Auditing Exam 1 Study

1.1 Select the choice that best explain what is meant by determining the degree of correspondence between information and established criteria.

Determining the degree of correspondence between information and established criteria is determining​ whether:

a given set of information is in accordance with the established criteria.

1.1 What are the criteria for an audit of a​ company's financial​ statements?

For an audit of a​ company's financial statements the information is the criteria are the_____

U.S. generally accepted accounting principles or International Financial Reporting Standards.

1.3 Diamond Corporation has an existing loan in the amount of

$ 5 million with an annual interest rate of 6.2%. A

The company provides an internal​ company-prepared financial statement to the bank under the loan agreement. Two competing banks have offered to replace Diamond ​Corporation's existing loan agreement with a new one. Big Top Bank has offered to loan Diamond $ 5 million at a rate of 5.0 % but requires Diamond to provide financial statements that have been reviewed by a CPA firm. Credit One Bank has offered to loan Diamond $ 5 million at a rate of 4.0 % but requires Diamond to provide financial statements that have been audited by a CPA firm. Diamond ​Corporation's controller approached a CPA firm and was given an estimated cost of $ 31,000 to perform a review and $ 41,000 to perform an audit.

Requirement a. Explain why the interest rate for the loan that requires a review report is lower than that for the loan that does not require a review. Explain why the interest rate for the loan that requires an audit report is lower than the interest rate for the other two loans.

The interest rate for the loan that requires a review report is lower than the loan that does not require a review because of the lower information risk. A review report provides moderate assurance to financial statement users. Compared to a review​ report, an audit provides further assurance and thus lower information risk. As a​ result, the interest rate is lowest for the loan with the audit report.

1.4 What are the major causes of information​ risk? How can information risk can be​ reduced?

Select all that Apply

A.

Low risk financing options

B.

Remoteness of information

C.

Decrease in governmental regulations

D.

Complex exchange transactions

E.

Voluminous data

F.

Biases and motives of the provider

Remoteness of information, Complex exchange transactions, Voluminous data, Biases and motives of the provider

1.4 Now, identify the ways to reduce information risk

user verifies information, user shares information risk with management, audited financial statements are provided

1.5 The following questions deal with audits by CPA firms. Choose the best response.
a. Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial​ statements?

1.

It is difficult to prepare financial statements that fairly present a​ company's financial​ position, operations, and cash flows without the expertise of an independent auditor.

2.

It is a customary courtesy that all stockholders of a company receive an independent report on​ management's stewardship of the affairs of the business.

3.

It is​ management's responsibility to seek available independent aid in the appraisal of the financial information shown in its financial statements.

4.

The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.

The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.

1.5 b. Which of the following professional services is an attestation​ engagement?

1.

An engagement to report on compliance with statutory requirements.

2.

The preparation of financial statements from a​ client's financial records.

3.

An income tax engagement to prepare federal and state tax returns.

4.

A consulting service engagement to provide​ computer-processing advice to a client.

An engagement to report on compliance with statutory requirements.

1.5 c. Which of the following attributes is likely to be unique to the audit work of CPAs as compared to the work performed by practitioners of other​ professions?

1.

Competence.

2.

Independence.

3.

Due professional care.

4.

Complex body of knowledge.

Independence

1.6 Three main types of audits are

Operational, Financial Statement, Compliance

1.6 What is the purpose of a Compliance Audit?

To determine whether the client is following specific procedures set by a higher authority

1.6 What is the purpose of a Financial Statement Audit?

To determine whether the overall financial statements are presented in accordance with specified criteria (usually GAAP)

1.6 What is the purpose of a Operational Audit?

To evaluate whether operating procedures are efficient and effective

1.6 Who are the users of the Operational Audit report?

Management of organization

1.6 Who are the users of the Financial Statement Audit report?

Different groups for different purposes—many outside entities

1.6 Who are the users of the Compliance Audit report?

Authority that established rules, regulations, and procedures, either internal or external

