Test bank auditing and assurance principlesch01 auditing, attestation, and assurance

Auditing, Attestation, and Assurance The single feature that most clearly distinguishes auditing, attestation, and assurance is a Type of service b Training required to perform the service c Scope of services d CPA’s approach to the service ANSWER: The primary goal of the CPA in performing the attest function is to a Detect fraud b Examine individual transactions so that the auditor may certify as to their validity c Determine whether the client's assertions are fairly stated d Assure the consistent application of correct accounting procedures ANSWER: C Internal auditing often extends beyond examinations leading to the expression of an opinion on the fairness of financial presentation and includes audits of efficiency, effectiveness, and a Internal control b Evaluation c Accuracy d Compliance ANSWER: C D Which of the following best describes the operational audit? a It requires the constant review by internal auditors of the administrative controls as they relate to operations of the company b It concentrates on implementing financial and accounting control in a newly organized company c It attempts and is designed to verify the fair presentation of a company's results of operations d It concentrates on seeking out aspects of operations in which waste would be reduced by the introduction of controls ANSWER: D Chapter Auditing, Attestation, and Assurance The auditor's judgment concerning the overall fairness of the presentation of financial position, results of operations, and changes in financial position is applied within the framework of a Generally accepted accounting principles b Generally accepted auditing standards c Internal control d Information systems control ANSWER: Which of the following is not considered an assertion as formulated by the Auditing Standards Board? a Valuation or allocation b Mathematical accuracy c Rights and obligations d Presentation and disclosure ANSWER: C To maximize independence, the director of internal should report to the a Audit committee b Controller c Chief financial officer d Director of information systems ANSWER: B Which of the following is not a distinguishing feature of risk-based auditing? a Identifying areas posing the highest risk of financial statement errors b Analysis of internal control c Collecting and evaluating evidence d Concentrating audit resources in those areas presenting the highest risk of financial statement errors ANSWER: A auditing A The auditor communicates the results of his or her work through the medium of the a Engagement letter b Management letter c Audit report Chapter Auditing, Attestation, and Assurance d Financial statements ANSWER: 10 C The best description of the scope of internal auditing is that it encompasses a Primarily operational auditing b Both financial and operational auditing c Primarily the safeguarding of assets and verifying the existence of such assets d Primarily financial auditing ANSWER: B 11 A typical objective of an operational audit is to determine whether an entity's a Financial statements fairly present financial position and cash flows b Financial statements present fairly the results of operations c Financial statements fairly present financial position, results of operations, and cash flows d Specific operating units are functioning efficiently and effectively ANSWER: D 12 The scope and nature of an auditor's contractual obligation to a client is ordinarily set forth in the a Scope paragraph of the auditor’s report b Opinion paragraph of the auditor’s report c Management letter d Engagement letter ANSWER: 13 The a b c d D four major steps in conducting an audit are: Testing internal controls Audit report Planning Testing transactions and balances The proper sequence in applying the above steps is: a cadb b cdab c bcda Chapter Auditing, Attestation, and Assurance d ANSWER: adcb A 13 Which of the following statements is not true regarding the competence of audit evidence? a Relevance is enhanced by an effective information system b To be competent, evidence must be both valid and relevant c Validity is related to the quality of the client’s information system d Relevance must always relate to audit objectives ANSWER: 15 As used in auditing, which of the following statements best describes "assertions"? a Assertions are the representations of management as to the reliability of the information system b Assertions are the auditor's findings to be communicated in the audit report c Assertions are the representations of management as to the fairness of the financial statements d Assertions are found only in the footnotes to the financial statements ANSWER: 16 C Which of the following statements is not a distinction between independent auditing and internal auditing? a Independent auditors represent third party users external to the auditee entity, whereas internal auditors report directly to management b Although independent auditors strive for both validity and relevance of evidence, internal auditors are concerned almost exclusively with validity c Internal auditors are employees of the auditee, whereas independent auditors are independent contractors d The internal auditor's span of coverage goes beyond financial auditing to encompass operational and performance auditing ANSWER: 17 A B Which of the following best describes the purpose of the engagement letter? Chapter Auditing, Attestation, and Assurance a The engagement letter relieves the auditor of some responsibility for the exercise of due care By clearly defining the nature of the engagement, the engagement letter helps to avoid and resolve misunderstandings between CPA and client regarding the precise nature of the work to be performed and the type of report to be issued The engagement