ACCT 3222-3 LSU Exam 1: Questions With Correct
Solutions
Audit Services Right Ans - services by an independent CPA that provide
financial statement users with (1) an opinion on whether the financial
statements are presented fairly, in all material respects, in accordance with an
applicable financial reporting framework and (2) an opinion on the
effectiveness of ICFR, which enhance the degree of confidence that intended
users can place in the financial statements
Attestation Services Right Ans - Services performed when an independent
practitioner, or CPA, is engaged to issue a report on subject matter that is the
responsibility of another party
Relationship of assurance, attestation, and auditing services from most to
least improved of quality (i.e., assurance) Right Ans - Audit - highest
quality/reasonable assurance (i.e., historical financial statements)
Attestation - mid quality/limited assurance (i.e., review of historical financial
statements, examination of internal controls, review of financial forecast)
Assurance - lowest quality (i.e., compilation of historical financial statements,
website security, IT operations, non-financial information)
Assurance Services Right Ans - independent professional services that
improve the quality of information, or its context, for decision makers
Applicable financial reporting framework refers to Right Ans - the set of
standards used in preparing the historical financial statements (i.e., GAAP,
IFRS, or federal income tax basis of accounting)
Independent implies that the service is performed by Right Ans - someone
who was not involved with the creation of the information and who is
objective in the evaluation of the information
Quality refers to Right Ans - the relevance and realiability of the
information
,Information refers to Right Ans - subject matter that can be financial or
nonfinancial, historical or prospective, standalone data or entire systems of
data, internal or external to a company
CPAs are the only _________ accounting professionals in the US and the ________
are issued at the ____________ level Right Ans - Licensed accounting
professionals in the US.
Licenses are issued at the state level, not federal
A state board of accountancy will only issue Right Ans - a licence to
practice after all three Es have been earned
CPA Es Right Ans - Education, Exam, and Experience
Public companies, or issuers, in the US are required by federal government to
have Right Ans - an annual financial statement audit and an ICFR audit
Private companies, or non-issuers, are _______ to have an annual audit by
federal government, but Right Ans - Not required by law, other interested
users may request audited financial statements (i.e., lenders)
ICFR Right Ans - Internal Control over Financial Reporting
Integrated Audit Right Ans - An audit that combines the financial statement
audit with an audit of the effectiveness of ICFR
The limitations of an audit are cause by Right Ans - 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
The nature of financial reporting refers to Right Ans - the use of judgment
when preparing financial statements due to the subjectivity required when
arriving at accounting estimates and judgment required when selecting and
applying accounting methods
,The nature of audit procedures refers to Right Ans - Reliance on evidence
provided by the client and its managements, as well as the concept of
materiality
Materiality Right Ans - the ability of information to influence decisions that
users make on the basis of the financial information of a specific reporting
entity
Compliance Audit Right Ans - an audit to determine whether the entity has
conformed with regulations, rules, or processes
Operational (Performance) Audit Right Ans - An assessment of the
economy, efficiency, and effectiveness of an organization's operations
Operational Audit economy, efficiency, and effectiveness refer to Right Ans
- Economy refers to the cost of inputs
Efficiency refers to the relationship between inputs and outputs
Effectiveness refers to the achievement of certain goals or the production of a
certain level of outputs
Internal Audit Right Ans - A function within an entity which generally
evaluates and improves risk management, internal control procedures, and
elements of the governance process
Those charged with governance Right Ans - Persons with responsibility for
overseeing the strategic direction of the entity and the obligations related to
the accountability of the entity
The external auditor may rely on the work done by Right Ans - Internal
auditors when evaluating the evidence needed to form an opinion on the
financial statements or on ICFR
Financial Statement Users include Right Ans - Investors, suppliers,
customers, lenders, employees, governments, and the general public
Sources of demand for audit and assurance services Right Ans -
Remoteness (users do not have access to the company)
Complexity (amounts affected by significant estimates requiring knowledge
and experience to evaluate)
, Competing incentives (determine biased information)
Reliability
Management is responsible for Right Ans - 1. Ensuring the information
included in the financial statements is presented fairly and complies with the
applicable financial reporting frameowrk
2. Designing, implementing, and maintaining internal control relevant to the
preparation and fair presentation of the financial statements
3. Providing the auditor with access to all records, documentation, and
personnel relevant to the preparation and fair presentation of the financial
statements, and any additional information the auditors may consider
relevant to complete the audit
Also, mgmt is responsible for making estimates for some f/s items and
selecting appropriate accounting policies within the applicable financial
reporting framework
Auditors are responsible for Right Ans - 1. Conducting the audit in
accordance with the appropriate auditing standards
2. Planning and performing the audit with professional skepticism
3. Planning and performing the audit with professional judgment
Professional Skepticism Right Ans - 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
Professional judgment Right Ans - The application of relevant training,
knowledge, and experience in making informed decisions about the courses of
action that are appropriate in the circumstances of the audit engagement
PCAOB Right Ans - Public Company Accounting Oversight Board
Oversees the audits of public companies
PCAOB is a Right Ans - non-profit corporation established through the SOX
legislation in 2002.
