NEW AUDITING & ASSURANCE SERVICES: A
SYSTEMATIC APPROACH CHAPTER 19
LATEST MODIFIED TESTED AND APPROVED
Practice of public accounting ---- ANSWER----The performance for an entity,
by a member or a member's firm, while holding out as CPA(s), of the
professional services of accounting, tax, personal financial planning, litigation
support services, and those professional services for which standards are
promulgated by bodies designated by Council.
Risk of Material Misstatement ---- ANSWER----The preaudit risk that the
entity's financial statements contain a material misstatement whether caused by
error or fraud
Unqualified/unmodified audit report ---- ANSWER----A "clean" audit report,
indicating the auditor's opinion that a client's financial statements are fairly
presented in accordance with agreed-upon criteria (e.g., GAAP)
An independent audit adds value to the communication of financial information
because the audit ---- ANSWER----Lends credibility to the financial statements
Which of the following best describes the reason why an independent auditor is
often retained to report on financial statements? ---- ANSWER----Different
interests may exist between the entity preparing the statements and the persons
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,using the statements, and thus outside assurance is needed to enhance the
credibility of the statements
Professionalism ---- ANSWER----The conduct, aims, or qualities that
characterize or mark a profession or a professional person.
Briefly describe the three theories of ethical behavior that can be used to
analyze ethical issues in accounting. ---- ANSWER----Utilitarian - all parties
affected, not just one's self-interest, should be considered. It's often difficult to
measure the potential costs and benefits of the actions to be taken. May also be
difficult to balance the interests of all parties involved when those interests
conflict with one another.
Rights-based - Individuals have certain rights and other individuals have a duty
to respect those rights. For example, if a difference of opinion with top
management exists over an accounting or reporting issue, the auditor should
emphasize the interests of the investors and creditors in deciding what action to
take, even if it means displeasing management and even losing the audit
engagement.
Attest engagement ---- ANSWER----An engagement that requires independence
as defined in AICPA Professional Standards. Attest engagements include
financial statement audits, reviews, and examinations of prospective financial
information.
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, Close relative ---- ANSWER----A parent, sibling, or nondependent child.
Covered member ---- ANSWER----An individual on the audit engagement
team, an individual in a position to influence the audit engagement, or a partner
in the office in which the lead audit engagement partner primarily practices in
connection with the audit engagement.
Ethics ---- ANSWER----A system or code of conduct based on moral duties and
obligations that indicates how an individual should behave.
Financial interest ---- ANSWER----An ownership interest in an equity or a debt
security issued by an entity, including rights and obligations to acquire such an
interest and derivatives directly related to such interest.
Direct financial interest ---- ANSWER----A financial interest that is owned
directly by an individual or entity, or is under the control of an individual or
entity
Indirect financial interest ---- ANSWER----A financial interest in which the
beneficiary neither controls the intermediary nor has the authority to supervise
or participate in the intermediary's investment decisions.
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SYSTEMATIC APPROACH CHAPTER 19
LATEST MODIFIED TESTED AND APPROVED
Practice of public accounting ---- ANSWER----The performance for an entity,
by a member or a member's firm, while holding out as CPA(s), of the
professional services of accounting, tax, personal financial planning, litigation
support services, and those professional services for which standards are
promulgated by bodies designated by Council.
Risk of Material Misstatement ---- ANSWER----The preaudit risk that the
entity's financial statements contain a material misstatement whether caused by
error or fraud
Unqualified/unmodified audit report ---- ANSWER----A "clean" audit report,
indicating the auditor's opinion that a client's financial statements are fairly
presented in accordance with agreed-upon criteria (e.g., GAAP)
An independent audit adds value to the communication of financial information
because the audit ---- ANSWER----Lends credibility to the financial statements
Which of the following best describes the reason why an independent auditor is
often retained to report on financial statements? ---- ANSWER----Different
interests may exist between the entity preparing the statements and the persons
Page 1 of 22
,using the statements, and thus outside assurance is needed to enhance the
credibility of the statements
Professionalism ---- ANSWER----The conduct, aims, or qualities that
characterize or mark a profession or a professional person.
Briefly describe the three theories of ethical behavior that can be used to
analyze ethical issues in accounting. ---- ANSWER----Utilitarian - all parties
affected, not just one's self-interest, should be considered. It's often difficult to
measure the potential costs and benefits of the actions to be taken. May also be
difficult to balance the interests of all parties involved when those interests
conflict with one another.
Rights-based - Individuals have certain rights and other individuals have a duty
to respect those rights. For example, if a difference of opinion with top
management exists over an accounting or reporting issue, the auditor should
emphasize the interests of the investors and creditors in deciding what action to
take, even if it means displeasing management and even losing the audit
engagement.
Attest engagement ---- ANSWER----An engagement that requires independence
as defined in AICPA Professional Standards. Attest engagements include
financial statement audits, reviews, and examinations of prospective financial
information.
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, Close relative ---- ANSWER----A parent, sibling, or nondependent child.
Covered member ---- ANSWER----An individual on the audit engagement
team, an individual in a position to influence the audit engagement, or a partner
in the office in which the lead audit engagement partner primarily practices in
connection with the audit engagement.
Ethics ---- ANSWER----A system or code of conduct based on moral duties and
obligations that indicates how an individual should behave.
Financial interest ---- ANSWER----An ownership interest in an equity or a debt
security issued by an entity, including rights and obligations to acquire such an
interest and derivatives directly related to such interest.
Direct financial interest ---- ANSWER----A financial interest that is owned
directly by an individual or entity, or is under the control of an individual or
entity
Indirect financial interest ---- ANSWER----A financial interest in which the
beneficiary neither controls the intermediary nor has the authority to supervise
or participate in the intermediary's investment decisions.
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