1.6 What is the nature of an Operational Audit Report?

Highly nonstandard; often subjective

1.6 What is the nature of an Financial Statement Audit Report?

Highly standardized

1.6 What is the nature of a Compliance Audit Report?

Not standardized, but specific and usually objective

1.6 What is the frequency of audits performed by

CPAs

GAO auditors

IRS auditors

Internal auditors for an Operational Audit

• CPAs: Frequently

• GAO Auditors: Frequently

• IRS Auditors: Never

• Internal Auditors: Frequently

1.6 What is the frequency of audits performed by

CPAs

GAO auditors

IRS auditors

Internal auditors for a Compliance Audit

• CPAs: Occasionally

• GAO Auditors: Frequently

• IRS Auditors: Almost Always

• Internal Auditors: Frequently

1.6 What is the frequency of audits performed by

CPAs

GAO auditors

IRS auditors

Internal auditors for a Financial Statement Audit

• CPAs: Almost always

• GAO Auditors: Occasionally

• IRS Auditors: Never

• Internal Auditors: Frequently

1.6 Which of the following is considered an assurance​ engagement?

Compilation

2.

Preparation

3.

Audit

4.

Bookkeeping

Audit

1.6 Which of the following engagements is most likely to be considered an operational​ audit?

1.

The auditor evaluates the​ organization's efficiency in processing payments.

2.

The auditor determines whether the organization is following provisions of laws and regulations.

3.

The auditor assists the client in preparation of financial statements.

4.

The auditor examines information presented in an​ entity's financial statements to determine whether the financial statements are presented fairly in accordance with the applicable financial reporting framework.

The auditor evaluates the​ organization's efficiency in processing payments.

1.6 In a financial statement​ audit, the auditor obtains a reasonable level of assurance about whether the financial statements are free of material misstatement in order to express an opinion. To obtain reasonable​ assurance, the auditor must

1.

obtain sufficient audit evidence.

2.

have prior experience in the industry in which the audit client operates.

3.

examine all documents available that support the financial statements.

4.

test controls around significant transaction cycles.

obtain sufficient audit evidence.

1.7 Begin by selecting the scope of audit responsibilities for CPAs.

A.

Perform strictly attestation service where a report is issued about the reliability of an assertion that is the responsibility of another party.

B.

​Record, classify, and summarize economic events in a logical manner for the purpose of providing financial information for decision making.

C.

Perform compliance audits to enforce the federal tax laws as defined by​ Congress, interpreted by the​ courts, and regulated by the IRS.

D.

Perform audits in accordance with auditing standards of financial statements prepared in accordance with U.S. GAAP or IFRS.

Perform audits in accordance with auditing standards of financial statements prepared in accordance with U.S. GAAP or IFRS.

1.7 Select the scope of audit responsibilities for GAO auditors.

A.

Perform audits in accordance with accounting standards of published financial statements prepared in accordance with U.S. GAAS or CAS.

B.

Perform compliance or operational audits in order to assure management or the board of directors that controls and policies are properly and consistently​ developed, applied and evaluated.

C.

Perform compliance audits to enforce the federal tax laws as defined by U.S. GAAP or IFRS.

D.

Perform compliance or operational audits in order to assure the Congress of the expenditure of public funds in accordance with its directives and the law.

Perform compliance or operational audits in order to assure the Congress of the expenditure of public funds in accordance with its directives and the law.

1.7 Select the scope of the audit responsibilities for IRS agents.

A.

​Record, classify, and summarize economic events in a logical manner for the purpose of providing financial information for decision making.

B.

Perform audits in accordance with accounting standards of published financial statements prepared in accordance with U.S. GAAS or CAS.

C.

Perform compliance audits to enforce the federal tax laws as defined by​ Congress, interpreted by the​ courts, and regulated by the IRS.

D.

Perform audits in accordance with auditing standards of financial statements prepared in accordance with U.S. GAAP or IFRS.

Perform compliance audits to enforce the federal tax laws as defined by​ Congress, interpreted by the​ courts, and regulated by the IRS.

1.7 Select the scope of the audit responsibilities for internal auditors.

A.

Perform compliance audits to enforce the federal tax laws as defined by U.S. GAAP or IFRS.

B.

Perform compliance or operational audits in order to assure the Congress of the expenditure of public funds in accordance with its directives and the law.

C.

Perform audits in accordance with accounting standards of published financial statements prepared in accordance with U.S. GAAS or CAS.

D.

Perform compliance or operational audits in order to assure management or the board of directors that controls and policies are properly and consistently​ developed, applied and evaluated.

