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50 terms

Chapter 2 (T/F)

audit
STUDY
PLAY
The objective of financial reporting is to provide useful information to interested users.
true
Corporate governance is a process by which the owners, but not the creditors, exert control over the resources of the enterprise.
false
The development of strategic plans for a business entity is the responsibility of the board of directors.
false
The audit committee is a subcommittee of the board of directors comprised of independent outside directors.
true
The auditor must communicate significant audit adjustments to the audit committee.
true
Any major disagreement the auditor has with management should be discussed with the audit committee.
true
An audit must be performed by persons who can make sound judgment relating to complex accounting issues.
true
Managers of organizations are hired by Boards of Directors to perform responsibilities such as the implementation of internal control.
true
The auditor must, at a minimum, follow Generally Accepted Auditing Standards to perform an audit with due professional care.
true
Generally Accepted Auditing Standards encompass three broad categories including: general standards, fieldwork standards and reporting standards.
true
The general auditing standards are designed to guide the profession in the selection and training of its professionals, performance of duties, and in maintaining an adequate separation from the client to meet the public trust.
true
GAAS requires technical knowledge in auditing but not in the client's business.
false
Generally accepted auditing standards are the cornerstone for the interpretation of financial accounting.
false
The reporting standard of GAAS includes consistency, disclosure, and due professional care.
false
An auditor must be independent in fact and in appearance.
true
Without independence, the value of the auditor's attestation function would be nil.
true
Due professional care is defined as following Generally Accepted Accounting Standards.
false
Public accounting firms use close supervision and review of audit work to ensure that audits are conducted with due professional care.
true
The process of understanding the client includes the preparation of the audit program.
true
Part of the understanding the client process of an audit is identifying factors that may require extension or modification of the audit tests, such as potential related-party transactions or the possibility of material misstatements.
true
Evidence is required to be sufficient, reliable and relevant in order to provide a reasonable basis for audit conclusions.
true
Fieldwork standards include planning and supervision, understanding the entity and its internal control structure, and obtaining sufficient audit evidence.
true
Developing an understanding of the client's business and industry is essential to proficiency as discussed in the general standards of GAAS.
true
The Sarbanes-Oxley Act completely prohibits auditors from performing consulting services for their audit clients.
false
The Public Company Accounting Oversight Board (PCAOB) does not set standards for audits of public companies.
false
Independence is a facet of the General Standards of Fieldwork.
false
An auditor is required to communicate new accounting principles adopted by the organization to the audit committee.
true
The Sarbanes-Oxley Act makes the audit committee the client of the audit firm.
true
The Public Company Accounting Oversight Board has five members, all of which must be CPAs.
false
The Public Company Accounting Oversight Board has the power of performing inspection of public
accounting firms to determine their performance and check for improvements if any.
true
In order to safeguard independence of the firm, partners and managers of public accounting firms must go through a cooling off period prior to taking a high level position of employment with a public client
company.
true
The Sarbanes-Oxley Act includes provisions requiring the auditor and the management to certify the financial statements and its disclosures and quality of internal controls.
true
The Sarbanes-Oxley Act requires that companies report on internal financial controls.
true
The Sarbanes-Oxley Act requires partners or managers significantly participating in audits to roll off the engagement every five years.
true
The audit committee must be composed of outsiders such as the organization's attorney and audit partner.
false
Management of companies should have the ability to hire and fire the external auditor.
false
The audit committee should have the authority to hire and fire the external auditors.
true
According to SAS 61, auditors are required to inform the audit committee of any significant audit adjustments discovered during the engagement.
true
Audit adjustments reflect upon the stewardship of the auditor over the financial statements of the client
and the auditor's responsibility over the related disclosures.
false
The standards of fieldwork include the responsibility of the auditor to exercise due professional care.
false
The purpose of the audit program is to discover material misstatements in the client's financial statements.
true
Planning is not required in an audit as long as the audit program has been developed.
false
A component of the reporting standards is the requirement that an opinion always be rendered on the subject matter.
false
An auditor must obtain an adequate amount of evidence and the evidence must be of the appropriate quality.
true
An auditor conducts a planning meeting in order to develop an understanding of internal controls.
false
Materiality involves the degree of misstatement or omission that would affect the decision making process of the users of financial information.
true
Materiality usually involve applying percentage to some base such as total assets, total revenue or pretax income.
true
An auditor of financial statements gathers evidence for review purposes and does not test it.
false
The Public Company Accounting Oversight Board obtains its authority to set audit standards for public companies from the U.S. Congress.
true
The American Institute of Certified Public Accountants no longer retains the right to set audit standards for any engagements as the Securities Exchange Commission has relinquished such power.
false