Chapter 1: the assurance services market
1. What is the difference between auditing and accounting?
Auditing is the accumulation and evaluation of evidence about information
to determine and report on the degree of correspondence between the
information and established criteria. Auditing should be done by a
component, independent person.
Accounting is the recording, classifying and summarizing of economic
events in a logical manner for the purpose of providing financial information
for decision-making.
2. What is information risk? Mention the four reasons why decision makers are more
likely to receive unreliable information?
Information risk reflects the possibility (risk) that the information upon
which the business decision risk was made was inaccurate. The major causes
why decision makers are more likely to receive unreliable information:
1. Remoteness of information: information provided by others can be
intentionally or unintentionally misstated. à Resource constraints.
2. Biases and motives of the providers: if information is provided by
someone whose goals are inconsistent with those of the decision-maker, the
information may be biased in favor of the provider. à Agency problems.
3. Voluminous data: as organizations become larger, so does the volume of
their exchange transactions, which increases the likelihood that improperly
recorded information is included in the records. à Unrecognized materiality
4. Complex exchange transactions: the increasing complexity in
transactions has also resulted in increasingly complex accounting standards.
à Transactions and standards.
3. Identify the three main ways information risks can be reduced?
- User verifies information
- User shares information risk with management
- Audited financial statements are provided
4. Define assurance services. Why are assurance services valued?
Assurance service is an independent professional service that improves the
quality of information for decision makers. Assurances services are valued
because the assurance provider is independent and perceives as being
unbiased with respect to the information examined.
, 5. Define attestation services. What are the five categories of attestation services?
Attestation service is a type of assurance service in which the CPA firm
issues a report about a subject matter of assertion that is made by another
party. Attestation services fall into five categories:
1. Audit of historical financial statements
2. Audit of internal control over financial reporting
3. Review of historical financial statements
4. Attestation services on information technology
5. Other attestation services
6. Attestation services on information technology (IT). Explain two examples of
attestation services developed to address these assurance needs.
1. WebTrust services à The CPA’s electronic WebTrust seal displayed on
the website assures the user that the website owner has met established criteria,
related to business practices, transaction integrity and information processes.
2. SysTrust services à The SysTrust service is created to evaluate and test
system reliability in areas such as security and data integrity.
7. What are nonassurance services? What are the three examples?
Nonassurance services are the numerous other services that generally fall
outside the scope of assurance services. Three specific examples:
1. Accounting and bookkeeping services
2. Tax services
3. Management and consulting services
8. What are the three types of audits? Explain.
The three primary types of audits are:
1. Operational audit à evaluates the efficiency and effectiveness of any part
of an organization’s operating procedures and methods. Management expects
recommendations for improving operations from the audit.
2. Compliance audit à conducted to determine whether the auditee is
following specific procedures, rules or regulations set by some higher
authority.
3. Financial statement audit à conducted to determine whether the financial
statements are stated in accordance with specified criteria.
1. What is the difference between auditing and accounting?
Auditing is the accumulation and evaluation of evidence about information
to determine and report on the degree of correspondence between the
information and established criteria. Auditing should be done by a
component, independent person.
Accounting is the recording, classifying and summarizing of economic
events in a logical manner for the purpose of providing financial information
for decision-making.
2. What is information risk? Mention the four reasons why decision makers are more
likely to receive unreliable information?
Information risk reflects the possibility (risk) that the information upon
which the business decision risk was made was inaccurate. The major causes
why decision makers are more likely to receive unreliable information:
1. Remoteness of information: information provided by others can be
intentionally or unintentionally misstated. à Resource constraints.
2. Biases and motives of the providers: if information is provided by
someone whose goals are inconsistent with those of the decision-maker, the
information may be biased in favor of the provider. à Agency problems.
3. Voluminous data: as organizations become larger, so does the volume of
their exchange transactions, which increases the likelihood that improperly
recorded information is included in the records. à Unrecognized materiality
4. Complex exchange transactions: the increasing complexity in
transactions has also resulted in increasingly complex accounting standards.
à Transactions and standards.
3. Identify the three main ways information risks can be reduced?
- User verifies information
- User shares information risk with management
- Audited financial statements are provided
4. Define assurance services. Why are assurance services valued?
Assurance service is an independent professional service that improves the
quality of information for decision makers. Assurances services are valued
because the assurance provider is independent and perceives as being
unbiased with respect to the information examined.
, 5. Define attestation services. What are the five categories of attestation services?
Attestation service is a type of assurance service in which the CPA firm
issues a report about a subject matter of assertion that is made by another
party. Attestation services fall into five categories:
1. Audit of historical financial statements
2. Audit of internal control over financial reporting
3. Review of historical financial statements
4. Attestation services on information technology
5. Other attestation services
6. Attestation services on information technology (IT). Explain two examples of
attestation services developed to address these assurance needs.
1. WebTrust services à The CPA’s electronic WebTrust seal displayed on
the website assures the user that the website owner has met established criteria,
related to business practices, transaction integrity and information processes.
2. SysTrust services à The SysTrust service is created to evaluate and test
system reliability in areas such as security and data integrity.
7. What are nonassurance services? What are the three examples?
Nonassurance services are the numerous other services that generally fall
outside the scope of assurance services. Three specific examples:
1. Accounting and bookkeeping services
2. Tax services
3. Management and consulting services
8. What are the three types of audits? Explain.
The three primary types of audits are:
1. Operational audit à evaluates the efficiency and effectiveness of any part
of an organization’s operating procedures and methods. Management expects
recommendations for improving operations from the audit.
2. Compliance audit à conducted to determine whether the auditee is
following specific procedures, rules or regulations set by some higher
authority.
3. Financial statement audit à conducted to determine whether the financial
statements are stated in accordance with specified criteria.
