Audit and Assurance Test 1 UPDATED
Exam Questions and CORRECT Answers
What is considered audit evidence? - CORRECT ANSWER - Any information used by the
auditor to determine whether the information being audited is stated in accordance with the
established criteria. Evidence takes many different forms, including: Electronic and documentary
data about transactions, Written and electronic communication with outsiders, Observation by
the auditor, Oral testimony of the auditee (client)
Know the Audit process - CORRECT ANSWER - Competent, independent person ->
Accumulates and evaluates evidence -> Determines correspondence (Information and Establish
criteria) - > Report in results
What is an auditor's focus? What are they trying to determine in an audit? - CORRECT
ANSWER - To provide assurance on financial statements and to provide assurance on the
effectiveness of internal control over financial reporting, as well as many other types of
information such as corporate sustainability reports.
Definition of auditing - CORRECT ANSWER - 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 competent, independent
person.
Define Information Risk - CORRECT ANSWER - reflects the possibility that the
information upon which the business risk decision was made was inaccurate. A likely cause of
the information risk is the possibility of inaccurate financial statements.
Define Business Risk - CORRECT ANSWER - This risk reflects the possibility that the
business will not be able to repay its loan because of economic or business conditions, such as a
recession, poor management decisions, or unexpected competition in the industry.
Define Risk-Free Interest Rate - CORRECT ANSWER - This is approximately the rate the
bank could earn by investing in U.S. treasury notes for the same length of times as a business
loan.
, Define Attestation Service - CORRECT ANSWER - A type of assurance service in which
the CPA firm issues a report about a subject matter or assertion that has been made by another
party.
Define Compliance Audit - CORRECT ANSWER - is conducted to determine whether the
auditee is following specific procedures, rules, or regulations set by some higher authority.
Define Operational Audit - CORRECT ANSWER - evaluates the efficiency and
effectiveness of any part of an organization's operating procedures and methods.
Define Financial Statement Audit - CORRECT ANSWER - is conducted to determine
whether the financial statements (the information being verified) are stated in accordance with
specified criteria.
Know what an internal auditor and a GAO auditor do - CORRECT ANSWER - employed
by all types of organizations to audit for management with oversight by the board of directors,
much as a GAO does for Congress.
The state grants a CPA firm the right to perform audits - CORRECT ANSWER - The state
grants a CPA firm the right to perform audits
Define Compilation - CORRECT ANSWER - lowest level of assurance. In a compilation
engagement, the objective is to assist management in presenting financial information in the
form of financial statements without undertaking to provide any assurance that there are no
material modifications that should be made to the financial statements so they will conform to
the acceptable financial reporting framework. Because of the even more limited scope of
compilation procedures, the CPA's report will not express an opinion or provide any assurance
regarding the financial statements.
Define Review - CORRECT ANSWER - assets that the statements are fairly stated in
accordance with accounting standards. Higher than Compilation but lower than an audit. A
review is conducted to provide limited assurance that there are no material modifications that
Exam Questions and CORRECT Answers
What is considered audit evidence? - CORRECT ANSWER - Any information used by the
auditor to determine whether the information being audited is stated in accordance with the
established criteria. Evidence takes many different forms, including: Electronic and documentary
data about transactions, Written and electronic communication with outsiders, Observation by
the auditor, Oral testimony of the auditee (client)
Know the Audit process - CORRECT ANSWER - Competent, independent person ->
Accumulates and evaluates evidence -> Determines correspondence (Information and Establish
criteria) - > Report in results
What is an auditor's focus? What are they trying to determine in an audit? - CORRECT
ANSWER - To provide assurance on financial statements and to provide assurance on the
effectiveness of internal control over financial reporting, as well as many other types of
information such as corporate sustainability reports.
Definition of auditing - CORRECT ANSWER - 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 competent, independent
person.
Define Information Risk - CORRECT ANSWER - reflects the possibility that the
information upon which the business risk decision was made was inaccurate. A likely cause of
the information risk is the possibility of inaccurate financial statements.
Define Business Risk - CORRECT ANSWER - This risk reflects the possibility that the
business will not be able to repay its loan because of economic or business conditions, such as a
recession, poor management decisions, or unexpected competition in the industry.
Define Risk-Free Interest Rate - CORRECT ANSWER - This is approximately the rate the
bank could earn by investing in U.S. treasury notes for the same length of times as a business
loan.
, Define Attestation Service - CORRECT ANSWER - A type of assurance service in which
the CPA firm issues a report about a subject matter or assertion that has been made by another
party.
Define Compliance Audit - CORRECT ANSWER - is conducted to determine whether the
auditee is following specific procedures, rules, or regulations set by some higher authority.
Define Operational Audit - CORRECT ANSWER - evaluates the efficiency and
effectiveness of any part of an organization's operating procedures and methods.
Define Financial Statement Audit - CORRECT ANSWER - is conducted to determine
whether the financial statements (the information being verified) are stated in accordance with
specified criteria.
Know what an internal auditor and a GAO auditor do - CORRECT ANSWER - employed
by all types of organizations to audit for management with oversight by the board of directors,
much as a GAO does for Congress.
The state grants a CPA firm the right to perform audits - CORRECT ANSWER - The state
grants a CPA firm the right to perform audits
Define Compilation - CORRECT ANSWER - lowest level of assurance. In a compilation
engagement, the objective is to assist management in presenting financial information in the
form of financial statements without undertaking to provide any assurance that there are no
material modifications that should be made to the financial statements so they will conform to
the acceptable financial reporting framework. Because of the even more limited scope of
compilation procedures, the CPA's report will not express an opinion or provide any assurance
regarding the financial statements.
Define Review - CORRECT ANSWER - assets that the statements are fairly stated in
accordance with accounting standards. Higher than Compilation but lower than an audit. A
review is conducted to provide limited assurance that there are no material modifications that
