Deck 1: The Demand for Audit and Other Assurance Services

Question 1

In "auditing" financial accounting data, the primary concern is with:

A) determining whether recorded information properly reflects the economic events that occurred during the accounting period.
B) determining if fraud has occurred.
C) determining if taxable income has been calculated correctly.
D) analyzing the financial information to be sure that it complies with government requirements.

Answer 1

A

Question 2

Explain what is meant by information risk, and list the four causes of this risk.

Answer 2

Information risk reflects the possibility that the information upon which the business risk decision was made was inaccurate. Four causes of information risk are:
• remoteness of information,
• biases and motives of the provider,
• voluminous data, and
• complex exchange transactions.

Question 3

Any service that requires a CPA firm to issue a report about the reliability of an assertion that is made by another party is a(n):

A) accounting and bookkeeping service.
B) attestation service.
C) assurance service.
D) tax service.

Answer 3

B

Question 4

Only companies that file annual statements with the Securities and Exchange Commission are required to have an annual external audit.

Question 5

The use of the Certified Public Accountant title is regulated by:

A) the federal government.
B) state law through a licensing department or agency of each state.
C) the American Institute of Certified Public Accountants through the licensing departments of the tax and auditing committees.
D) the Securities and Exchange Commission.

Question 6

The criteria by which an auditor evaluates the information under audit may vary with the information being audited.

Question 7

Evidence is paramount to audit and attestation engagements. List the four basic types of audit evidence.

Question 8

The trait that distinguishes auditors from accountants is the:

A) auditor's ability to interpret accounting principles generally accepted in the United States.
B) auditor's education beyond the Bachelor's degree.
C) auditor's ability to interpret FASB Statements.
D) auditor's accumulation and interpretation of evidence related to a company's financial statements.

Question 9

In the audit of historical financial statements, what accounting criteria is most common?

A) Regulatory accounting principles.
B) International financial reporting standards.
C) Generally accepted accounting principles.
D) B and C
E) All of the above.

Question 10

The Sarbanes-Oxley Act applies to which of the following companies?

A) All companies.
B) Privately held companies.
C) Public companies.
D) All public companies and privately held companies with assets greater than $500 million.

Question 11

The Sarbanes-Oxley Act establishes standards related to the audits of privately held companies.

Question 12

________ risk reflects the possibility that the information upon which the business decision was made was inaccurate.

A) Client acceptance
B) Information
C) Business
D) Control

Question 13

Which of the following is considered audit evidence?

A)
B)
C)
D)

Question 14

The criteria used by an external auditor to evaluate published financial statements are known as generally accepted auditing standards.

Question 15

Which department provides quantitative information in order for management and others to make decisions?

A) management information systems.
B) auditing.
C) finance.
D) accounting.

Question 16

An audit of historical financial statements is most often performed to determine whether the:

A) organization is operating efficiently and effectively.
B) entity is following specific procedures or rules set down by some higher authority.
C) management team is fulfilling its fiduciary responsibilities to shareholders.
D) none of these choices.

Question 17

Discuss the differences and similarities between the roles of accountants and auditors. What additional expertise must an auditor possess beyond that of an accountant?

Question 18

Financial statement users often receive unreliable financial information from companies. Which of the following is not a common reason for this?

A) Complex exchange transactions.
B) Voluminous data.
C) Remoteness of information.
D) Each of these choices is a common reason for unreliable financial information.

Question 19

Recording, classifying, and summarizing economic events in a logical manner for the purpose of providing financial information for decision making is commonly called:

A) finance.
B) auditing.
C) accounting.
D) economics.

Question 20

The Sarbanes-Oxley Act is widely viewed as having ushered in sweeping changes to auditing and financial reporting.

Question 21

An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is classified as a(n):

A) audit of financial statements.
B) compliance audit.
C) operational audit.
D) production audit.

Question 22

One objective of an operational audit is to:

A) determine whether the financial statements fairly present the entity's operations.
B) evaluate the feasibility of attaining the entity's operational objectives.
C) make recommendations for improving performance.
D) report on the entity's relative success in attaining profit maximization.

Question 23

Attestation services on information technology include WebTrust services and SysTrust services. Which of the following statements most accurately describes SysTrust services?

A) SysTrust services provide assurance on business processes, transaction integrity and information processes.
B) SysTrust services provide assurance on system reliability in critical areas such as security and data integrity.
C) SysTrust services provide assurance on internal control over financial reporting.
D) SysTrust services provide assurance as to whether accounting personnel are following procedures prescribed by the company controller.

