Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements?
The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.
Independent auditing can best be described as
a discipline that attests to the results of accounting and other functional operations and data
Which of the following professional services is an attestation engagement?
an engagement to report on compliance with statutory requirements
Operational audits generally have been conducted by internal auditors and government audit agencies but may be performed by certified public accountants. A primary purpose of an operational audit is to provide
a measure of management performance in meeting organizational goals.
In comparison to the external auditor, an internal auditor is more likely to be concerned with
Which of the following best describes the operational audit?
It concentrates on seeking aspects of operations in which waste could be reduced by the introduction of controls.
Compliance auditing often extends beyond audits leading to the expression of opinions on the fairness of financial presentation and includes audits of efficiency, economy, effectiveness, as well as
adherence to specific rules or procedures.
The following questions deal with generally accepted auditing standards. Choose the best response.
ability in the planning and supervision of the audit work.
Which of the following best describes what is meant by generally accepted auditing standards?
Measures of the quality of the auditor's performance.
The general group of the generally accepted auditing standards includes a requirement that
due professional care be exercised by the auditor.
What is the general character of the three generally accepted auditing standards classified as standards of field work?
The criteria of audit planning and evidence gathering.
A CPA firm is reasonably assured of meeting its responsibility to provide services that conform with professional standards by
having an appropriate system of quality control.
Which of the following is an element of a CPA firm's quality control system that should be considered in establishing its quality control policies and procedures?
Edison has a few large accts... Victor has small accts. The importance of a misstatement in any one act is therefore greater for E than V. This is an example of the auditor's concept of
Which of the following elements ultimately determines the specific auditing procedures that are necessary in the circumstances to afford a reasonable basis for an opinion?
Which of the following BEST describes the element of inherent risk that underlies the application of generally accepted auditing standards, specifically the standards of fieldwork and reporting?
Cash audit work may have to be carried out in a more conclusive manner than inventory audit work.
Which of the following is NOT correct about materiality?
An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements.
Inherent risk and control risk differ from planned detection risk in that they
arise from the misapplication of auditing procedures.
Based on evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor could
decrease detection risk.
Which of the following statements about a combined report on the financial statements and internal control over financial reporting is correct?
The report includes additional paragraphs for the definition and limitations of internal control.
The date of the CPA's opinion on the financial statements of the client should be the date of the
completion of all important audit procedures
If a principal auditor decides to refer in his or her report to the audit of another auditor, he or she is required to disclose the
portion of the financial statements audited by the other auditor.
When the financial statements are fairly stated but the auditor concludes there is substantial doubt whether the client can continue in existence, the auditor should issue a(n)
unqualified opinion with explanatory paragraph.
A CPA will issue an adverse auditor's opinion if
the auditor did not perform sufficient auditing procedures to form an opinion the financial statements taken as a whole.
An auditor will most likely disclaim an opinion because of
inadequate disclosure of material information.
Subsequent events for reporting purposes are defined as events that occur subsequent to the
Balance sheet date but before the date of the auditor's report
An example of an event occurring in the period of the auditor's field work subsequent to the end of the year being audited that normally will not require disclosure in the financial statements or auditor's report is
Decreased sales volume resulting from a general business recession
Karr has audited FS for L for YE 2009. K field work completed on 2/27/10. Report dated 2/28/10, received by mgmt on 3/5. On 4/10 mgmt asked K to include a report in their annual report including unaudited FS for first quarter 2010. K is responsible for subsequent events occurring until
2/28 - the date of the audit report
Evidence takes different forms including
1. electronic and doc data
2. written communication with outsiders
3. observations by the auditor
4. oral testimony of the auditee
rate of interest is determined by
1. risk free IR
2. Business risk for the customer
3. Information risk
An assurance service is an independent professional service that improves the information for decision makers.
Type of assurance service which CPA firm issues report about reliability of assertion.
5 Categories of attestation service
1. Audit of historical FS
2. Audit of internal controls over financial reporting
3. review of historial FS
4. attestation services on information tech
5. other attestation services
three types of primary audits
1. operational - efficiency and effectivenses
3. financial statement
AICPA rules and standards
1. auditing standards (SAS)
2. compilation and review standards
3. other attestation standards
4. code of professional conduct.
General Standards - GAAS
1. Adequate training and proficiency
2. Independence in mental attitude
3. Due professional care
Standards of field work - GAAS
4. Proper planning and supervision
5. Sufficient understanding of the entity, its environment, and its internal control
6. Sufficient appropriate evidence
Standards of Reporting - GAAS
7. Whether statements were prepared in accordance with GAAP
8. Circumstances when GAAP not consistently followed
9. Adequacy of informative disclosures
10. Expression of opinion on FS
Standard Unqualified Audit Report - 7 distinct parts
1. Report Title
2. Audit Report Address
3. Introductory Paragraph (Factual Statement)
4. Scope Paragraph (Factual Statement
5. Opinion Paragraph (Conclusions)
6. Name of CPA Firm
7. Audit Report Date (Date FW is completed)
FOUR CATEGORIES OF AUDIT REPORTS
1. STANDARDS UNQUALIFIED
2. UNQUALIFIED WITH EXPLAN PARAGRAPH / MODIFIED WORDING
4. ADVERSE OR DISCLAIMER
UNQUALIFIED WIT EXPLAN / MW
Satisfactory results but auditor believes that is important / require to provide additional info
Auditor's Responsibilities - AU 110
1. Material v immaterial misstatements
2. Reasonable Assurance
3. Errors v Fraud
4. Professional Skepticism
5. Fraud resulting from misappropriation of assets.
PDR = AAR/ IR X CR
PDR = planned detection risk
AAR = acceptable audit risk
IR = inherent risk
CR = control risk