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Auditing Test Bank Ch1

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Auditing: Integral to the Economy
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You are on page 30of 34

*1. The !ertified

Internal Auditor
program is
administered by
the A. AI!(A.
)*
 IIA.!. state"s
board of
accountancy.>. stat
e"s society of !(As.

*2. The audit

agency for the /. 0.
!ongress is the
A. 0:!.
)*
A .!. IIA.>.
AI!(A.

*3. The
organi8ation that
issued the
 Internal Control,
Integrated
Framework
#hich serves as the
primary criterion
for evaluating the
&uality of a
company6s
internal control
system is
A. (!A
)*
! 0 !. AI!(A>.
A
*4. Auditing is a
systematic process
that includes all of
the follo#ing
e$cept=
A. communicating
results to
users . procuring
and evaluating
evidence
C*
providing
important
managerial
decisions for a
client>. comparing
evidence regarding
assertions to
certain established
criteria

*%. As it relates to
an audit-
materiality is
A. not taken into
consideration. . r
elated only to the
sufficiency of
procedures
performed.!. based
upon audit fees.
+*
 determined based
upon the
importance to a
user of the
financial
statements.

*'. ;hich of the

follo#ing is
not
a component of
assurance services?
A. information or a
process on #hich
the assurance
services is
provided.
)*
 report to a third
party.!. a user or a
group of users #ho
derive value from
the service
provided.>. a
service provider.
*). ;hich type of
auditor may
perform a financial
statement audit?
A. e$ternal
auditor. . internal
auditor.!. governm
ental auditor.
+*
oth A and
!.:. All of the
above.

**. ;hich type of

auditor #ould
typically perform
an operational
audit? A. e$ternal
auditor. . internal
auditor.!. governm
ental auditor.
+*
 oth and
!.:. All of the
above.

*+. ;hat is the

criteria used in an
operational audit?
A. AA(.
)*
effectiveness and
efficiency.!. rules
and
regulations.>. com
pany
policies.:. oth
and !.
+ . ;hat is the
criteria used in a
compliance audit?
A. AA(. . effe
ctiveness and
efficiency.!. rules
and
regulations.>. com
pany policies.
E*
oth ! and >.

+1.
Attributes of
assurance
providers
>iscuss the three or
more attributes that
an assurance
professional must
possess in order to
maintain
credibility. :$plain
the importance of
these attributes to
the assurance
process.
150ub7ect atter
Dno#ledge 9 The
assurance provider
must be an e$pert in the
area of service
provided. :$pertise in a
comple$ body of
kno#ledge sets the
assurance professional
apart from
others.25Independence
9 The assurance
provider must be
unbiased- free from
conflict of interest-
ob7ective and
independent of the
company receiving
assurance services. This
allo#s the professional to
remain neutral and free
from influence by parties
#ith a vested interest in
the outcome of assurance
services.35Agreed /pon
!riteria 9 !lear criteria
must be available for
the assurance provider
to measure ob7ectives
and results against. In a
financial statement
assurance engagement-
the criteria are
represented by
enerally Accepted
Accounting
(rinciples.45(rocess
:$pertise 9 :vidence is
obtained and evaluated
during the course of an
assurance engagement.
(rofessionals providing
these services must be
able to dra# accurate
conclusions based upon
the results of testing
competent- sufficient
evidence obtained.

+2.
Users of financial
statements
Identify at least
three types of users
of financial
statements.
>escribe their
primary use of the
financial
statements and ho#
the misstatement of
those statements
might in7ure the
user. /sers of
audited financial
statements may
include=
E anagement may
utili8e the audit report
to determine #hether
the financial statements
are presented in
accordance #ith
AA(- #hether the firm
is availing itself of
appropriate internal
controls- and as a means
of evaluating employee
performance.
isstatement of the
financial statements
#ould cause the client to
make erroneous decisions
about financial position-
internal controls and
employee re#ards and
punishments.EA
financial institution that
is asked to make a loan
uses the financial
statement to 7udge the
credit #orthiness of the
borro#er. isstatements
in the financial statements
lead to errors in lending
that 7eopardi8e the assets
of the bank and
depositors.EA vendor
#ho is asked to grant
credit uses the
statements and faces
in7ury in a manner
similar to the financial
institution.EA
third9party stockholder
uses the financial
statements to determine
if the investment #ill
provide the returns
consistent #ith the needs
of the investor.
 isstatements of the
financial statements #ill
lead to different results or
possible loss of the
investment.E thers=
(otential stockholders-
ta$ing authorities-
regulatory agencies-
labor unions-
employees-
bondholders- court
system- retirement plans-
or retired employees
+3.
Overview of
inancial
!tatement Audit
>efine auditing and
discuss ho# its
components fit into
an overvie# of a
financial statement
audit. Financial
statement auditing
has been defined as
a @systematic
process of actively
obtaining and
evaluating
evidence regarding
assertions about
economic actions
and events to
ascertain the
degree of
correspondence
bet#een those
assertions and
established criteria
and
communicating the
results to interested
users.