Perform compliance or operational audits in order to assure management or the board of directors that controls and policies are properly and consistently​ developed, applied and evaluated.

1.7 a. Operational audits generally have been conducted by internal auditors and governmental audit agencies but may be performed by certified public accountants. A primary purpose of an operational audit is to provide

1.

aid to the independent auditor who is conducting the audit of the financial statements.

2.

a measure of management performance in meeting organizational goals.

3.

a means of assurance that internal accounting controls are functioning as planned.

4.

the results of internal examinations of financial and accounting matters to a​ company's top-level management.

a measure of management performance in meeting organizational goals.

1.7 Which of the following best describes the operational​ audit?

1.

It concentrates on implementing financial and accounting control in a newly organized company.

2.

It concentrates on seeking aspects of operations in which waste could be reduced by the introduction of controls.

3.

It focuses on verifying the fair presentation of a​ company's results of operations.

4.

It requires the constant review by internal auditors of the administrative controls as they relate to the operations of the company.

It concentrates on seeking aspects of operations in which waste could be reduced by the introduction of controls.

1.7 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, and

1.

adherence to specific rules or procedures.

2.

internal control.

3.

accuracy.

4.

evaluation.

adherence to specific rules or procedure

3.1 This part states the auditor's conclusions based on the results of the audit, is presented first due to its importance and must include the heading "Opinion." It includes the simple statement that the CPA firm has done an audit and lists the financial statements that were audited, including the notes to the financial statements as well as the balance sheet dates and the accounting periods covered in the income statement and statement of cash flows. It contains the auditor's opinion as to whether the financial statements present fairly in all material respects the financial position and results of operations in accordance with the relevant accounting standards (e.g., U.S. GAAP).

Parts of a standard unmodified opinion audit report: Opinion Section

Proper order number: 3

3.1 The report is usually addressed to those for whom the report is prepared, including the company, its stockholders, or the board of directors.

Parts of a standard unmodified opinion audit report: Audit report address

Proper order number: 2

3.1 This section includes three paragraphs as follows: The first paragraph indicates that the auditor's objectives are to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud, and to issue an opinion. The second paragraph briefly describes important aspects of an audit, including that the procedures depend on the auditor's professional judgment and assessment of the risks of material misstatement. Finally, the third paragraph indicates that the auditor is required to communicate certain matters to those charged with governance, such as the planned scope and timing of the audit, significant findings, and internal control matters.

Parts of a standard unmodified opinion audit report: Auditor's responsibility

Proper order number: 6

3.1 It identifies the CPA firm or practitioner who performed the audit, and the city and state where the auditor is located.

Parts of a standard unmodified opinion audit report: Signature and address of CPA firm

Proper order number: 7

3.1 This part states the auditor conducted the audit in accordance with the relevant auditing standards. This paragraph must also include an affirmative statement that the auditor is independent and has followed the relevant ethical standards. Finally, this paragraph includes a statement that the auditor believes the audit evidence obtained is sufficient and appropriate and provides a basis for the opinion.

Parts of a standard unmodified opinion audit report: Basis for opinion

Proper order number: 4

3.1 This section indicates that the financial statements are the responsibility of management, including selecting appropriate accounting principles and maintaining internal control over financial reporting. This section also acknowledges management's responsibility to assess whether there is substantial doubt about the entity's ability to continue as a going concern.

Parts of a standard unmodified opinion audit report: Management's responsibility

Proper order number: 5

3.1 Auditing standards require that the report be titled and that the title includes the word independent.

Parts of a standard unmodified opinion audit report: Report title

Proper order number: 1

3.1 The appropriate date for the report is the one on which the auditor completed the auditing procedures needed to obtain sufficient appropriate evidence to support the opinion.

Parts of a standard unmodified opinion audit report: Audit report date

Proper order number: 8

3.1 Requires a discussion of critical audit matters (CAMs) in the report.

PCAOB standard unmodified opinion audit report.

3.1 Includes a reference to a report on the audit of internal controls for large public companies.

PCAOB standard unmodified opinion audit report.

3.1 Includes separate and more detailed report sections on management's responsibility and the auditor's responsibilities.

AICPA standard unmodified opinion audit report.

3.1 The Basis for Opinion section references the applicable auditing standards and indicates the financial statements are the responsibility of management, whereas the auditor's responsibility is to express an opinion.

