ACCT 407 - EXAM 1: GARZA QUESTIONS AND CORRECT ANSWERS

ACCT 407 - EXAM 1: GARZA QUESTIONS
AND CORRECT ANSWERS
WhichA2ofA2theA2followingA2wouldA2beA2consideredA2anA2assuranceA2engagement?

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A2GivingA2anA2opinionA2onA2aA2prizeA2promoter'sA2claimsA2aboutA2theA2amountA2ofA2sweep
stakesA2prizesA2awardedA2inA2theA2past.

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A2GivingA2anA2opinionA2onA2theA2conformityA2ofA2theA2financialA2statementsA2ofA2aA2univers
ityA2withA2generallyA2acceptedA2accountingA2principles.

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A2 GivingA2anA2opinionA2onA2theA2fairA2presentationA2ofA2aA2newspaper'sA2circulationA2data.

-
A2GivingA2assuranceA2aboutA2theA2averageA2driveA2lengthA2achievedA2byA2golfersA2withA2a
A2client'sA2golfA2balls.


-A2AllA2ofA2theA2above.A2-A2Ans--
e.A2BecauseA2attestationA2andA2auditA2engagementsA2areA2subsetsA2ofA2assuranceA2enga
gements,A2allA2ofA2theA2responsesA2areA2examplesA2ofA2assuranceA2engagements.

ItA2isA2alwaysA2aA2goodA2ideaA2forA2auditorsA2toA2beginA2anA2auditA2withA2theA2professional
A2skepticismA2characterizedA2byA2theA2assumptionA2that


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AA2potentialA2conflictA2ofA2interestA2alwaysA2existsA2betweenA2theA2auditorA2andA2theA2m
A2
anagementA2ofA2theA2enterpriseA2underA2audit.

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A2 InA2auditsA2ofA2financialA2statements,A2theA2auditorA2actsA2exclusivelyA2inA2theA2capacity
A2 ofA2anA2auditor.

-
A2TheA2professionalA2statusA2ofA2theA2independentA2auditorA2imposesA2commensurateA2pr
ofessionalA2obligations.

-A2FinancialA2statementsA2andA2financialA2dataA2areA2verifiable.A2-A2Ans--
a.A2TheA2managementA2teamA2isA2generallyA2tryingA2toA2putA2itsA2"bestA2footA2forward"A2w
henA2reportingA2theirA2financialA2statementA2information.A2TheA2auditorA2mustA2makeA2sur
eA2thatA2theA2managementA2teamA2doesA2notA2violateA2theA2accountingA2rulesA2whenA2doi

,ngA2so.A2INA2essence,A2thisA2statementA2characterizesA2whyA2professionalA2skepticismA2i
sA2requiredA2toA2beA2exercisedA2byA2auditors.

InA2anA2attestationA2engagement,A2aA2CPAA2practitionerA2isA2engagedA2to

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A2 CompileA2aA2company'sA2financialA2forecastA2basedA2onA2management'sA2assumptionsA
2 withoutA2expressingA2anyA2formA2ofA2assurance.

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PrepareA2aA2writtenA2reportA2containingA2aA2conclusionA2aboutA2theA2reliabilityA2ofA2aA2m
A2
anagementA2assertion.

-
A2PrepareA2aA2taxA2returnA2usingA2informationA2theA2CPAA2hasA2notA2auditedA2orA2reviewe
d.

-
A2GiveA2expertA2testimonyA2inA2courtA2onA2particularA2factsA2inA2aA2corporateA2incomeA2tax
A2controversy.A2-A2Ans--
b.A2ThisA2isA2theA2basicA2definitionA2ofA2anA2attestationA2service,A2asA2articulatedA2inA2theA
2bookA2andA2theA2professionalA2standards.


AA2determinationA2ofA2costA2savingsA2obtainedA2byA2outsourcingA2cafeteriaA2servicesA2isA2
mostA2likelyA2toA2beA2anA2objectiveA2of

-A2EnvironmentalA2auditing.

-A2FinancialA2auditing.

-A2ComplianceA2auditing.

-A2OperationalA2auditing.A2-A2Ans--
d.A2OperationalA2auditingA2refersA2toA2theA2studyA2ofA2businessA2operationsA2forA2theA2pur
poseA2ofA2makingA2recommendationsA2aboutA2theA2economicA2andA2efficientA2useA2ofA2re
sources,A2effectiveA2achievementA2ofA2businessA2objectives,A2andA2complianceA2withA2co
mpanyA2policies.

TheA2primaryA2differenceA2betweenA2operationalA2auditingA2andA2financialA2auditingA2isA2t
hatA2inA2operationalA2auditing

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A2TheA2operationalA2auditorA2isA2notA2concernedA2withA2whetherA2theA2auditedA2activityA2is
A2generatingA2informationA2inA2complianceA2withA2financialA2accountingA2standards.

,-
TheA2operationalA2auditorA2isA2seekingA2toA2helpA2managementA2useA2resourcesA2inA2th
A2
eA2mostA2effectiveA2mannerA2possible.

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A2TheA2operationalA2auditorA2startsA2withA2theA2financialA2statementsA2ofA2anA2activityA2bei
ngA2auditedA2andA2worksA2backwardA2toA2theA2basicA2processesA2involvedA2inA2producing
A2them.


