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Chapter 1 An Introduction to Assurance & Financial Statement Auditing
Terms in this set (23)
An independent audit adds value to the communication of financial information because the audit...
lends credibility to the financial statements
Which of the following best describes the reason why an independent auditor is often retained to report on financial statements?
Different interests may exist between the entity preparing the statements and the persons using the statements, and thus outside assurance is needed to enhance the credibility of the statements.
Which of the following best describes relationships among auditing, attest, and assurance services?
Auditing is a type of assurance service.
Which of the following statements relating to attest and assurance services is not correct?
Financial statement auditing is a form of attest service but it is not an assurance service.
For what primary purpose does the auditor obtain an understanding of the entity and its environment?
To plan the audit and determine the nature, timing, and extent of audit procedures to be performed.
Which of the following statements best describes the role of materiality in a financial statement audit?
The lower the level at which the auditor assesses materiality, the greater the amount of evidence the auditor must gather.
Which of the following is the most important reason for an auditor to gain an understanding of an audit client's system of internal control over financial reporting?
Understanding a client's system of internal control can help the auditor assess risk and identify areas where financial statement misstatements might be more likely.
Preliminary engagement activities include...
All of these: understanding the client and the client's industry, determining audit engagement team requirements, ensuring the independence of the audit team and audit firm.
Which of the following statements best describes what is meant by an unqualified audit opinion?
Issuance of a standard unqualified auditor's report indicates that in the auditor's opinion the client's financial statements are fairly presented in accordance with agreed-upon criteria, with no need for the inclusion of qualifying phrases.
The auditing standards that are used to guide the conduct of the audit are...
explicitly referred to in the scope paragraph of the auditor's standard report.
A client has used an inappropriate method of accounting for its pension liability on the balance sheet. The resulting misstatement is material, but the auditor does not consider its effect to be pervasive. The auditor is unable to convince the client to alter its accounting treatment. The rest of the financial statements are fairly stated in the auditor's opinion. Which kind of audit report would an auditor most likely issue under these circumstances?
Qualified opinion due to departure from GAAP.
Put the following components of the standard auditors' report in the correct order:
3. Management's Responsibility for the Financial Statements
4. Auditor's Responsibility
__________ is (are) responsible for the financial statements.
The auditor's report is the __________ of an audit.
An auditor's report includes an introduction, the auditor's and management's responsibility, and a(n) __________.
An opinion indicates that the financial statements are presented __________.
An audit report indicates that the audit evidence we have obtained is __________ to provide a basis for the opinion.
Read the stages of an audit listed below and put them in the correct order:
1. Plan the Audit
2. Obtain an understanding of the client and it's environment including internal control
3. Assesses the risk of misstatement and design further audit procedures
4. Perform further audit procedures
5. Complete the audit
6. Form an opinion and issue the audit report
Audit __________ begins with determining the requirements for the engagement.
__________ assessment procedures are performed when obtaining an understanding of the client.
__________ risk is the risk of material misstatement of an assertion without considering internal control.
Tests of controls are performed to determine whether key controls operate __________.
The final step of an audit is issuing the audit __________.
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