PCAOB standard unmodified opinion audit report.

3.1 Requires the disclosure of the tenure of the auditor-client relationship.

PCAOB standard unmodified opinion audit report.

3.1 The report contains eight distinct parts.

AICPA standard unmodified opinion audit report.

3.4 When should the auditor include an explanatory paragraph in an unmodified opinion audit​ report?

Question content area bottom

A.

The auditor should include an explanatory paragraph in an unmodified opinion audit report when the audit is completed with satisfactory results and the financial statements are fairly​ presented, and the auditor feels that no additonal diclosure is necessary.

B.

The auditor should include an explanatory paragraph in an unmodified opinion audit report when the audit is completed with satisfactory results and the financial statements are fairly​ presented, but the auditor believes it is important to draw the​ reader's attention to certain matters or the auditor is required to provide additional information.

C.

The auditor should include an explanatory paragraph in an unmodified opinion audit report when the audit is completed with unsatisfactory results and the financial statements are not fairly​ presented, and the auditor believes it is important to draw the​ reader's attention the matters concerning the auditor.

D.

The auditor should include an explanatory paragraph in an unmodified opinion audit report when the auditor is not independent but the audit was completed with satisfactory results and the financial statements are fairly​ presented,

The auditor should include an explanatory paragraph in an unmodified opinion audit report when the audit is completed with satisfactory results and the financial statements are fairly​ presented, but the auditor believes it is important to draw the​ reader's attention to certain matters or the auditor is required to provide additional information.

3.5 Which of the following is an example of a situation where the scope of the audit has been restricted?

A) The auditor owns stock in the client's business. B) The client will not permit the auditor to confirm material receivables. C) The client insists on using replacement costs for fixed assets. D) The client values fixed assets at historical cost.

The client will not permit the auditor to confirm material receivables.

3.5 Which scenario illustrates that the financial statements have not been prepared in accordance with Generally Accepted Accounting Principles (GAAP)?

A) The client insists on using replacement costs for fixed assets. B) The client will not permit the auditor to confirm material receivables. C) The client values fixed assets at historical cost. D) The auditor also provides tax services for the client's business.

The client insists on using replacement costs for fixed assets.

3.5 Which of the following examples indicates that the auditor is not independent? A) The auditor also provides tax services for the client's business. B) The client values inventory at historical cost. C) The auditor owns stock in the client's business. D) The client will not permit the auditor to confirm material receivables.

The auditor owns stock in the client's business.

3.5 What are the three conditions that require a departure from an unmodified opinion audit​ report?

The scope of the audit has been restricted.

The financial statements have not been prepared in accordance with GAAP.

The auditor is not independent.

3.7 Identify the three alternative opinions that may be appropriate when the​ client's financial statements are not in accordance with GAAP.

A.

​(1) unmodified​ opinion, (2) qualified as to opinion​ only, (3) adverse opinion

B.

​(1) unmodified​ opinion, (2) disclaimer of​ opinion, (3) qualified as to opinion only

C.

​(1) qualified scope and​ opinion, (2) adverse​ opinion, (3) disclaimer of opinion

D.

​(1) adverse​ opinion, (2) unmodified​ opinion, (3) qualified scope and opinion

​(1) unmodified​ opinion, (2) qualified as to opinion​ only, (3) adverse opinion

3.7 Which audit opinion is appropriate when a deviation from GAAP is material, but not highly material? A) Adverse B) Standard unmodified C) Qualified as to opinion only D) Unmodified with explanatory paragraph

Qualified as to opinion only

3.7 If an auditor determines that a deviation from GAAP is highly material to the financial statements, which opinion type should be issued? A) Adverse B) Standard unmodified C) Qualified as to opinion only D) Unmodified with explanatory paragraph

Adverse

3.7 Under what circumstance is an "Unmodified with explanatory paragraph" opinion appropriate? A) The deviation from GAAP is highly material. B) The auditor agrees with the client's departure from GAAP. C) The GAAP departure is immaterial. D) The deviation from GAAP is material, but not highly material.

The auditor agrees with the client's departure from GAAP.