+4.
"rofessional and
regulatory
organi#ations
Identify at least
four professional
or regulatory
organi8ations.
:$plain ho# and
#hy they assist
andCor monitor
the audit and
assurance
profession.
"CAO)
is the primary
governing
regulatory body of
auditors of public
company financial
statements. It #as
established by the
!ongress as a result
of the
0arbanes9 $ley
Act of 2 2. It
sets auditing
standards for audits
of public
companies-
re&uires
registration of !(A
firms auditing
public companies
and performs
&uality revie#sof
registered firms.
AIC"A
;ith the
establishment of
the (!A - the
role of the AI!(A
has diminished.
 embership in the
organi8ation is
voluntary. The
AI!(A establishes
standards for other
attestation
services-
accounting and
revie# services-
consulting and ta$
services. It
organi8es
continuing
education
programs and
administers the
/niform !(A
:$amination.
!tate )oards of
Accountancy
license !(As and
are charged #ith
regulating the
profession at the
state level.
!EC
has been granted
authority to
establish AA(
for publicly traded
companies. Its
primary mission is
to protect the
investing public
it has oversight of
the (!A .The
,AO
is responsible for
setting forth
auditing standards
for governmental
agencies.The
IIA
is a voluntary
organi8ation that
administers the
!ertified Internal
Auditor program
and issues
standardsfor the
practice of internal
audit.

+%.
Internal and
external auditors
!ompare and
contrast the #ork of
an internal and an
independent
e$ternal auditor.
The independent
e$ternal auditor is
engaged to
perform an audit of
the financial
statements for the
purpose of
e$pressing a
professional
opinion thereon.
The internal
auditor is an
employee of the
company #ho
provides an active
appraisal function
#ithin an
organi8ation to
evaluate its
activities as a
service to the audit
committee or
board of directors.
The #ork of
e$ternal and
internal auditors is
often very similar
in form- but the
purpose and uses
of the #ork are
different. oth
groups conform to
professional
standards that are
in many #ays
similar. ften
times- the internal
and e$ternal
auditors #ork
together in
identifying
potential solutions
to problems
identified.

+'.
Ob$ectives of
different audit
types
!ompare and
contrast the
ob7ectives of
financial-
compliance-
operational and
governmental
audits. Include in
your ans#er #ho
performs each type
of audit. Financial
audits performed
by independent
!(As have as their
aim the e$pression
of a professional
opinion as to the
overall fairness of
the statements in
all material
respects and as to
the presentation of
these statements in
accordance #ith
AA(. :$ternal
auditors and
governmental
auditors may
perform them
because of lack of
independence- the
internal auditor can
only assist the
e$ternal auditor in
the performance of
an audit of their
financial
statements.!omplia
nce audits are a
systematic process
to determine
#hether or not an
entity"s activities
are carried out in
accordance #ith
standards or
policies
promulgated by
management or
regulatory
agencies- e.g.-
rules- la#s or
regulations. All
three types of
auditors- e$ternal-
internal and
governmental-
perform
compliance audits
regularly. peratio
nal audits are
systematic
appraisals of an
entity"s operations
to determine
#hether an
organi8ation"s
operations are
being carried out in
an efficient
manner. The
criteria used
depends very much
on the abilities and
kno#ledge of the
auditor in 7udging
the efficiency and
effectiveness of
operations and
methods to
improve them. All
three types of
auditors may
perform them- i.e.-
e$ternal - internal
and governmental-
though operational
audits are most
closely associated
#ith internal and
governmental
auditors. overnm
ental audits are
usually performed
by employees of
the government
and they usually
encompass all
three types of
audits 7ust
mentioned. The
ma7or difference is
the governmental
orientation.
 perational audits
for effectiveness
and efficiency may
be performed- as
#ell as financial
audits for
compliance #ith
governmental A
A(- and
compliance audits
#ith la#s- rules and
regulations.
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