Question 1

Define assurance, attestation, and auditing in the context of "lending credibility."

Accepted Answer

The answer of Define assurance, attestation, and auditing in the...

Question 2

Cutoff tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about the PCAOB assertion of:
A)presentation.
B)completeness.
C)rights.
D)existence.

Accepted Answer

Cutoff tests are designed to ensure that transactions that occurred during the period under audit are recorded in the correct period. By focusing on credit sales made before year-end that were recorded in the subsequent year, the auditor is testing for completeness. This is because if these sales are not recorded in the correct period, it could understate sales and accounts receivable balances at the year-end. The other assertions, such as presentation, rights, and existence, are not directly related to cutoff testing.

Question 3

An attestation engagement is one in which a CPA is engaged to:
A)issue, or does issue, a report on subject matter or an assertion about the subject matter that is the responsibility of another party.
B)provide tax advice or prepare a tax return based on financial information the CPA has not audited or reviewed.
C)testify as an expert witness in accounting, auditing or tax matters, given certain stipulated facts.
D)assemble prospective financial statements based on the assumptions of the entity's management without expressing any assurance.

Accepted Answer

An attestation engagement involves issuing a report on subject matter or an assertion about the subject matter that is the responsibility of another party, such as an audit, review, or compilation. Tax advice, expert witness testimony, and prospective financial statements do not fall under the scope of attestation engagements.

Question 4

The underlying conditions that create demand by users for reliable information include all of the following, except:
A)transactions are numerous and complex.
B)users lack professional skepticism.
C)users are separated from accounting records by distance and time.
D)financial decisions are important to investors and users.
E)decisions are time-sensitive.

Accepted Answer

The lack of professional skepticism among users is not a condition that creates demand for reliable information; rather, it is a potential barrier to the effective use of that information. The other choices—the complexity of transactions, the spatial and temporal separation of users from accounting records, the importance of financial decisions, and the time-sensitive nature of those decisions—are all factors that increase the need for accurate and timely information.

Question 5

Inquiries of warehouse personnel concerning possible obsolete or slow moving inventory items provide assurance about the ASB balance assertion of:
A)completeness.
B)existence.
C)presentation.
D)valuation.
E)rights and obligations.

Accepted Answer

Inquiries about obsolete or slow-moving inventory provide evidence about the valuation assertion. This assertion relies on whether the inventory is stated at the lower of cost or net realizable value. If inventory items are identified as obsolete or slow-moving, this indicates that they may not be worth their original cost and may need to be written down in value.

Question 6

The probability that the information circulated by a company will be false or misleading is referred to as:
A)business risk.
B)information risk.
C)assurance risk.
D)audit risk.

Accepted Answer

Information risk refers to the risk that information circulated by a company will be false or misleading, leading to incorrect decisions being made. Business risk refers to the risk associated with the operations and performance of the company, assurance risk refers to the risk that the information provided by management is not reliable, and audit risk refers to the risk that the financial statements may contain material misstatements.

Question 7

The accounting, auditing, and investigating agency of the U.S. Congress, headed by the U.S. Comptroller General, is known as
A)the Federal Bureau of Investigation (FBI).
B)the U.S. General Accountability Office (GAO).
C)the Internal Revenue Service (IRS).
D)the United States Legislative Auditors (USLA).

Accepted Answer

The U.S. General Accountability Office (GAO) is the accounting, auditing, and investigating agency of the U.S. Congress, headed by the U.S. Comptroller General. The Federal Bureau of Investigation (FBI) is a law enforcement agency, the Internal Revenue Service (IRS) is responsible for collecting taxes, and the United States Legislative Auditors (USLA) does not exist.

Question 8

What is information risk? What is business risk?

Accepted Answer

The answer of What is information risk? What is business...

Question 9

The four basic requirements for becoming a CPA in most states are:
A)education, the CPA Examination, experience, and substantial equivalency.
B)the CPA Examination, experience, continuing professional education, and a state certificate.
C)continuing professional education, the CPA Examination, experience, and an AICPA certificate.
D)education, the CPA Examination, experience, and a state certificate.

Accepted Answer

The four basic requirements for becoming a CPA in most states are education, the CPA Examination, experience, and a state certificate. Continuing professional education and an AICPA certificate may be required for maintaining the CPA license, but they are not part of the initial requirements for becoming a CPA. Choice A and B have some correct elements, but they are not complete or accurate. Choice C is incorrect.

Question 10

Inquiries of warehouse personnel concerning possible obsolete or slow moving inventory items provide assurance about the PCAOB assertion of:
A)completeness.
B)existence.
C)presentation.
D)valuation.
E)rights and obligations.

Accepted Answer

Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory items help in assessing the valuation assertion. This is because such inquiries can reveal information about inventory that may not be properly valued on the financial statements due to obsolescence or slow movement, which could affect the inventory's net realizable value.

Question 11

What are the four basic requirements for becoming a CPA?

Accepted Answer

The answer of What are the four basic requirements for...