-
A2TheA2operationalA2auditorA2canA2useA2analyticalA2skillsA2andA2toolsA2thatA2areA2notA2nec
essaryA2inA2financialA2auditing.A2-A2Ans--
b.A2ThisA2statementA2exactlyA2characterizesA2theA2goalA2ofA2anA2operationalA2audit.A2InA2a
ddition,A2theA2statementA2isA2partA2ofA2theA2basicA2definitionA2ofA2operationalA2auditing.

AccordingA2toA2theA2AICPA,A2theA2purposeA2ofA2anA2auditA2ofA2financialA2statementsA2isA2t
o

-
EnhanceA2theA2degreeA2ofA2confidenceA2thatA2intendedA2usersA2canA2placeA2inA2theA2fin
A2
ancialA2statements.

-
A2ExpressA2anA2opinionA2onA2theA2fairnessA2withA2whichA2theyA2presentA2financialA2positio
n,A2resultsA2ofA2operations,A2andA2cashA2flowsA2inA2conformityA2withA2accountingA2standar
dsA2promulgatedA2byA2theA2FinancialA2AccountingA2StandardsA2Board.

-
A2ExpressA2anA2opinionA2onA2theA2fairnessA2withA2whichA2theyA2presentA2financialA2positio
n,A2resultsA2ofA2operations,A2andA2cashA2flowsA2inA2conformityA2withA2accountingA2standar
dsA2promulgatedA2byA2theA2U.S.A2SecuritiesA2andA2ExchangeA2Commission.

-
A2ObtainA2systematicA2andA2objectiveA2evidenceA2aboutA2financialA2assertionsA2andA2repo
rtA2theA2resultsA2toA2interestedA2users.A2-A2Ans--
a.A2AccordingA2toA2theA2AICPAA2definitionA2foundA2inA2AUA2200A2(paragraphA211)A2andA2in
A2yourA2book,A2"theA2purposeA2ofA2anA2auditA2isA2toA2enhanceA2theA2degreeA2ofA2confidenc
eA2thatA2intendedA2usersA2canA2placeA2inA2theA2financialA2statements.A2ThisA2isA2achieved
A2byA2theA2expressionA2ofA2anA2opinionA2byA2theA2auditorA2onA2whetherA2theA2financialA2st
atementsA2areA2prepared,A2inA2allA2materialA2respects,A2inA2accordanceA2withA2anA2applic
ableA2financialA2reportingA2framework.A2AsA2aA2result,A2thisA2isA2theA2correctA2response.

BankersA2whoA2areA2processingA2loanA2applicationsA2fromA2companiesA2seekingA2largeA2l
oansA2willA2probablyA2askA2forA2financialA2statementsA2auditedA2byA2anA2independentA2CP
AA2because

, -
A2 FinancialA2statementsA2areA2tooA2complexA2forA2theA2bankersA2toA2analyzeA2themselves
.

-
TheyA2areA2tooA2farA2awayA2fromA2companyA2headquartersA2toA2performA2accountingA2a
A2
ndA2auditingA2themselves.

-A2TheA2consequencesA2ofA2makingA2aA2badA2loanA2areA2veryA2undesirable.

-
A2TheyA2generallyA2seeA2aA2potentialA2conflictA2ofA2interestA2betweenA2companyA2manage
rsA2whoA2wantA2toA2getA2loansA2andA2theA2bank'sA2needsA2forA2reliableA2financialA2stateme
nts.A2-A2Ans--
d.A2TheA2potentialA2conflictA2ofA2interestA2betweenA2managementA2andA2theA2bankA2isA2far
A2andA2awayA2theA2biggestA2factorA2drivingA2theA2demandA2forA2auditedA2financialA2statem
ents.A2ConsiderA2forA2exampleA2aA2companyA2thatA2wasA2desperateA2forA2cashA2inA2orderA
2toA2survive.A2WouldA2itA2beA2possibleA2thatA2theA2managementA2teamA2wouldA2presentA2u
nreliableA2financialA2statementsA2toA2theA2bankA2inA2orderA2toA2getA2aA2desperationA2loan?
A2BecauseA2ofA2thisA2possibility,A2aA2financialA2statementA2auditA2isA2neededA2toA2addA2cre
dibilityA2toA2theA2financialA2statements

TheA2Sarbanes-
OxleyA2ActA2ofA22002A2prohibitsA2publicA2accountingA2firmsA2fromA2providingA2whichA2ofA2t
heA2followingA2servicesA2toA2anA2auditA2client?

-A2BookkeepingA2services

-A2InternalA2auditingA2services

-A2ValuationA2services

-A2AllA2ofA2theA2aboveA2-A2Ans--d.A2Sarbanes-
OxleyA2prohibitsA2theA2provisionA2ofA2allA2ofA2theA2servicesA2listedA2inA2answersA2a,A2b,A2a
ndA2c;A2therefore,A2dA2(allA2ofA2theA2above)A2isA2theA2bestA2response.

IndependentA2auditorsA2ofA2financialA2statementsA2performA2auditsA2thatA2reduce

-A2BusinessA2risksA2facedA2byA2investors.

-A2InformationA2riskA2facedA2byA2investors.

-A2ComplexityA2ofA2financialA2statements.