AC 523 External Audit Exam 1 Study Guide
Assurance, attestation, and audit services have these in common: - ANSWER 1. An
independent accounting firm takes info prepared by the client and compares it to an
established set of criteria
2. The firm provides a written report about the results
3. The services add credibility (integrity) to the info, making it more useful in decision
making
Assurance services includes: - ANSWER Website security, risk advisory services, and
data integrity
Attestation services includes: - ANSWER review of historical financial statements and
org controls reports, examination of financial forecast, agreed upon procedures
Audit services includes: - ANSWER audit of historical financial statements and internal
controls
Audit services can only be performed by - ANSWER CPA
Intended users include - ANSWER any group that uses financial statements to make
decisions, such as investors and creditors
Independence means - ANSWER the person performing the service was not involved
with the creation of the info and is objective in the evaluation of the information
Applicable financial reporting frameworks include - ANSWER GAAP, IFRS, and a federal
income tax basis of accounting
integrated audit - ANSWER an audit that combines the financial statement audit with an
audit of the effectiveness of ICFR
Limitations of an audit are caused by - ANSWER 1. the nature of financial reporting
2. the nature of audit procedures
3. the need for the audit to be conducted within a reasonable period of time at a
reasonable cost
compliance audit - ANSWER An audit to measure the compliance of the organization
with some established criteria (e.g., laws and regulations, or internal control policies
and procedures).
operational (performance) audit - ANSWER an assessment of the economy, efficiency,
and effectiveness of an organization's operations
, internal audit - ANSWER a unit within an entity which generally evaluates and improves
risk management, internal control procedures, and elements of the governance process
Those charged with governance - ANSWER the person(s) with responsibility for
overseeing the strategic direction of the entity and its obligations related to the
accountability of the entity, including overseeing the financial reporting and disclosure
process
Financial statement users include - ANSWER Investors, suppliers, customers, lenders,
employees, governments, and the general public
Reasons for demand of audit of financial statements - ANSWER 1. remoteness
2. complexity
3. competing incentives
4. reliability
Remoteness - ANSWER Most financial statement users do not have access to the
company under review.
Complexity - ANSWER Most financial statement users do not have the accounting and
legal knowledge to assess the reasonableness of complex accounting and disclosure
choices being made by the company.
Competing incentives - ANSWER Users may find it difficult or impossible to identify
when management is presenting biased information.
Reliability - ANSWER Since they use that information to make decisions that have real
consequences, it is very important that users can rely on the information contained in
the financial statements.
Preparer's responsibility - ANSWER 1. Ensuring fair presentation of financial statements
in compliance with GAAP
2. Designing, implementing, and maintaining internal controls
3. Providing auditors with full access to required information
Auditor's responsibility - ANSWER 1. Conducting the audit in accordance with the
appropriate auditing standards
2. Performing audit with professional skepticism
3. Performing audit with professional judgment
Professional skepticism - ANSWER an attitude that includes a questioning mind and a
critical assessment of audit evidence
Professional judgment - ANSWER the application of relevant training, knowledge, and
Assurance, attestation, and audit services have these in common: - ANSWER 1. An
independent accounting firm takes info prepared by the client and compares it to an
established set of criteria
2. The firm provides a written report about the results
3. The services add credibility (integrity) to the info, making it more useful in decision
making
Assurance services includes: - ANSWER Website security, risk advisory services, and
data integrity
Attestation services includes: - ANSWER review of historical financial statements and
org controls reports, examination of financial forecast, agreed upon procedures
Audit services includes: - ANSWER audit of historical financial statements and internal
controls
Audit services can only be performed by - ANSWER CPA
Intended users include - ANSWER any group that uses financial statements to make
decisions, such as investors and creditors
Independence means - ANSWER the person performing the service was not involved
with the creation of the info and is objective in the evaluation of the information
Applicable financial reporting frameworks include - ANSWER GAAP, IFRS, and a federal
income tax basis of accounting
integrated audit - ANSWER an audit that combines the financial statement audit with an
audit of the effectiveness of ICFR
Limitations of an audit are caused by - ANSWER 1. the nature of financial reporting
2. the nature of audit procedures
3. the need for the audit to be conducted within a reasonable period of time at a
reasonable cost
compliance audit - ANSWER An audit to measure the compliance of the organization
with some established criteria (e.g., laws and regulations, or internal control policies
and procedures).
operational (performance) audit - ANSWER an assessment of the economy, efficiency,
and effectiveness of an organization's operations
, internal audit - ANSWER a unit within an entity which generally evaluates and improves
risk management, internal control procedures, and elements of the governance process
Those charged with governance - ANSWER the person(s) with responsibility for
overseeing the strategic direction of the entity and its obligations related to the
accountability of the entity, including overseeing the financial reporting and disclosure
process
Financial statement users include - ANSWER Investors, suppliers, customers, lenders,
employees, governments, and the general public
Reasons for demand of audit of financial statements - ANSWER 1. remoteness
2. complexity
3. competing incentives
4. reliability
Remoteness - ANSWER Most financial statement users do not have access to the
company under review.
Complexity - ANSWER Most financial statement users do not have the accounting and
legal knowledge to assess the reasonableness of complex accounting and disclosure
choices being made by the company.
Competing incentives - ANSWER Users may find it difficult or impossible to identify
when management is presenting biased information.
Reliability - ANSWER Since they use that information to make decisions that have real
consequences, it is very important that users can rely on the information contained in
the financial statements.
Preparer's responsibility - ANSWER 1. Ensuring fair presentation of financial statements
in compliance with GAAP
2. Designing, implementing, and maintaining internal controls
3. Providing auditors with full access to required information
Auditor's responsibility - ANSWER 1. Conducting the audit in accordance with the
appropriate auditing standards
2. Performing audit with professional skepticism
3. Performing audit with professional judgment
Professional skepticism - ANSWER an attitude that includes a questioning mind and a
critical assessment of audit evidence
Professional judgment - ANSWER the application of relevant training, knowledge, and