letter conveys to management the detailed steps to be applied in the audit process The engagement letter should be signed by both the client and the CPA and should be used only for independent audits b c d ANSWER: 18 B In assessing audit risk, the CPA needs to all of the following except a Gather audit evidence in support of recorded transactions b Obtain an understanding of the client's system of internal control c Understand the economic substance of significant transactions completed by the client d Understand the entity and the industry in which it operates ANSWER: 19 A Which of the following tasks should be performed prior to the final audit? a Determining the fairness of property, plant, and equipment b Confirming accounts receivable c Testing internal control d Collecting and evaluating evidence supporting the fairness of inventory values ANSWER: C COMPLETION 20 An audit approach that attempts to identify areas posing the highest probability of financial statement errors and allocate audit resources to those areas is known as _ - _ auditing ANSWER: RISK-BASED 21 Chapter Auditing, Attestation, and Assurance Because is the standard for measuring fairness, independent auditors must be expert in accounting matters ANSWER: 22 Independent auditing is considered necessary because managers and stockholders have attitudes toward financial reporting ANSWER: 23 DIVERGENT (CONFLICTING) The most important characteristics contributing to effective auditing are the ability of the auditor to exercise and ANSWER: 24 GAAP DUE CARE, SOUND JUDGMENT The assertion stating that no assets, equities, or transactions have been omitted from the financial statements is known as the assertion ANSWER: COMPLETENESS MATCHING: 25 Match each of the listed procedures with the primary assertion that is satisfied by the procedure a b c d e existence or occurrence completeness rights and obligations valuation or allocation presentation and disclosure Calculated depreciation expense for the year Test counted client’s year end inventory of materials and finished goods Examined vehicle title applicable to new truck purchased during the current year Considered need for a footnote describing a lawsuit pending against the client Conducted a search for unrecorded liabilities Chapter Auditing, Attestation, and Assurance Advised client of the need to reclassify the current portion of a long term mortgage note Performed tests to determine that overhead had been properly applied to ending inventory and cost of sales Reconciled client’s bank accounts as of year end Examined appraisal reports applicable to land donated by the city 10 Obtained written confirmation from customers regarding year end balances in selected accounts receivable SOLUTION: d a c e b e d d d 10.d Problem/Essay 26 George & Washington, CPAs, has just accepted an engagement to audit Ginger and Cinnamon, a small manufacturer of spice products Julia Jenkins has been selected as the in-charge auditor for the engagement, and Josh Lukins will be her assistant In planning the audit field work, Jenkins makes the following assignments of audit tasks: Julia Jenkins Interim Audit Test internal control over cash receipts Audit accounts receivable balances Josh Lukins Audit property, plant, and equipment balances Test internal control over cash disbursements Chapter Auditing, Attestation, and Assurance Final Audit Test internal control over sales Obtain signed copy of engagement letter Audit cash balances Audit inventory balances Required: a Identify the steps to be followed in completing an audit b What is meant by the term "systematic process" as contained in the definition of auditing? c Explain the strengths and weaknesses in Jenkins’ audit planning SOLUTION: a Audit planning; interim audit; final audit; audit report b Systematic auditing means that the auditor studies and tests the system of internal control before testing the substance of transactions and balances Strong internal control increases the level of confidence and decreases the extent of transaction and balance testing c Strengths: The auditors tested internal control over cash receipts and disbursements before auditing cash balances Weaknesses: Jenkins and Lukins audited property, plant, and equipment balances and accounts receivable balances during the interim audit These procedures are typically applied on the final audit Moreover, internal controls over sales and property transactions were not tested and evaluated prior to auditing the balances Either Jenkins or Lukins should have tested internal controls over both cash receipts and disbursements transactions Dividing these duties was inappropriate and failed to maximize efficiency and effectiveness Internal control over sales transactions should have been performed during the interim audit A signed copy of the engagement letter should have been obtained as a first step in the acceptance process prior to conducting any of the audit field work There is no indication that internal controls over property or inventory transactions were ever tested Internal control Chapter Auditing, Attestation, and Assurance over sales should have been tested on the interim, rather than on the final audit ... Testing internal controls Audit report Planning Testing transactions and balances The proper sequence in applying the above steps is: a cadb b cdab c bcda Chapter Auditing, Attestation, and Assurance. .. financial auditing to encompass operational and performance auditing ANSWER: 17 A B Which of the following best describes the purpose of the engagement letter? Chapter Auditing, Attestation, and Assurance. .. statement errors and allocate audit resources to those areas is known as _ - _ auditing ANSWER: RISK-BASED 21 Chapter Auditing, Attestation, and Assurance Because is the standard for measuring