ACT 441 CSU TEST 1 QUESTIONS AND ANSWERS GRADED A+
Definition of Auditing - Answers Auditing is a systematic process of objectively obtaining and
evaluating evidence regarding assertions about economic actions and events to ascertain the
degree of correspondence between the assertions and established criteria and communicating
the results to interested users.
7 steps of an audit - Answers 1. Client Acceptance/Continuance
2. Preliminary Engagement Activities
3. Plan the audit
4. Consider and audit the Internal controls
5.Audit Business Processes and relevant accounts
6. Complete the audit
7.Evaluate Results ans issue audit report
5 Assertions (List) - Answers 1. Existence or Occurrence
2. Completeness
3.Valuation or Allocation
4. Rights and Obligations
5. Presentation and disclosure
Existence or Occurrence - Answers Assets or liabilities of the company exist at a given date, and
recorded transactions have occurred during a given period.
Completeness - Answers All and accounts that should be presented in the financial statements
are so included
valuation or allocation - Answers Asset, liability, equity, revenue, and expense components have
been included in the financial statements at appropriate amounts.
Rights and Obligations - Answers the company holds or controls rights to the assets, and
liabilities are obligations of the company at a given date
Presentation and Disclosure - Answers the components of the financial statements are properly
classified, described, and disclosed
Why are audits needed - Answers People lie
Principal agent problem- an individual is allowed to make decisions on behalf on another
, Benefits on an audit - Answers Protects users of financial information
Legal reasons
Lends credibility to financial statements
Financial Statement Audit Objective - Answers Provide reasonable assurance that the clients
financial statements are free of material misstatements
Four Phases of the Audit Process - Answers 1. Risk assessment and planning
2. Test controls
3.Substantive testing
4. Form and report opinion
Names of audit opinions - Answers Unqualified
Qualified
Adverse
Disclaimer of opinion
PCAOB - Answers Public Company Accounting Oversight Board
PCAOB's Purpose - Answers Sets auditing standards for PUBLIC COMPANIES
AICPA's role in auditing - Answers Sets standard for Private companies
Types of auditors - Answers External
Internal
Government
Forensic
Why do we have SOX - Answers To restore public confidence in regards to companies financials
after many scandals
Key Provisions of SOX - Answers 1. PCAOB- sets and enforces audit standards
2. Internal control audits for companies that have revenue larger then 75M
3.CEO and CFO have to certify financial statements
4. Restrictions on non-audit Services
Definition of Auditing - Answers Auditing is a systematic process of objectively obtaining and
evaluating evidence regarding assertions about economic actions and events to ascertain the
degree of correspondence between the assertions and established criteria and communicating
the results to interested users.
7 steps of an audit - Answers 1. Client Acceptance/Continuance
2. Preliminary Engagement Activities
3. Plan the audit
4. Consider and audit the Internal controls
5.Audit Business Processes and relevant accounts
6. Complete the audit
7.Evaluate Results ans issue audit report
5 Assertions (List) - Answers 1. Existence or Occurrence
2. Completeness
3.Valuation or Allocation
4. Rights and Obligations
5. Presentation and disclosure
Existence or Occurrence - Answers Assets or liabilities of the company exist at a given date, and
recorded transactions have occurred during a given period.
Completeness - Answers All and accounts that should be presented in the financial statements
are so included
valuation or allocation - Answers Asset, liability, equity, revenue, and expense components have
been included in the financial statements at appropriate amounts.
Rights and Obligations - Answers the company holds or controls rights to the assets, and
liabilities are obligations of the company at a given date
Presentation and Disclosure - Answers the components of the financial statements are properly
classified, described, and disclosed
Why are audits needed - Answers People lie
Principal agent problem- an individual is allowed to make decisions on behalf on another
, Benefits on an audit - Answers Protects users of financial information
Legal reasons
Lends credibility to financial statements
Financial Statement Audit Objective - Answers Provide reasonable assurance that the clients
financial statements are free of material misstatements
Four Phases of the Audit Process - Answers 1. Risk assessment and planning
2. Test controls
3.Substantive testing
4. Form and report opinion
Names of audit opinions - Answers Unqualified
Qualified
Adverse
Disclaimer of opinion
PCAOB - Answers Public Company Accounting Oversight Board
PCAOB's Purpose - Answers Sets auditing standards for PUBLIC COMPANIES
AICPA's role in auditing - Answers Sets standard for Private companies
Types of auditors - Answers External
Internal
Government
Forensic
Why do we have SOX - Answers To restore public confidence in regards to companies financials
after many scandals
Key Provisions of SOX - Answers 1. PCAOB- sets and enforces audit standards
2. Internal control audits for companies that have revenue larger then 75M
3.CEO and CFO have to certify financial statements
4. Restrictions on non-audit Services
