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