Question 24

To do an audit, it is necessary for information to be in a verifiable form and some criteria by which the auditor can evaluate the information. Detail the information and criteria that would be used for:
(A) an independent CPA firm audits a company's historical financial statements.
(B) an Internal Revenue Service auditor who audits that same company's tax return.
(C) an internal auditor use when performing an operational audit to evaluate whether the company's computerized payroll processing system is operating efficiently and effectively.

Question 25

Most public companies' audited financial statements are available on the SEC's EDGAR database.

Question 26

What are the five categories of attestation services?

Question 27

Which one of the following is more difficult to evaluate objectively?

A) Presentation of financial statements in accordance with generally accepted accounting principles.
B) Compliance with government regulations.
C) Efficiency and effectiveness of operations.
D) All three of the above are equally difficult.

Question 28

What is an engagement to attest on internal control over financial reporting?

Question 29

Two types of attestation services provided by CPA firms are audits and reviews. Discuss the similarities and differences between these two types of attestation services. Which type provides the least assurance?

Question 30

Discuss the similarities and differences between financial statement audits, operational audits, and compliance audits. Give an example of each type.

Question 31

The Sarbanes-Oxley Act prohibits a CPA firm that audits a public company from providing which of the following types of services to that company?

A) Reviews of quarterly financial statements.
B) Preparation of corporate tax returns.
C) Most consulting services.
D) Tax services.

Question 32

CPA firms are never allowed to provide bookkeeping services for clients.

Question 33

An examination of part of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness is what type of audit?

A) Operational audit.
B) Compliance audit.
C) Financial statement audit.
D) Production audit.

Question 34

Which of the following audits can be regarded as generally being a compliance audit?

A) IRS agents' examinations of taxpayer returns.
B) GAO auditor's evaluation of the computer operations of governmental units.
C) An internal auditor's review of a company's payroll authorization procedures.
D) A CPA firm's audit of a public company.

Question 35

Which of the following is not a SysTrust Services principle as defined by the AICPA?

A) Online privacy.
B) Availability.
C) Processing integrity.
D) Operational integrity.

Question 36

Three common types of attestation services are:

A) audits, reviews, and attestations regarding internal controls.
B) audits, verifications, and attestations regarding internal controls.
C) reviews, verifications, and attestations regarding internal controls.
D) audits, reviews, and verifications.

Question 37

What is a WebTrust engagement? What is a SysTrust engagement? How do they differ?

Question 38

Section 404 of the Sarbanes-Oxley Act requires public companies to have an external auditor attest to their internal control over financial reporting.

Question 39

Which of the following services provides the lowest level of assurance on a financial statement?

A) A review.
B) An audit.
C) Neither service provides assurance on financial statements.
D) Each service provides the same level of assurance on financial statements.

Question 40

Which of the following are required to have a written report regarding the assertion of another party?

A)
B)
C)
D)

Question 41

The three requirements for becoming a CPA include all but which of the following?

A) Uniform CPA examination requirement.
B) Educational requirements.
C) Character requirements.
D) Experience requirement.

Question 42

The primary role of the United States General Accounting Office is the enforcement of the federal tax laws as defined by Congress and interpreted by the courts.

Question 43

Results of compliance audits are typically reported to someone within the organizational unit being audited rather than to a broad spectrum of outside users.

Question 44

Match the engagement described to the (A) type of audit and (B) auditor that would perform the engagement. Each engagement will have an answer from List-A and List-B. An answer can be used once, more than once, or not at all.

Engagement:
1. Evaluate a company's payroll processing for economy.
2. Evaluate/determine if bank covenants are being met.
3. Evaluate financial statements that are to be submitted to a bank.
4. Evaluate the promptness of materials inspection in a manufacturer's receiving department.
5. Determine if Medicare reimbursements are in accordance with the Healthcare Financing Administration (HCFA).
6. Determine if the tax return of a multinational corporation is in accordance with the tax code.
7. Determine if a public school is properly applying their reimbursement for the payment-in-kind program.
8. Determine the effectiveness of the department of defense starwars project.

Question 45

List and discuss the three primary requirements to become a CPA.

Question 46

The primary purpose of a compliance audit is to determine whether the financial statements are prepared in compliance with generally accepted accounting principles.

Question 47

Discuss the similarities and differences between the roles of independent auditors, GAO auditors, internal revenue agents, and internal auditors.