3.7 When a client's departure from GAAP is considered immaterial, which of the following is the correct audit opinion to issue? A) Unmodified with explanatory paragraph B) Qualified as to opinion only C) Adverse D) Standard unmodified

Standard unmodified

3.8 Which of the following is not a required element of a standard unmodified opinion audit report issued in accordance with AICPA auditing​ standards?

1.

The city and state of the audit firm issuing the report.

2.

A statement explaining​ management's responsibilities for the financial statements.

3.

The name of the engagement partner.

4.

A title that emphasizes the report is from an independent auditor.

The name of the engagement partner.

3.8 The date of the​ CPA's opinion on the financial statements of the client should be the date of the

1.

closing of the​ client's books.

2.

finalization of the terms of the audit engagement.

3.

completion of all important audit procedures.

4.

submission of the report to the client.

completion of all important audit procedures.

3.8 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

1.

reasons for being unwilling to assume responsibility for the other​ auditor's work.

2.

nature of the inquiry into the other​ auditor's professional standing and extent of the review of the other​ auditor's work.

3.

portion of the financial statements audited by the other auditor.

4.

name of the other auditor.

portion of the financial statements audited by the other auditor.

3.8 An entity changed from the​ straight-line method to the​ declining-balance method of depreciation for all newly acquired assets. This change has no material effect on the current​ year's financial statements but is reasonably certain to have a substantial effect in later years. If the change is disclosed in the notes to the financial​ statements, the auditor should issue a report with​ a(n)

1.

qualified opinion.

2.

unmodified opinion with explanatory paragraph.

3.

qualified opinion with explanatory paragraph regarding consistency.

4.

unmodified opinion.

unmodified opinion.

3.8 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)

1.

unmodified opinion with explanatory paragraph.

2.

unmodified opinion.

3.

qualified opinion only.

4.

adverse opinion.

unmodified opinion with explanatory paragraph.

3.8 The​ auditor's report contains the​ following: "We did not audit the financial statements of​ EZ, Inc., a wholly owned​ subsidiary, which statements reflect total assets and revenues constituting 27 percent and 29​ percent, respectively, of the consolidated totals. Those statements were audited by other auditors whose report has been furnished to​ us, and our​ opinion, insofar as it relates to the amounts included for​ EZ, Inc., is based solely on the report of the other​ auditors." These sentences

1.

assume responsibility for the other auditor.

2.

indicate a division of responsibility.

3.

require a departure from an unmodified opinion.

4.

are an improper form of reporting.

indicate a division of responsibility.

3.8 As compared to an unmodified​ opinion, an opinion qualified due to a material departure from generally accepted accounting principles would

1.

include a slight modification to the introductory paragraph in the opinion section.

2.

indicate​ that, except for the problem​ noted, the financial statements are presented fairly.

3.

include an extra paragraph in the opinion section.

4.

include a slight modification to the​ auditor's responsibility section.

indicate​ that, except for the problem​ noted, the financial statements are presented fairly.

3.8 An auditor issuing a qualified opinion due to an insufficiency of audit evidence (a scope limitation) should refer to the limitation in which of the following?

A) Auditor’s Responsibility Section: Yes | Opinion Section: Yes | Note to Financial Statements: Yes

B) Auditor’s Responsibility Section: Yes | Opinion Section: Yes | Note to Financial Statements: No

C) Auditor’s Responsibility Section: Yes | Opinion Section: No | Note to Financial Statements: Yes

D) Auditor’s Responsibility Section: No | Opinion Section: Yes | Note to Financial Statements: No

Auditor’s Responsibility Section: No | Opinion Section: Yes | Note to Financial Statements: No

3.8 . An adverse opinion and a disclaimer of opinion

1.

may be used interchangeably.

2.

both require modification of the opinion section.

3.

indicate situations in which there are material GAAP departures.

4.

result in the​ auditor's withdrawal from the engagement.

both require modification of the opinion section.

1.2 This apparent paradox arises from the distinction between the function of auditing and the function of accounting. Select the choice that best describes the accounting function.

A.

The accounting function is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria.

B.

The accounting function is the​ recording, classifying and summarizing of economic events to provide relevant information to decision makers.

C.

The accounting function is the review of any part of an​ organization's operating procedures and methods for the purpose of evaluating efficiency and effectiveness.

D.

The accounting function is an engagement in which the accountant reports on the effectiveness of internal control over financial reporting.

