Exam 1: An Introduction to Assurance and Financial Statement Auditing

The definition of auditing refers to auditing as a "systematic process of objectively obtaining and evaluating evidence regarding assertions....." What is meant by "systematic process"?

An auditor would issue an adverse opinion if

Auditors are most likely to use the most rigorous audit procedures to examine

For publicly-held companies,which of the following is integrated into the audit of financial statements?

Which of the following would best be described as an assurance service?

The textbook presented the concept of auditing through an analogy that involved buying a house and hiring a house inspector.Name three desirable qualities of a house inspector or an auditor and discuss how those qualities apply to an auditor and why those qualities are important for an auditor to possess.

Auditing is a type of attest service.

Explain the relationship between audit,attest and assurance services.

Discuss an overview of the financial statement audit process using the terms "assertion," "evidence," and "report."

Why must an auditor assess materiality?

Evidence is reliable if it

Auditing services and attestation services are the same.

Define "information asymmetry" and discuss it in the context of the financial markets.Include in your discussion how information asymmetry is reduced.

Assurance services may improve all of the following except

When obtaining an understanding of the entity and its environment,the auditor should obtain an understanding of internal controls primarily to

Before accepting an engagement to audit a new client,an auditor is required to

On a high level,the accounting processes of a business consist of internal controls,individual transactions,and account balances. Required: A. A company implements internal controls as a safeguard to ensure appropriate capturing and recording of individual transactions, which are then collected into ending account balances. Ending account balances are then used to prepare the financial statements. The auditor expresses an opinion on the financial statements, which are made up of ending account balances and disclosures. A. Describe the relationship between internal controls, individual transactions, and account balances. B. Discuss how evidence regarding each of these three areas can help an auditor determine if the financial statements are fairly stated. B. The auditor can obtain evidence from all three steps of the accounting process. For instance, an auditor can directly test the account balance (e.g., by examining a bank statement reconciliation). This evidence is usually the highest-quality but costliest evidence. Alternatively, the auditor can obtain indirect information by testing the individual transactions that make up an account balance. If transactions are handled properly, this provides indirect evidence that the ending balances are more likely to be fairly stated. The least direct method of obtaining evidence is to evaluate and test the company's internal controls, which are implemented to ensure that transactions are handled properly. If a client's system of internal control is effective, transactions are more likely to be handled properly, and thus the ending balances making up a set of financial statements are more likely to be fairly stated. Auditors usually collect evidence relating to all three areas: internal control, transactions, and ending balances.

During the first phase of an audit,a CPA most likely would

Which of the following is true with respect to the auditor's report?

You are a new employee at the accounting firm Murray & Murray,CPAs.Before you are assigned to your first audit,your supervisor tests your knowledge and asks you to explain the term "scope" in the context of a financial statement audit. Required: A. Provide a definition of scope. A. The scope of an audit is the type and amount of audit work to be performed. B. Describe what influences an auditor's determination of scope. B. The auditor's assessments of risk and materiality influence the scope of the audit. For instance, if an auditor sets a lower materiality amount or would like to substantially reduce audit risk, the scope of the audit would be increased. In establishing the scope of an audit, the auditor must make decisions about the nature, extent, and timing of evidence to be gathered in order to evaluate management's assertions.