Download Accounting 3222: Wiley Test 1 Review - 164 Questions with Solutions and more Exams Accounting in PDF only on Docsity!
LSU ACCT 3222 Wiley TEST 1| 164 QUESTIONS|
WITH COMPLETE SOLUTIONS
unmodified report correct answer: the name of a clean report for private companies unqualified report correct answer: the name of a clean report for public companies clean report correct answer: means that in the auditors' opinion if the company follows GAAP end of field work correct answer: the date at the bottom of the audit report, stating 45 days after year end, when auditors stop gathering evidence, no hard deadline from the government management's responsibilities correct answer: -designing, implementing, and maintaining internal controls -creating financial statements -following GAAP -estimates for financial statements stems -gives auditors access to records, documentation, and personnel NASBA correct answer: -who you apply with to take the CPA exam; only handles the applications to take the CPA exam, not dealt with by each particular state -every state has their own state board; determines the education requirements for the state -licensing is controlled at the state level -make high level decisions, appointed by the governor
AICPA correct answer: -professional organization, like exclusive club -makes and grades the CPA exam -issues the AU-C (auditing accounting estimates) -created SAS (Statements on Auditing Standards) state correct answer: issues your CPA license ASB correct answer: -audit standards for private and non-profit organizations -made up of members from the AICPA that are full time auditors and volunteering to be part of the this and members rotate -make detailed guidance for other standards FASB correct answer: -establishes financial accounting and reporting standards for public companies -deals with GAAP PCAOB correct answer: -created during the SOX legislation -oversees auditing -imposes punishments on those that do not adhere to audit regulations SEC correct answer: -appointed by the president -protects investors, maintains fair markets, facilitates capital formation -enforces and interprets securities laws -uniformity and quality -requirement for public companies and being audited in the same way
independent correct answer: service is performed by someone not involved with the creation of the information and is objective in evaluating integrated audit correct answer: when the audit for the financial statements and the internal controls are performed at the same time materiality correct answer: ability of information to influence decisions that users make on the basis of the financial information of a specific reporting entity, if omitting the information would influence others that read this information auditor's responsibilities correct answer: -give opinion that financials are presented fairly according to GAAP -NOT responsible for creating financial statements -done with auditing standards providing minimum requirements and guidance for the performance of an audit professional judgment correct answer: relevant, training, knowledge, and experience auditors use to make informed decisions, get this as you build a career professional skepticism correct answer: involves the attitude of the auditor, need to maintain a questioning mind alert to conditions that could involve fraud or misstatements, investigate all information from the client while working independently of the company do not want to be sued correct answer: reasons to use specific wording like "no guarantee" and "reasonable assurance"
to note that the entire firm stands behind the audit of the client correct answer: reason for putting the name of the firm at the bottom of the audit report audit standards (AS) correct answer: issued by the PCAOB make sure following GAAP aka following rules no matter what correct answer: purpose of an audit need minimum of 20 per year year, but have a rolling schedule of 80 hours on a two year basis correct answer: CPE requirements appropriate competence correct answer: having proper certification of CPA, education/hours, CPE training, similar foundation, work experience -internal controls audit -financial statement audit correct answer: Sarbanes Oxley Act required these two things of a publicly traded company non accelerated filers correct answer: - make less than $ million -not required to have an audit on their internal controls -burden on the company to pay for the audit of all these things large accelerated filers correct answer: -make $700 million or more -required to have two audits, one on financial statements and one on internal controls
self review threat correct answer: threat that would require you to review or audit your own work advocacy threat correct answer: promoting a client's interests to compromising integrity and or independence familiarity threat correct answer: long term and close relationships causing a CPA to be too sympathetic or accepting client's work undue influence threat correct answer: CPA has a subordinate judgment, client's expertise is better than the CPA or the client has an aggressive personality self interest threat correct answer: CPA benefits from financial interest/financial relationship with client adverse interest threat correct answer: CPA's interests are opposed to the client's interest, litigation, get new auditors management participation threat correct answer: CPA takes on the role of management, only problem if providing attestation services, independence only, fine if a small firm is outsourcing and needs someone to be CFO when needed -profession/regulation/legislation -client -firm correct answer: three categories of safeguards code of conduct correct answer: the way the "profession" contributes to safeguard of assets
SOX correct answer: the way "legislation" contributes to safeguard of assets SEC and PCAOB correct answer: two "regulation" committees/organizations that contributes to safeguard of assets integrity and objectivity correct answer: free of conflicts of interests, not knowingly misrepresent facts or subordinate judgment to others independence correct answer: in the performance of professional services as required by standards, cannot be involved with the company being audited attestation correct answer: the type of engagement that independence pertains to covered members correct answer: -members of an audit team -review partner or manager -partners in the same office as as lead partner on the audit -immediate family members of all the people above -close relatives -other accounting firm employees that consult with engagement/audit team immediate family members correct answer: -spouse -children -let the firm know to be sure but only would apply if these people are in financial positions
privileged confidentiality correct answer: with an attorney, anything you say to your attorney cannot be spoken about with anyone else, cannot testify against you, different from what a CPA and his client has independence in fact correct answer: auditors' mental attitude and impartiality with respect to the client, state of mind independence in appearance correct answer: what the public/outsiders perceive about a situation, what the firm cares about and leads to them being more conservative -auditor should not audit his own work -function in the role of management -serve in advocacy role for client correct answer: three basic principles for what auditors should not do from PCAOB/SEC -NO consulting allowed -can do tax services correct answer: the rule for PUBLIC client regarding consulting/tax services when doing an audit for that company -according to ASB -may be okay to consult as long as safeguards are implemented correct answer: the rule for PRIVATE client regarding consulting/tax service when doing an audit for that company -SOX issued -lead and review partner must rotate off client after five years -stay off for five years and then rotate back on correct answer: rule for audit partner rotation on an audit