Auditing Standards Right Ans - (AS)
Standards issued by the PCAOB which provide minimum requirements and
guidance for auditing services
Solutions
Audit Services Right Ans - services by an independent CPA that provide
financial statement users with (1) an opinion on whether the financial
statements are presented fairly, in all material respects, in accordance with an
applicable financial reporting framework and (2) an opinion on the
effectiveness of ICFR, which enhance the degree of confidence that intended
users can place in the financial statements
Attestation Services Right Ans - Services performed when an independent
practitioner, or CPA, is engaged to issue a report on subject matter that is the
responsibility of another party
Relationship of assurance, attestation, and auditing services from most to
least improved of quality (i.e., assurance) Right Ans - Audit - highest
quality/reasonable assurance (i.e., historical financial statements)
Attestation - mid quality/limited assurance (i.e., review of historical financial
statements, examination of internal controls, review of financial forecast)
Assurance - lowest quality (i.e., compilation of historical financial statements,
website security, IT operations, non-financial information)
Assurance Services Right Ans - independent professional services that
improve the quality of information, or its context, for decision makers
Applicable financial reporting framework refers to Right Ans - the set of
standards used in preparing the historical financial statements (i.e., GAAP,
IFRS, or federal income tax basis of accounting)
Independent implies that the service is performed by Right Ans - someone
who was not involved with the creation of the information and who is
objective in the evaluation of the information
Quality refers to Right Ans - the relevance and realiability of the
information
,Information refers to Right Ans - subject matter that can be financial or
nonfinancial, historical or prospective, standalone data or entire systems of
data, internal or external to a company
CPAs are the only _________ accounting professionals in the US and the ________
are issued at the ____________ level Right Ans - Licensed accounting
professionals in the US.
Licenses are issued at the state level, not federal
A state board of accountancy will only issue Right Ans - a licence to
practice after all three Es have been earned
CPA Es Right Ans - Education, Exam, and Experience
Public companies, or issuers, in the US are required by federal government to
have Right Ans - an annual financial statement audit and an ICFR audit
Private companies, or non-issuers, are _______ to have an annual audit by
federal government, but Right Ans - Not required by law, other interested
users may request audited financial statements (i.e., lenders)
ICFR Right Ans - Internal Control over Financial Reporting
Integrated Audit Right Ans - An audit that combines the financial statement
audit with an audit of the effectiveness of ICFR
The limitations of an audit are cause by Right Ans - 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
The nature of financial reporting refers to Right Ans - the use of judgment
when preparing financial statements due to the subjectivity required when
arriving at accounting estimates and judgment required when selecting and
applying accounting methods
,The nature of audit procedures refers to Right Ans - Reliance on evidence
provided by the client and its managements, as well as the concept of
materiality
Materiality Right Ans - the ability of information to influence decisions that
users make on the basis of the financial information of a specific reporting
entity
Compliance Audit Right Ans - an audit to determine whether the entity has
conformed with regulations, rules, or processes
Operational (Performance) Audit Right Ans - An assessment of the
economy, efficiency, and effectiveness of an organization's operations
Operational Audit economy, efficiency, and effectiveness refer to Right Ans
- Economy refers to the cost of inputs
Efficiency refers to the relationship between inputs and outputs
Effectiveness refers to the achievement of certain goals or the production of a
certain level of outputs
Internal Audit Right Ans - A function within an entity which generally
evaluates and improves risk management, internal control procedures, and
elements of the governance process
Those charged with governance Right Ans - Persons with responsibility for
overseeing the strategic direction of the entity and the obligations related to
the accountability of the entity
The external auditor may rely on the work done by Right Ans - Internal
auditors when evaluating the evidence needed to form an opinion on the
financial statements or on ICFR
Financial Statement Users include Right Ans - Investors, suppliers,
customers, lenders, employees, governments, and the general public
Sources of demand for audit and assurance services Right Ans -
Remoteness (users do not have access to the company)
Complexity (amounts affected by significant estimates requiring knowledge
and experience to evaluate)
, Competing incentives (determine biased information)
Reliability
Management is responsible for Right Ans - 1. Ensuring the information
included in the financial statements is presented fairly and complies with the
applicable financial reporting frameowrk
2. Designing, implementing, and maintaining internal control relevant to the
preparation and fair presentation of the financial statements
3. Providing the auditor with access to all records, documentation, and
personnel relevant to the preparation and fair presentation of the financial
statements, and any additional information the auditors may consider
relevant to complete the audit
Also, mgmt is responsible for making estimates for some f/s items and
selecting appropriate accounting policies within the applicable financial
reporting framework
Auditors are responsible for Right Ans - 1. Conducting the audit in
accordance with the appropriate auditing standards
2. Planning and performing the audit with professional skepticism
3. Planning and performing the audit with professional judgment
Professional Skepticism Right Ans - 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
Professional judgment Right Ans - The application of relevant training,
knowledge, and experience in making informed decisions about the courses of
action that are appropriate in the circumstances of the audit engagement
PCAOB Right Ans - Public Company Accounting Oversight Board
Oversees the audits of public companies
PCAOB is a Right Ans - non-profit corporation established through the SOX
legislation in 2002.
Auditing Standards Right Ans - (AS)
Standards issued by the PCAOB which provide minimum requirements and
guidance for auditing services
