Auditing and Assurance Services An
Integrated Approach Chapter 1 Exam
With answers
Definition of Auditing - answer-Auditing is a systematic process of objectively obtaining and
evaluating evidence regarding assertions (financial statements including footnotes) about
economic actions and events to ascertain the degree of correspondence between the assertions
and established criteria (GAAP) and communicating the results (auditor's reports/other reports)
to interested users (persons who rely on the financial reports).
Accounting - answer-reporting, classifying & summarizing of economic events in a logical
manner for the purpose of providing financial information
Which of the following is the primary distinction between auditors and accountants?
a) Auditors are required to be CPAs
b) Auditors have more in-depth knowledge of accounting than accountants in order to verify or
supervise their work
c) Most accountants are CMAs
d) All of the above
e) None of the above - answer-e) None of the above
Information risk - answer-- the risk (probability) that the information (mainly financial)
disseminated by a company will be materially false or misleading
- users demand an independent third party assessment of the information
Causes of Information Risk - answer-- More complex
- More voluminous
- Demanded by remote users
- Biases or motives
True or False: The primary purpose of auditing is to eliminate business risk? - answer-False
True or False: The primary purpose of auditing is to eliminate information risk? - answer-True
Professional Skepticism - answer-Professional skepticism - auditor's questioning, evaluative,
attitude toward evidence
- Management's assertions without sufficient corroboration.
- Financial trends need investigation
- Documents are checked for authenticity or alteration
- Ask questions, get answers, then verify the answers.
A potential conflict of interest always exists between the auditor and the client.
- Management wants to portray the company and its operations in the best possible light.
, - Auditors want to portray the company and its operations fairly.
Because an audit in accordance with generally accepted auditing standards is influenced by the
possibility of material misstatements, the auditor should conduct the audit with an attitude of:
a) Objective judgment
b) Conservative advocacy
c) Professional responsiveness
d) Professional skepticism - answer-d) Professional skepticism - trust but verify
Assurance Services - answer-Assurance services are independent professional services that
improve the quality of information, or its context, for decision makers.
- Valued because the assurance provider is independent and perceived as being unbiased with
respect to the information examined.
Examples:
- Consumer reports
- Compliance with entertainment royalty agreements
- CPA WebTrust
- Process/System assessment
- Quality control standards compliance
Attestation Engagements - answer-An attestation engagement - a practitioner assesses and
reports on "subject matter or an assertion about the subject matter that is the responsibility of
another party."
-Audit of financial statements
-Audit of internal control over financial reporting
-Reviews of financial statements
-Attestation services on information technology
-Other attestation services
Some financial attestation engagements (other than audits)
-Supplementary financial statistics
-Pro forma financial information
-Financial forecasts and projections
Some non-financial attestation engagements
-Compliance with contractual requirements
-Effectiveness of internal control systems
-Inventory quantities and locations
Types of Attestation Engagements - answer--Audit of financial statements
-Audit of internal control over financial reporting
-Reviews of financial statements
Integrated Approach Chapter 1 Exam
With answers
Definition of Auditing - answer-Auditing is a systematic process of objectively obtaining and
evaluating evidence regarding assertions (financial statements including footnotes) about
economic actions and events to ascertain the degree of correspondence between the assertions
and established criteria (GAAP) and communicating the results (auditor's reports/other reports)
to interested users (persons who rely on the financial reports).
Accounting - answer-reporting, classifying & summarizing of economic events in a logical
manner for the purpose of providing financial information
Which of the following is the primary distinction between auditors and accountants?
a) Auditors are required to be CPAs
b) Auditors have more in-depth knowledge of accounting than accountants in order to verify or
supervise their work
c) Most accountants are CMAs
d) All of the above
e) None of the above - answer-e) None of the above
Information risk - answer-- the risk (probability) that the information (mainly financial)
disseminated by a company will be materially false or misleading
- users demand an independent third party assessment of the information
Causes of Information Risk - answer-- More complex
- More voluminous
- Demanded by remote users
- Biases or motives
True or False: The primary purpose of auditing is to eliminate business risk? - answer-False
True or False: The primary purpose of auditing is to eliminate information risk? - answer-True
Professional Skepticism - answer-Professional skepticism - auditor's questioning, evaluative,
attitude toward evidence
- Management's assertions without sufficient corroboration.
- Financial trends need investigation
- Documents are checked for authenticity or alteration
- Ask questions, get answers, then verify the answers.
A potential conflict of interest always exists between the auditor and the client.
- Management wants to portray the company and its operations in the best possible light.
, - Auditors want to portray the company and its operations fairly.
Because an audit in accordance with generally accepted auditing standards is influenced by the
possibility of material misstatements, the auditor should conduct the audit with an attitude of:
a) Objective judgment
b) Conservative advocacy
c) Professional responsiveness
d) Professional skepticism - answer-d) Professional skepticism - trust but verify
Assurance Services - answer-Assurance services are independent professional services that
improve the quality of information, or its context, for decision makers.
- Valued because the assurance provider is independent and perceived as being unbiased with
respect to the information examined.
Examples:
- Consumer reports
- Compliance with entertainment royalty agreements
- CPA WebTrust
- Process/System assessment
- Quality control standards compliance
Attestation Engagements - answer-An attestation engagement - a practitioner assesses and
reports on "subject matter or an assertion about the subject matter that is the responsibility of
another party."
-Audit of financial statements
-Audit of internal control over financial reporting
-Reviews of financial statements
-Attestation services on information technology
-Other attestation services
Some financial attestation engagements (other than audits)
-Supplementary financial statistics
-Pro forma financial information
-Financial forecasts and projections
Some non-financial attestation engagements
-Compliance with contractual requirements
-Effectiveness of internal control systems
-Inventory quantities and locations
Types of Attestation Engagements - answer--Audit of financial statements
-Audit of internal control over financial reporting
-Reviews of financial statements
