ACG 4651 Exam 1 with all Correct & 100% Verified
Answers |Latest Version |Already Graded A+
Demand for auditing ✔Correct Answer-People want assurance and information risk calls for a
monitor.
Information Risk ✔Correct Answer-Information asymmetry and incentive misalignment.
Three party contract in the context of corporate governance ✔Correct Answer-Principal -
Shareholders
Agent - Managers
Monitor - Independent Auditors
Assurance ✔Correct Answer-Services that report/improve the quality of information, have no
report, and no required criteria.
Three party contract (Assurance) ✔Correct Answer-Information Providers - Managers
Information Users - Shareholders, analysts, creditors
Information Assurance Providers - Accountants and auditors
Attestation ✔Correct Answer-Services that offer assurance about a subject matter that is the
responsibility of another party whose report is issued for examination of subject matter and
assertion, and is based upon some criteria that is suitable and available.
Attestation Services ✔Correct Answer-Financial statement audit, financial statement review,
and agreed-upon procedures
Financial statement review ✔Correct Answer-Has limited negative assurance ("Nothing came
to our attention..."
Audit ✔Correct Answer-Provides assurance on management's assertion that financial
statements are prepared and presented in conformity with GAAP through an audit opinion
report
Consulting Services ✔Correct Answer-Recommend uses for information.
Consulting Controversy ✔Correct Answer-SOX prohibits certain consulting service because it
can compromise an auditor's objectivity.
How is audit quality achieved? ✔Correct Answer-Through independence, review programs,
and client acceptance/continuance decisions.
, Economic Value of an Audit ✔Correct Answer-Financial statement assurance reduces
information risk because auditors monitor management, which reduces the risk of inaccurate or
misleading information and lower information risk leads to a reduction in the cost of capital and
enables capital markets to function in a productive way.
SOX ✔Correct Answer-Formal regulatory intervention in the accounting profession due to
huge accounting failures, like Enron, in the past.
Key Provisions of SOX ✔Correct Answer-1) Established the PCAOB
2) Implements stronger independence rules for auditors
3) Requires CEO's and CFO's to personally certify financial statements and disclosures are
complete and accurate
4) Requires audit committees be comprised of independent members
5) Requires codes of ethics for senior financial officers.
6) Cooling off period for audit firm personnel
7) Required audit partner rotation
8) Criminalization of corporate frauds
Types fo fraud ✔Correct Answer-Misappropriation of assets (stealing) and fraudulent financial
reporting (cooking the books)
Defalcations ✔Correct Answer-An employee takes assets from the organization for personal
gain
Types of defalcations ✔Correct Answer-Corruption, broad spectrum, and misappropriation of
assets.
Corruption ✔Correct Answer-using influence in a company transaction for personal gain
(kickbacks, conflict of interest, bribery, economic extortion)
Broad Spectrum ✔Correct Answer-Smaller acts of theft like using a personal credit card for
business expenses instead of the corporate card to earn the points,
Auditor responsibility for fraud ✔Correct Answer-How it affects the financial statements
Limitations/challenges in addressing fraud risk on an audit ✔Correct Answer-Fraud had some
characteristics that make its detection complex and difficult which requires different thinking
than just looking for errors.
Professional Skepticism ✔Correct Answer-An attitude that includes a questioning mind,
critical assessment of evidence, demanding persuasive evidence, and trusting but verifying. It
increases the likelihood that fraud will be detected and decreases the likelihood that fraud will
be attempted
Answers |Latest Version |Already Graded A+
Demand for auditing ✔Correct Answer-People want assurance and information risk calls for a
monitor.
Information Risk ✔Correct Answer-Information asymmetry and incentive misalignment.
Three party contract in the context of corporate governance ✔Correct Answer-Principal -
Shareholders
Agent - Managers
Monitor - Independent Auditors
Assurance ✔Correct Answer-Services that report/improve the quality of information, have no
report, and no required criteria.
Three party contract (Assurance) ✔Correct Answer-Information Providers - Managers
Information Users - Shareholders, analysts, creditors
Information Assurance Providers - Accountants and auditors
Attestation ✔Correct Answer-Services that offer assurance about a subject matter that is the
responsibility of another party whose report is issued for examination of subject matter and
assertion, and is based upon some criteria that is suitable and available.
Attestation Services ✔Correct Answer-Financial statement audit, financial statement review,
and agreed-upon procedures
Financial statement review ✔Correct Answer-Has limited negative assurance ("Nothing came
to our attention..."
Audit ✔Correct Answer-Provides assurance on management's assertion that financial
statements are prepared and presented in conformity with GAAP through an audit opinion
report
Consulting Services ✔Correct Answer-Recommend uses for information.
Consulting Controversy ✔Correct Answer-SOX prohibits certain consulting service because it
can compromise an auditor's objectivity.
How is audit quality achieved? ✔Correct Answer-Through independence, review programs,
and client acceptance/continuance decisions.
, Economic Value of an Audit ✔Correct Answer-Financial statement assurance reduces
information risk because auditors monitor management, which reduces the risk of inaccurate or
misleading information and lower information risk leads to a reduction in the cost of capital and
enables capital markets to function in a productive way.
SOX ✔Correct Answer-Formal regulatory intervention in the accounting profession due to
huge accounting failures, like Enron, in the past.
Key Provisions of SOX ✔Correct Answer-1) Established the PCAOB
2) Implements stronger independence rules for auditors
3) Requires CEO's and CFO's to personally certify financial statements and disclosures are
complete and accurate
4) Requires audit committees be comprised of independent members
5) Requires codes of ethics for senior financial officers.
6) Cooling off period for audit firm personnel
7) Required audit partner rotation
8) Criminalization of corporate frauds
Types fo fraud ✔Correct Answer-Misappropriation of assets (stealing) and fraudulent financial
reporting (cooking the books)
Defalcations ✔Correct Answer-An employee takes assets from the organization for personal
gain
Types of defalcations ✔Correct Answer-Corruption, broad spectrum, and misappropriation of
assets.
Corruption ✔Correct Answer-using influence in a company transaction for personal gain
(kickbacks, conflict of interest, bribery, economic extortion)
Broad Spectrum ✔Correct Answer-Smaller acts of theft like using a personal credit card for
business expenses instead of the corporate card to earn the points,
Auditor responsibility for fraud ✔Correct Answer-How it affects the financial statements
Limitations/challenges in addressing fraud risk on an audit ✔Correct Answer-Fraud had some
characteristics that make its detection complex and difficult which requires different thinking
than just looking for errors.
Professional Skepticism ✔Correct Answer-An attitude that includes a questioning mind,
critical assessment of evidence, demanding persuasive evidence, and trusting but verifying. It
increases the likelihood that fraud will be detected and decreases the likelihood that fraud will
be attempted