The accounting function is the​ recording, classifying and summarizing of economic events to provide relevant information to decision makers.

1.2 The rules of accounting are the

____

used by the auditor for evaluating the presentation of economic events for financial statements and they must therefore

____

The accountant

____

need to understand what auditors​ do, unless they are involved in  

____,

or have been

____

criteria,

have an understanding of accounting standards, as well as auditing standards.

does not

doing audits,

trained as an auditor.

1.3 ​First, select the choice that best describes the need an independent audit satisfies.

A.

An independent audit is a means of satisfying the need for favorable financial ratios.

B.

An independent audit ensures that the projected cash flows is accurate.

C.

An independent audit is a means of satisfying the need for reliable information on the part of the decision makers.

D.

An independent audit ensures financing at the lowest rate.

An independent audit is a means of satisfying the need for reliable information on the part of the decision makers.

1.3 Select a change in accounting and business operations over the last decade that has increased the need for independent audits.

A.

Generally Accepted Accounting Standards.

B.

Internal auditors are requiring independent audits.

C.

Increase in gas prices.

D.

Increased global activities of many businesses.

Increased global activities of many businesses.

1.3 Identify the​ reason(s) why the factor you selected in the preceding step is important. ​(Select all that​ apply.) Increased global activities of many businesses has increased the need for independent audits.

A.

Multiple product lines and transaction locations.

B.

Possibly millions of transactions processed daily via sophisticated computerized systems.

C.

Foreign exchange effects on transactions.

D.

Owners also managing the daily activities of the company.

E.

New accounting standards are issued on a regular basis.

F.

Directors not involved in​ day-to-day operations or decisions.

Multiple product lines and transaction locations.

Foreign exchange effects on transactions.

1.3 Select another change in accounting and business operations over the last decade that has increased the need for independent audits.

A.

Decrease in governmental regulations.

B.

Complex accounting and exchange transactions.

C.

Intercompany transactions.

D.

Historical transactions.

Complex accounting and exchange transactions.

1.3 Identify the​ reason(s) why the factor you selected in the preceding step is important. Complex accounting and exchange transactions has increased the need for independent audits.​(Select all that​ apply.)

A.

Less disclosures is required now than was needed a decade ago.

B.

Owners also managing the daily activities of the company.

C.

Low risk financing option.

D.

Changes in taxes regulations.

E.

Increasing use of derivatives and hedging activities.

F.

Increasingly complex accounting standards in areas such as revenue recognition.

Increasing use of derivatives and hedging activities.

Increasingly complex accounting standards in areas such as revenue recognition.

1.3 Select another change in accounting and business operations over the last decade that has increased the need for independent audits.

A.

More complex information systems.

B.

Low risk financing option.

C.

Data transmitted electronically.

D.

Low transactions amount.

More complex information systems.

1.3 Identify the​ reason(s) why the factor you selected in the preceding step is important.
More complex information systems has increased the need for independent audits. ​(Select all that​ apply.)

A.

New and changing business relationships lead to innovative accounting and reporting problems.

B.

Possibly millions of transactions processed daily through online and traditional sales channels.

C.

Voluminous data requires interpretation.

D.

Foreign companies are a higher risk investment.

E.

New financing options available.

F.

Reductions in the interest rate.

Possibly millions of transactions processed daily through online and traditional sales channels.

Voluminous data requires interpretation.

1.7 What type of service is An independent professional service that improves the quality of information for decision makers.

Assurance

1.7 What type of service is A form of attestation service in which the auditor expresses a conclusion as to whether the financial statements are presented in accordance with an applicable financial reporting framework such as U.S. GAAP or IFRS.

Audit

1.7 What type of service is A type of assurance service in which the CPA firm issues a report about the reliability of an assertion that is made by another party.

Attestation

1.7 Identify an​ example(examples) of auditing services. ​(Select all that​ apply.)

A.

Accounting and bookkeeping

B.

Audit of historical financial statements

C.

Certain management consulting

D.

Internal control over financial reporting

E.

Reviews

F.

Tax services

Audit of historical financial statements

1.7 Identify an​ example(examples) of attestation services. ​(Select all that​ apply.)

A.

Accounting and bookkeeping

B.

Audit of historical financial statements

C.

Certain management consulting

D.

Internal control over financial reporting

E.

Reviews

F.

