ACCT 405 Auditing - Exam 1 | Latest
study | Questions and verified Answers
Purpose of an Audit - ANSW-Provide financial statement users with an opinion on whether the financial
statements are presented fairly, in all material respects, in accordance with the applicable financial
reporting framework
Applicable Financial Reporting Framework (AFRF) - ANSW-The financial reporting framework that is
acceptable in view of the nature of the entity and the objective of the financial statements, or that is
required by law or regulation.
For Assets, is existence or completeness more important when auditing? - ANSW-Existence
Assurance Engagements - ANSW-low level of assurance, and can be about things other than financial
statements. Many people can complete these, not just CPAs. A broad "look" such as a safety audit.
Attestation Engagements - ANSW-Accounting service resulting in a report on the subject matter or an
assertion about subject matter that is the responsibility of another party. Mid-level of assurance
Assurance - ANSW-lending credibility to information
Audit Engagement - ANSW-highest level of assurance, performed by a CPA
Attestation - ANSW-A report containing conclusions about the reliability
Reasonable Assurance - ANSW-The concept that an audit done in accordance with auditing standards
may fail to detect a material misstatement in a client's financial statements. In an auditing context this
term has been defined to mean a high but not absolute level of assurance.
Professional Skepticism - ANSW-Appropriate questioning and critical assessment of evidence. An attitude
that includes a questioning mind, being alert to conditions that may indicate possible misstatement due
to fraud or error, and a critical assessment of audit evidence.
Ethical Requirements - ANSW-Independence in both fact and appearance, auditor complying with ethical
requirements related to financial statement audit engagements
Materiality - ANSW-Importance or significance of an amount, transaction, or discrepancy. Auditor's
judgment.
Accuracy Assertion - ANSW-Check whether the transaction and the other data relating it have been
calculated correctly. Also to determine that the amounts have been properly recorded
Allocation Assertion - ANSW-Check whether estimates appear reasonable and have been properly
recorded in the financial statements
Classification Assertion - ANSW-Check whether the transaction has been recorded in the proper
accounts or not
Completeness Assertion - ANSW-Check whether a transaction value has been recorded. Concerned that
transactions may have occurred, but are not recorded in the financial statements
Cut-off Assertion - ANSW-Check whether the transactions recorded actually relate to the year under
audit. This concern usually arises for the period a couple weeks before year end and a couple of weeks
after year end
Existence Assertion - ANSW-Check whether the asset or liability for which the value has been recorded,
actually exist or not (ex: make sure an account is not overstated)
Occurrence Assertion - ANSW-Check whether the transactions recorded actually occurred or not
, Rights and Obligations Assertion - ANSW-Check whether the asset or liability for which the value has
been written either is under Control of the entity or not. This can be achieved by ownership or
lease/legal contracts for assets. For liabilities the auditor is concerned that the liabilities represent actual
legal liabilities
Valuation Assertion - ANSW-Check whether the asset or liability has been recorded at its correct value or
not. Correct value may be the historical cost on the day the transactions occurred
Business Risk - ANSW-factors, events, and conditions that could prevent the organization from achieving
its objectives
Information Risk - ANSW-probability that information circulated by an entity will be false or misleading
"Must" or "is required" indicates __ responsibility in auditing - ANSW-unconditional responsibility,
mandatory
"Should" indicates __ responsibility in auditing - ANSW-presumptively mandatory, follow where
requirement is relevant
"May", "might", and "could" indicates __ responsibility in auditing - ANSW-responsibility to consider,
optional
Independence in Fact - ANSW-The state of mind that permits the performance of an attest service
without being affected by influences that compromise professional judgment, thereby allowing an
individual to act with integrity and professional skepticism
Independence in Appearance - ANSW-The avoidance of circumstances that would cause a reasonable
and informed third party, having knowledge of all relevant information, including safeguards applied, to
reasonably conclude that the integrity, objectivity, or professional skepticism of a firm or a member of
the attest engagement team has been compromised.
Responsibility Principle - ANSW-1. competence and capabilities
2. independence
3. Due Care
4. Professional skepticism and judgment
Due Care - ANSW-A level of performance that would be exercised by reasonable auditors in similar
circumstances; auditors are expected to possess the skills and knowledge of others in their profession
and are not expected to be infallible
Performance Principle - ANSW-1. Planning and Supervision
2. Materiality
3. Risk Assessment
4. Audit Evidence
Inherent risk - ANSW-the probability that in the absence of internal controls, material errors or frauds
could enter the accounting system used to develop financial statements
Control risk - ANSW-the probability that a material misstatement (error or fraud) will not be prevented
or detected on a timely basis by the entity's internal controls
Detection risk - ANSW-the risk that the audit team's substantive procedures will fail to detect a material
misstatement
study | Questions and verified Answers
Purpose of an Audit - ANSW-Provide financial statement users with an opinion on whether the financial
statements are presented fairly, in all material respects, in accordance with the applicable financial
reporting framework
Applicable Financial Reporting Framework (AFRF) - ANSW-The financial reporting framework that is
acceptable in view of the nature of the entity and the objective of the financial statements, or that is
required by law or regulation.
