basis for preparing the accounting information.
D)must be a CPA.

Question 20

The trait that distinguishes auditors from accountants is the:

A)auditor's ability to interpret accounting principles generally accepted in the United States.
B)auditor's education beyond the Bachelor's degree.
C)auditor's ability to interpret FASB Statements.
D)auditor's accumulation and interpretation of evidence related to a company's financial statements.

Question 21

What is an engagement to attest on internal control over financial reporting?

Question 22

To perform an audit, it is necessary for the information to be in a verifiable form and there must be some criteria by which the auditor can evaluate the information.Detail the information and criteria that would be used when:
(A)an independent CPA firm audits a company's historical financial statements.
(B)an Internal Revenue Service auditor audits that same company's tax return.
(C)an internal auditor performs an operational audit to evaluate whether the company's computerized payroll processing system is operating efficiently and effectively.

Question 23

The Sarbanes-Oxley Act prohibits a CPA firm that audits a public company from providing which of the following types of services to that company?

A)Reviews of quarterly financial statements
B)Preparation of corporate tax returns
C)Most consulting services
D)Tax services

Question 24

An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is classified as a(n):

A)audit of financial statements.
B)compliance audit.
C)operational audit.
D)production audit.

Question 25

Section 404 of the Sarbanes-Oxley Act requires public companies to have an external auditor attest to their internal control over financial reporting.

Question 26

CPA firms are never allowed to provide bookkeeping services for clients.

Question 27

One objective of an operational audit is to:

A)determine whether the financial statements fairly present the entity's operations.
B)determine if the auditee is in compliance with GAAP.
C)make recommendations for improving performance.
D)report on the entity's relative success in attaining profit maximization.

Question 28

Two types of attestation services provided by CPA firms are audits and reviews.Discuss the similarities and differences between these two types of attestation services.Which type provides the least assurance?

Question 29

The primary purpose of a compliance audit is to determine whether the financial statements are prepared in compliance with generally accepted accounting principles.

Question 30

Most public companies' audited financial statements are available on the SEC's EDGAR database.

Question 31

Attestation services on information technology include WebTrust services and SysTrust services.Which of the following statements most accurately describes SysTrust services?

A)SysTrust services provide assurance on business processes, transaction integrity and information processes.
B)SysTrust services provide assurance on system reliability in critical areas such as security and data integrity.
C)SysTrust services provide assurance on internal control over financial reporting.
D)SysTrust services provide assurance as to whether accounting personnel are following procedures prescribed by the company controller.

Question 32

An examination of part of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness is what type of audit?

A)Operational audit
B)Compliance audit
C)Financial statement audit
D)Production audit

Question 33

Which of the following services provides the lowest level of assurance on a financial statement?

A)A review
B)An audit
C)Neither service provides assurance on financial statements.
D)Each service provides the same level of assurance on financial statements.

Question 34

What is a WebTrust engagement?
What is a SysTrust engagement?
How do they differ?

Question 35

Which of the following is not a SysTrust Services principle as defined by the AICPA?

A)Online privacy
B)Availability
C)Processing integrity
D)Operational integrity

Question 36

Which of the following audits can be regarded as generally being a compliance audit?

A)IRS agents' examinations of taxpayer returns
B)GAO auditor's evaluation of the computer operations of governmental units
C)An internal auditor's review of a company's payroll authorization procedures
D)A CPA firm's audit of a public company

Question 37

Discuss the similarities and differences between financial statement audits, operational audits, and compliance audits.Give an example of each type.

Question 38

Which of the following are required to have a written report regarding the assertion of another party?

A)
B)
C)
D)

Question 39

What are the five categories of attestation services?

Question 40

Which one of the following is more difficult to evaluate objectively?

A)Presentation of financial statements in accordance with generally accepted accounting principles
B)Compliance with government regulations
C)Efficiency and effectiveness of operations
D)All three of the above are equally difficult.

Question 41

Discuss the similarities and differences between the roles of independent auditors, GAO auditors, internal revenue agents, and internal auditors.

Question 42

The primary role of the United States General Accounting Office is the enforcement of the federal tax laws as defined by Congress and interpreted by the courts.

Question 43

Results of compliance audits are typically reported to the company's management rather than to a broad spectrum of outside users.

Question 44

The three requirements for becoming a CPA include all but which of the following?

A)Uniform CPA examination requirement
B)Educational requirements
C)Character requirements
D)Experience requirement

Question 45

List and discuss the three primary requirements to become a CPA.

Question 46

The use of the Certified Public Accountant title is regulated by:

A)the federal government.
B)state law through a licensing department or agency of each state.
C)the American Institute of Certified Public Accountants through the licensing departments of the tax and auditing committees.
D)the Securities and Exchange Commission.