Tax services

Audit of historical financial statements

Internal control over financial reporting

Reviews

1.7 Identify an​ example(examples) of assurance services. ​(Select all that​ apply.)

A.

Accounting and bookkeeping

B.

Audit of historical financial statements

C.

Certain management consulting

D.

Internal control over financial reporting

E.

Reviews

F.

Tax services

Audit of historical financial statements

Certain management consulting

Internal control over financial reporting

Reviews

1.8 Why might an organization seek the assurance of a CPA about information presented in the​ organization's corporate sustainability​ report?

A.

Some organizations issue sustainability reports to highlight the work they are doing related to the​ environment, social​ issues, and governance​ (often referred to as​ ESG). These reports include different types of data that reflect the​ organization's overall performance related to their sustainability efforts. Investors and other users of these sustainability reports may desire assurance from CPAs about the accuracy and reliability of these data items.

B.

Some organizations issue sustainability reports to highlight the​ company's compliance with ISO 9000 quality control​ standards,

which help ensure company products are of high

quality.

Investors and other users of these sustainability reports may desire assurance from CPAs about the accuracy and reliability of these data items.

C.

Some organizations issue sustainability reports to highlight the processes in a​ company's investment practices to identify risks

and to determine the effectiveness of those

processes.

Investors and other users of these sustainability reports may desire assurance from CPAs about the accuracy and reliability of these data items.

D.

Some organizations issue sustainability reports to highlight the amount of organic ingredients included in a​ company's

products.

Investors and other users of these sustainability reports may desire assurance from CPAs about the accuracy and reliability of these data items.

Some organizations issue sustainability reports to highlight the work they are doing related to the​ environment, social​ issues, and governance​ (often referred to as​ ESG). These reports include different types of data that reflect the​ organization's overall performance related to their sustainability efforts. Investors and other users of these sustainability reports may desire assurance from CPAs about the accuracy and reliability of these data items.

1.11 What knowledge does the auditor need about the​ client's business in an audit of historical financial​ statements? Explain how this knowledge may be useful in performing other assurance or consulting services for the client.

When auditing historical financial​ statements, an auditor must have a ___

understanding of the client and its environment. This knowledge should include the​client's ____, ____, and ____. For​ example, a practitioner performing a consulting engagement to evaluate the efficiency and effectiveness of a​ client's manufacturing process would likely start with an analysis of ____, including ____.

thorough

regulatory and operating environment

business strategies and processes

measurement indicators

measurement indicators

ratio analysis

1.13 Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial​ statements?

1.

The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.

2.

It is​ management's responsibility to seek available independent aid in the appraisal of the financial information shown in its financial statements.

3.

It is difficult to prepare financial statements that fairly present a​ company's financial​ position, operations, and cash flows without the expertise of an independent auditor.

4.

It is a customary courtesy that all stockholders of a company receive an independent report on​ management's stewardship of the affairs of the business.

The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.

1.13 Which of the following professional services is an attestation​ engagement?

1.

A consulting service engagement to provide​ computer-processing advice to a client.

2.

The preparation of financial statements from a​ client's financial records.

3.

An income tax engagement to prepare federal and state tax returns.

4.

An engagement to report on compliance with statutory requirements.

An engagement to report on compliance with statutory requirements.

3.5 Under what circumstance is Deviation from GAAP is material, but not highly material appropriate?

Qualified as to opinion only

3.5 Under what circumstance is Deviation from GAAP is highly material appropriate?

Adverse

3.5 Under what circumstance is The auditor agrees with the client's departure from GAAP appropriate?

Unmodified with explanatory paragraph

3.5 Under what circumstance is GAAP departure is immaterial appropriate?

Standard unmodified

3.2

The purpose of the opinion section​ is:

A.

to state the​ auditor's conclusions based upon absolute fact.

B.

to state the​ auditor's conclusions and report that there is no risk associated with the financial statements.

C.

to state the​ auditor's conculsions and report the specific risk associated with the financial statements.

D.

to state the​ auditor's conclusions based upon the results of the audit evidence.

to state the​ auditor's conclusions based upon the results of the audit evidence.

3.2 The most important information in the opinion section​ includes:

The words "in our opinion" which indicate that the conclusions are based on professional judgment.

A statement about whether the financial statements were presented fairly and in accordance with GAAP.

