Auditing and Assurance Services Test 1

Acceptable Audit Risk - correct answer a measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued Audit Strategy - correct answer overall approach to the audit that considers the nature of the client, risk of significant misstatements, and other factors such as the number of client locations and past effectiveness of client controls Budgets - correct answer written records of the client's expectations for the period; a comparison of budgets with actual results may indicate whether or not misstatements are likely Client Business Risk - correct answer the risk that the client will fail to achieve its objectives related to (1) reliability of financial reporting, (2) effectiveness and efficiency of operations, and (3) compliance with laws and regulations Corporate Minutes - correct answer the official record of the meetings of a corporation's board of directors and stockholders, in which corporate issues such as the declaration of dividends and the approval of contracts are documented Engagement Letter - correct answer an agreement between the CPA firm and the client as to the terms of the engagement for the conduct of the audit and related services Inherent Risk - correct answer a measure of the auditor's assessment of the likelihood that there are material misstatements in a segment before considering the effectiveness of internal control Initial Audit Planning - correct answer involves deciding whether to accept or continue doing the audit for the client, identifying the client's reasons for the audit, obtaining an engagement letter, and developing an audit strategy Related Party - correct answer affiliated company, principal owner of the client company, or any other party with which the client deals, where one of the parties can influence the management or operating policies of the other Related Party Trasnsaction - correct answer any transaction between the client and a related party Analytical Procedures - correct answer evaluations of financial information through analysis of plausible relationships among financial and nonfinancial data Appropriateness of Evidence - correct answer a measure of the quality of evidence; appropriate evidence is relevant and reliable in meeting audit objectives for classes of transactions, account balances, and related disclosures Audit Documentation - correct answer record of the audit procedures performed, relevant audit evidence, and conclusions the auditor reached Audit Procedure - correct answer detailed instruction for the collection of a type of audit evidence Audit Program - correct answer list of audit procedures for an audit area or an entire audit; the audit program always includes audit procedures and may also include sample sizes, items to select, and timing of the tests Confirmation - correct answer the auditor's receipt of a direct written or electronic response from a third party verifying the accuracy of informa tion requested Current Files - correct answer all audit files applicable to the year under audit External Document - correct answer a document, such as a vendor's invoice, that has been used by an outside party to the transaction being documented and that the client now has or can easily obtain Inquiry - correct answer the obtaining of written or oral information from the client in response to specific questions during the audit Inspection - correct answer the auditor's examination of the client's documents and records to substantiate the information that is or should be included in the financial statements Internal Document - correct answer a document, such as an employee time report, that is prepared and used within the client's organization Lead Schedule - correct answer an audit schedule that contains the detailed accounts from the general ledger making up a line item total in the working trial balance Observation - correct answer looking at a process or procedure being performed by others Permanent Files - correct answer auditors' files that contain data of a historical or continuing nature pertinent to the current audit such as copies of articles of incorporation, bylaws, bond indentures, and contracts Persuasiveness of Evidence - correct answer the degree to which the auditor is convinced that the evidence supports the audit opinion; the two determinants of persuasiveness are the appropriateness and sufficiency of the evidence Physical Examination - correct answer the auditor's inspection or count of a tangible asset Recalculation - correct answer the rechecking of a sample of the computations made by the client, including mathematical accuracy of individual transactions and amounts and the adding of journals and subsidiary records Reliability of Evidence - correct answer the extent to which evidence is believable or worthy of trust; evidence is reliable when it is obtained (1) from an independent provider, (2) from a client with effective internal controls, (3) from the auditor's direct knowledge, (4) from qualified providers such as law firms and banks, (5) from objective sources, and (6) in a timely manner Reperformance - correct answer the auditor's independent tests of client accounting procedures or controls that were originally done as part of the entity's accounting and internal control system Sufficiency of Evidence - correct answer the quantity of evidence; proper sample size Supporting Schedules - correct answer detailed schedules prepared by the client or the auditor in support of specific amounts on the finan cial statements Tick Marks - correct answer symbols used on an audit schedule that provide additional information or details of audit procedures performed Tracing - correct answer the use of documentation to determine if transactions or amounts are included in the accounting records Unusual Fluctuations - correct answer significant unexpected differences indicated by analytical procedures between the current year's unaudited financial data and other data used in comparisons Vouching - correct answer the use of documentation to support recorded transactions or amounts Working Trial Balance - correct answer a listing of the general ledger accounts and their year end balances Analytical procedures - correct answer evaluations of financial information through analysis of plausible relationships among financial and nonfinancial data Balance-related audit objectives - correct answer eight audit objectives that must be met before the auditor can conclude that any given account balance is fairly stated; the general balance related audit objectives are existence, completeness, accuracy, classification, cutoff, detail tie-in, realizable value, and rights and obligations Cycle approach - correct answer a method of dividing an audit by keeping closely related types of transactions and account balances in the same segment Error - correct answer an unintentional misstatement of the financial statements Fraud - correct answer an intentional misstatement of the financial statements Fraudulent financial reporting - correct answer intentional misstatements or omissions of amounts or disclosures in financial statements to deceive users; often called management fr