covered members correct answer: -any person who is in a position to influence an attest engagement -all members of the audit team -review partner or manager -partners in the same office as lead partner on the audit -other accounting firm employees that consult with the engagement/audit team -immediate family members of all those people -close relatives spouse children correct answer: immediate family members of covered members parents siblings correct answer: close relatives of covered members cooling off period correct answer: -one year time frame that is mandatory if a former member of the audit team is employed with the client in a financial oversight role -the auditing firm would be unable to audit during this one year period -lack of independence/undue influence threat, but they can be hired in another position for one year and then just go into a higher position -can happen -safeguards need to be in place by the audit firm correct answer: rule for private company client hiring someone from the audit team in a financial oversight role -professional competence
-ownership structure -customer and supplier relationships -importer/exporter/doing business with other companies -employee relationships -sources of financing correct answer: the nature of the entity, strategies, and internal controls (five of them) -inquiries -analytical procedures -observation and inspection -discussion among audit members correct answer: four ways to gain information inquiries correct answer: coming from management and other personnel, internal auditors, outsiders, bank personnel analytical procedures correct answer: -ratio and trend analysis -can maybe only have the first two quarters of the financial statements and can get an idea of how they are doing financially and looking at trends compared with last year -risk identification during the risk assessment stage -testing account balances derived from estimates -overall assessment at the final audit review observation and inspection correct answer: -tour the facility of the client and see how they operate -learn terminology, client excited too hare with you -ask questions learning what they do -done during planning -looking at documents, loan agreements, lease agreements, board of directors minutes
-internal auditors' reports, supposed to be auditing from within board of directors minutes correct answer: talking about high level important issues, need to know what the board is talking about discussion among audit team members correct answer: - brainstorming -application of GAAP, can be different based on specific industry -unique and unusual transactions -good training for new audit staff compliance with laws and regulations, illegal acts correct answer: -cooking the books, but if it is outside the realm of the financial statements -management has the first line responsibility for preventing and detecting illegal acts direct and material effect on financial statements correct answer: -same responsibility for detecting direct and material illegal acts as for material misstatements -more than likely types of laws that have this effect would be already familiar with these and would have people to talk to about these things that work at the audit firm material and indirect effect on financial statements correct answer: -outside the realm of GAAP -no assurance on these illegal acts -if you uncover something in the normal course of the audit, then gather more evidence and report it to management or the board
audit committee correct answer: -who external auditors communicate with, need to be independent directors, SOX section 301, usually three to five members of the Board of Directors -no financial interests, not employees, not members of management -safe group for auditors to talk to -enhance internal controls by creating direct communication with the auditors for external and internal auditors correct answer: purpose for the audit committee -hires and fires external auditors -approves services provided by external auditors -resolves disagreements with management and auditors -establishes procedures for receiving complaint -safe group if issue of upper management -required communications between auditors and audit committee correct answer: functions of the audit committee required correct answer: planning/risk assessment is (required/not required) for an audit not required correct answer: risk response; substantive procedures are (required/not required) for an audit required correct answer: risk response/final review is (required/not required) for an audit planning and risk assessment correct answer: -assist the auditor in planning the nature, extend, and timing of auditing procedures -used to alert the auditor to problem areas
-only have 6-7 months of information -vital planning function to gain understanding risk response of substantive procedures correct answer: -obtain evidential matter about specific management assertions related to balances and transactions -evidence is circumstantial and additional evidence is needed risk response of final review correct answer: -assist auditor in final review of overall reasonableness -have a full set of financial statements at the end of the audit analytical procedures correct answer: study of plausible relationships among both financial and nonfinancial data -unauthorized access -cyber threats -data breaches -programming errors -outdated software and systems -may be changing to a new system -employees not trained correct answer: risks of IT gain understanding during the risk assessment and then decide whether to test controls correct answer: internal control and IT things to look at trend analysis correct answer: seeing what has happened over the years, compare current year balances to prior year balances, compare budget to actual
compliance audit correct answer: assurance service that determines whether the entity has conformed with regulations, rules, and processes engagement letter correct answer: establishes an understanding with the client regarding services performed, documents the understanding through written communication, done every year effective correct answer: giving the right opinion efficient correct answer: doing work in the allotted time frame risk assessment correct answer: -less audit risk -focus on high risk areas -develop strategy -planning the audit -includes understanding the client, risk identification and strategy, risk and materiality assessment risk response correct answer: -identify and respond to risks -substantive testing and confirming with evidence -internal controls and account balances -fluid process -includes: tests of controls and substantive testing reporting phase correct answer: -issue report and form opinion -includes: conclusion and forming an opinion
- risk assessment
- risk repose
- reporting correct answer: three main steps/phases of an audit
qualitative correct answer: nature of an item planning materiality correct answer: -vague about this in the standards -percentage of financial statement benchmarks -typically take 5% of income before taxes quantitative correct answer: number/dollar amount
- planning materiality
- performance materiality
- re-evaluation throughout the audit correct answer: three steps regarding materiality
- brainstorming
- inquire management
- document correct answer: three steps to fraud risk assessment reasonable assurance correct answer: the only thing that the auditors can give about the financial statements since nothing is guaranteed fraud correct answer: intentional misstatement or omission error correct answer: unintentional misstatement or omission fraudulent financial reporting correct answer: lying on financial statements, when the company overstates or understates and lies or intentionally omits something, not applying GAAP appropriately and not disclosing everything that is happening