On February​ 17, 2024, a CPA completed all the evidence gathering procedures on the audit of the financial statements for the Buckheizer Technology Corporation for the year ended December​ 31, 2023. The audit is satisfactory in all respects except for the existence of a change in accounting principles from FIFO to LIFO inventory​ valuation, which results in an explanatory paragraph on consistency. On February​ 26, the auditor completed the tax return and the draft of the audit report. The final audit report was​ completed, attached to the financial​ statements, and delivered to the client on March 7. What is the appropriate date on the​ auditor's report?

A.

December​ 31, 2023

B.

February​ 17, 2024

C.

February​ 26, 2024

D.

March​ 7, 2024

February​ 17, 2024

3.6 The information included in the opinion and basis for opinion sections in a separate audit report on the effectiveness of internal control over financial reporting​ include:​ (Select all that​ apply.)

A.

The scope of the​ auditor's work and opinion on internal control over financial reporting.

B.

A section defining internal control over financial reporting.

C.

A discussion of any critical audit matters.

D.

A paragraph that addresses the inherent limitations of internal control.

E.

A reference to​ management's report on internal control over financial reporting.

F.

A reference to the framework used to evaluate internal control.

The scope of the​ auditor's work and opinion on internal control over financial reporting.

A reference to​ management's report on internal control over financial reporting.

A reference to the framework used to evaluate internal control.

3.6 Two additional paragraphs are added

____ that ____

below the basis for opinion paragraph

define internal control and describe the inherent limitations of internal control.

3.8 What is the rationale for the​ PCAOB's requirement to include a discussion of critical audit matters in the audit​ report?

The PCAOB requirement to communicate critical audit matters is intended to inform investors and other financial statement users about matters identified in the audit that represent issues that involved especially​ challenging, subjective, or complex auditor judgment and how the auditor addressed those matters.

3.8 Two examples of areas that might be considered critical audit matters in the audit of a public company in the hotel and lodging industry include the​ following: ​(Select the two examples that​ apply.)

A.

Dividends

B.

Payroll

C.

Revenue

D.

Expenses

E.

Leased property

F.

Accounts payable

Revenue

Leased property

3.9 An unmodified opinion audit report with an explanatory paragraph is ____ a standard unmodified report. In an unmodified opinion audit report with an explanatory paragraph or modified​ wording, the auditor ____ the audit or the financial statements. For a qualified​ report, there is either a ___ or ___ Under either​ condition, the auditor concludes that the overall financial statements ___ fairly presented.

the same as

believes it is necessary to provide additional information about

scope limitation

a failure to follow generally accepted accounting principles.

are

3.11 The client changed from FIFO to LIFO inventory valuation in the current year and reflected this change in their financial statements. How should this be reflected in the​ auditor's report?

A separate explanatory paragraph is required to explain the change in GAAP in the first year in which the change took place.

3.15 A report qualified due to a GAAP departure results when the auditor ___ has concluded that the

financial statements are not correctly stated.

The only circumstance in which a qualified opinion for a GAAP departure is appropriate is for ___ departures from ___

has accumulated sufficient appropriate evidence but

material, but not highly material,

GAAP.

3.15 A qualified report due to a scope limitation is issued when the auditor can neither ___ nor satisfy themself by using alternative​ procedures, usually due to the existence of conditions ___ but the amount involved in the financial statements ___ An ___ part of a qualified opinion due to a scope limitation is that it results from not accumulating sufficient appropriate audit​ evidence, either because of the ___ request or because of circumstances beyond ___ control.

perform procedures considered necessary

beyond the client's or the auditor's control,

is not highly material.

important

clients

anyones

3.20 Which of the following is not a required element of a standard unmodified opinion audit report issued in accordance with AICPA auditing​ standards?

1.

The name of the engagement partner.

2.

The city and state of the audit firm issuing the report.

3.

A statement explaining​ management's responsibilities for the financial statements.

4.

A title that emphasizes the report is from an independent auditor.

The name of the engagement partner.

3.20 The date of the​ CPA's opinion on the financial statements of the client should be the date of the

1.

submission of the report to the client.

2.

closing of the​ client's books.

3.

finalization of the terms of the audit engagement.

4.

completion of all important audit procedures.

completion of all important audit procedures.