Question 12

The risk an entity will fail to meet its objectives is referred to as:
A)business risk.
B)information risk.
C)assurance risk.
D)audit risk.

Accepted Answer

Business risk is the risk that an entity will fail to meet its objectives, which can be due to a variety of internal and external factors.

Question 13

What is operational auditing and by whom is it performed?

Accepted Answer

The answer of What is operational auditing and by whom...

Question 14

The process of a CPA obtaining a certificate and license in a state other than the state in which the CPA's certificate was originally obtained is referred to as:
A)substantial equivalency.
B)quid pro quo.
C)relicensing.
D)re-examination.

Accepted Answer

The process of a CPA obtaining a certificate and license in a state other than the state in which the CPA's certificate was originally obtained is referred to as substantial equivalency. This is because most states have adopted a model law called the Uniform Accountancy Act (UAA) that allows CPAs to obtain a license in another state if their home state's qualifications are substantially equivalent to the other state's requirements.

Question 15

The Sarbanes-Oxley Act of 2002 requires that the key company officials certify the financial statements. Certification means that the company CEO and CFO must sign a statement indicating:
A)they have read the financial statements.
B)they are not aware of any false or misleading statements (or any key omitted disclosures).
C)they believe that the financial statements present an accurate picture of the company's financial condition.
D)All of the these choices are correct.

Accepted Answer

The Sarbanes-Oxley Act of 2002 requires that the key company officials certify the financial statements by signing a statement that they have read the financial statements, are not aware of any false or misleading statements (or any key omitted disclosures), and believe that the financial statements present an accurate picture of the company's financial condition. Therefore, all of the choices listed (reading the financial statements, not being aware of any false or misleading statements, believing in the accuracy of the financial statements) are correct and necessary for certification.

Question 16

Which of the following is not an ASB assertion about inventory related to presentation and disclosure?
A)Inventory is properly classified as a current asset on the balance sheet.
B)Inventory is properly stated at cost on the balance sheet.
C)Major inventory categories and their valuation bases are adequately disclosed in notes.
D)All of these are ASB presentation and disclosure assertions about inventory.

Accepted Answer

All of these are ASB presentation and disclosure assertions about inventory.

Question 17

In performing an attestation engagement, a CPA typically:
A)supplies litigation support services.
B)assesses control risk at a low level.
C)expresses a conclusion on an assertion about some type of subject matter.
D)provides management consulting advice.

Accepted Answer

Attestation engagement involves expressing a conclusion on an assertion about some type of subject matter, such as financial statements, internal control over financial reporting, or compliance with laws and regulations. Litigation support services and management consulting advice are not typically part of an attestation engagement. Assessing control risk at a low level may be part of an audit engagement, but not specifically an attestation engagement.

Question 18

The study of business operations for the purpose of making recommendations about the efficient use of resources, effective achievement of business objectives, and compliance with company policies is referred to as
A)environmental auditing.
B)financial auditing.
C)compliance auditing.
D)operational auditing.

Accepted Answer

The study of business operations for the purpose of making recommendations about the efficient use of resources, effective achievement of business objectives, and compliance with company policies is referred to as operational auditing. Option A is incorrect as environmental auditing is related to assessing the impact of an organization's activities on the environment. Option B is incorrect as financial auditing is concerned with reviewing an organization's financial statements and transactions to ensure accuracy and compliance with accounting standards. Option C is incorrect as compliance auditing primarily focuses on ensuring that an organization is complying with external regulations and laws.

Quiz 1: Auditing and Assurance Services

Define assurance, attestation, and auditing in the context of "lending credibility."

Cutoff tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about the PCAOB assertion of:

An attestation engagement is one in which a CPA is engaged to:

The underlying conditions that create demand by users for reliable information include all of the following, except:

Inquiries of warehouse personnel concerning possible obsolete or slow moving inventory items provide assurance about the ASB balance assertion of:

The probability that the information circulated by a company will be false or misleading is referred to as:

The accounting, auditing, and investigating agency of the U.S. Congress, headed by the U.S. Comptroller General, is known as

What is information risk? What is business risk?

The four basic requirements for becoming a CPA in most states are:

Inquiries of warehouse personnel concerning possible obsolete or slow moving inventory items provide assurance about the PCAOB assertion of:

What are the four basic requirements for becoming a CPA?

The risk an entity will fail to meet its objectives is referred to as:

What is operational auditing and by whom is it performed?

The process of a CPA obtaining a certificate and license in a state other than the state in which the CPA's certificate was originally obtained is referred to as:

The Sarbanes-Oxley Act of 2002 requires that the key company officials certify the financial statements. Certification means that the company CEO and CFO must sign a statement indicating:

Which of the following is not an ASB assertion about inventory related to presentation and disclosure?

In performing an attestation engagement, a CPA typically:

The study of business operations for the purpose of making recommendations about the efficient use of resources, effective achievement of business objectives, and compliance with company policies is referred to as