For Assets, is existence or completeness more important when auditing? - ANSW-Existence
Assurance Engagements - ANSW-low level of assurance, and can be about things other than financial
statements. Many people can complete these, not just CPAs. A broad "look" such as a safety audit.
Attestation Engagements - ANSW-Accounting service resulting in a report on the subject matter or an
assertion about subject matter that is the responsibility of another party. Mid-level of assurance
Assurance - ANSW-lending credibility to information
Audit Engagement - ANSW-highest level of assurance, performed by a CPA
Attestation - ANSW-A report containing conclusions about the reliability
Reasonable Assurance - ANSW-The concept that an audit done in accordance with auditing standards
may fail to detect a material misstatement in a client's financial statements. In an auditing context this
term has been defined to mean a high but not absolute level of assurance.
Professional Skepticism - ANSW-Appropriate questioning and critical assessment of evidence. An attitude
that includes a questioning mind, being alert to conditions that may indicate possible misstatement due
to fraud or error, and a critical assessment of audit evidence.
Ethical Requirements - ANSW-Independence in both fact and appearance, auditor complying with ethical
requirements related to financial statement audit engagements
Materiality - ANSW-Importance or significance of an amount, transaction, or discrepancy. Auditor's
judgment.
Accuracy Assertion - ANSW-Check whether the transaction and the other data relating it have been
calculated correctly. Also to determine that the amounts have been properly recorded
Allocation Assertion - ANSW-Check whether estimates appear reasonable and have been properly
recorded in the financial statements
Classification Assertion - ANSW-Check whether the transaction has been recorded in the proper
accounts or not
Completeness Assertion - ANSW-Check whether a transaction value has been recorded. Concerned that
transactions may have occurred, but are not recorded in the financial statements
Cut-off Assertion - ANSW-Check whether the transactions recorded actually relate to the year under
audit. This concern usually arises for the period a couple weeks before year end and a couple of weeks
after year end
Existence Assertion - ANSW-Check whether the asset or liability for which the value has been recorded,
actually exist or not (ex: make sure an account is not overstated)
Occurrence Assertion - ANSW-Check whether the transactions recorded actually occurred or not
, Rights and Obligations Assertion - ANSW-Check whether the asset or liability for which the value has
been written either is under Control of the entity or not. This can be achieved by ownership or
lease/legal contracts for assets. For liabilities the auditor is concerned that the liabilities represent actual
legal liabilities
Valuation Assertion - ANSW-Check whether the asset or liability has been recorded at its correct value or
not. Correct value may be the historical cost on the day the transactions occurred
Business Risk - ANSW-factors, events, and conditions that could prevent the organization from achieving
its objectives
Information Risk - ANSW-probability that information circulated by an entity will be false or misleading
"Must" or "is required" indicates __ responsibility in auditing - ANSW-unconditional responsibility,
mandatory
"Should" indicates __ responsibility in auditing - ANSW-presumptively mandatory, follow where
requirement is relevant
"May", "might", and "could" indicates __ responsibility in auditing - ANSW-responsibility to consider,
optional
Independence in Fact - ANSW-The state of mind that permits the performance of an attest service
without being affected by influences that compromise professional judgment, thereby allowing an
individual to act with integrity and professional skepticism
Independence in Appearance - ANSW-The avoidance of circumstances that would cause a reasonable
and informed third party, having knowledge of all relevant information, including safeguards applied, to
reasonably conclude that the integrity, objectivity, or professional skepticism of a firm or a member of
the attest engagement team has been compromised.
Responsibility Principle - ANSW-1. competence and capabilities
2. independence
3. Due Care
4. Professional skepticism and judgment
Due Care - ANSW-A level of performance that would be exercised by reasonable auditors in similar
circumstances; auditors are expected to possess the skills and knowledge of others in their profession
and are not expected to be infallible
Performance Principle - ANSW-1. Planning and Supervision
2. Materiality
3. Risk Assessment
4. Audit Evidence
Inherent risk - ANSW-the probability that in the absence of internal controls, material errors or frauds
could enter the accounting system used to develop financial statements
Control risk - ANSW-the probability that a material misstatement (error or fraud) will not be prevented
or detected on a timely basis by the entity's internal controls
Detection risk - ANSW-the risk that the audit team's substantive procedures will fail to detect a material
misstatement
