Test Bank for Auditing and Assurance Services, 18th edition by Arens Alvin, Elder Randal, Beasley Mark & Hogan Chris, All Chapters 1-23 LATEST

AuditingandAssuranceServices
18thEditionby
AlvinA.Arens


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, Chapter1

TheDemandforAuditandOtherAssuranceServices
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 ConceptChecks b




P.7
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1. To do an audit, there must be information in a verifiable form and some standards
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(criteria) by which the auditor can evaluate the information. Determining the
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degree of correspondence between information and established criteria is
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determining whether a given set of information is in accordance with the
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established criteria. Foran auditofacompany’s financial statements the criteria
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are U.S. generally accepted accounting principles or International Financial
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ReportingStandards.
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2. The four primary causes of information risk are remoteness of information, biases and
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motives of the provider, voluminous data, and the existence of complex exchange
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transactions.
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Thethreemainwaystoreduceinformationriskare: b




1. Userverifiestheinformation. b




2. Usersharesthei nformationriskwithmanagement. b r b




3. Auditedfinancialstatementsareprovided.

P.16

1. The three main types of audits are operational audits, compliance audits, and
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financial statement audits. The table below summarizes the purposes and nature of
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each typeofaudit.
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AUDITSOF
OPERATIONAL COMPLIANCE FINANCIAL
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AUDITS r AUDITS r
STATEMENT
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S r




PURPOSE Toevaluate Todetermine Todetermine
whether r whethertheclientis
r whetherthe
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operating
r followingspecific
r overallfinancial
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proceduresare
r proceduressetbya
r b statementsare
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efficientand
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r presentedin
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effective
r accordancewith
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specifiedcriteria
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(usuallyGAAP)
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1-1

,ConceptCheck,P.16(continued)
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AUDITSOF
OPERATIONAL COMPLIANCE FINANCIAL
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AUDITS r AUDITS r STATEMENT
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S
USERSOF Managementof Authoritythat Differentgroups
AUDIT
r organization
r establishedrules,
r fordifferent
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REPORT
r regulations,and
r purposes—many
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procedures,either
r outsideentities
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internalorexternalto
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auditee
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NATURE Highly Notstandardized, Highly
nonstandard;
r butspecificand
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oftensubjective
r usuallyobjective
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PERFORMED
BY: r Almost
CPAs Frequently Occasionally universally
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GAO
AUDITOR
r Frequently Frequently Occasionally
S
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IRS
AUDITOR Never Universally Never
S
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INTERNAL
rAUDITOR Frequently Frequently Frequently*
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*InternalauditorsmayassistCPAsi nt heaudit offinancialstatements.Internal b r b r m




auditorsmayalsoauditinternalfinancialstatements forusebymanagement.
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2. The major differences in the scope of audit responsibilities for
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CPAs, GAOauditors,IRSagents,andinternalauditors are:
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• CPAs perform audits of financial statements prepared using U.S. GAAP or
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rIFRS in accordance with auditingstandards.
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• GAO auditors perform compliance or operational audits in order to assure the
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rCongress of the expenditure of public funds in accordance with its
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rdirectivesandthelaw. r r r




• IRS agents perform compliance audits to enforce the federal tax laws as
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rdefinedbyCongress,interpretedbythecourts,andregulatedbytheIRS.
• Internal auditors perform compliance or operational audits in order to
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rassure management or the board of directors that controls and policies are
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rproperlyandconsistentlydeveloped,applied,andevaluated.
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1-2

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