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. Thefourprimarycausesofinformation riskareremoteness ofinformation, biases and m m m m




motives of the provider, voluminous data, and the existence of complex exchange
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transactions.
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Thethreemainwaystoreduceinformationriskare:
1. Userverifiestheinformation.
2. Usersharesthei nformationriskwithmanagement. b m 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 tablebelow summarizes the purposes and nature of
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eachtypeofaudit.
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AUDITSOF
OPERATIONAL COMPLIANCE FINANCIAL
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AUDITS m AUDITS m
STATEMENT
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S m




PURPOSE Toevaluate Todetermine Todetermine
mwhether whethertheclientis
m mwhetherthe
moperating followingspecific
m moverallfinancial
mproceduresare proceduressetbya
m b mstatementsare
mefficientand b higherauthority
m mpresentedin
meffective maccordancewith
mspecifiedcriteria
m(usuallyGAAP)



1-1

,ConceptCheck,P.16(continued)

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




auditorsmayalsoauditinternalfinancialstatementsforusebymanagement.
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2. The major differences in the scope of audit responsibilities for
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CPAs,GAOauditors,IRSagents,andinternalauditorsare:
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• CPAs perform audits of financial statements prepared using U.S. GAAP or
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mIFRSinaccordancewithauditingstandards.
• GAOauditorsperformcomplianceoroperationalauditsinordertoassure the m




mCongress of the expenditure of public funds in accordance with its
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mdirectivesandthelaw.
• IRS agents perform compliance audits to enforce the federal tax laws as
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mdefinedbyCongress,interpretedbythecourts,andregulatedbytheIRS.
• Internal auditors perform compliance or operational audits in order to
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massure management orthe board ofdirectors that controls andpolicies are
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mproperlyandconsistentlydeveloped,applied,andevaluated.

1-2

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