ACCT 3222-3, WILEY, LSU, EXAM 1. 270 QUESTIONS WITH 100% CORRECT ANSWERS 2024, WITH COMPLETE SOLUTION.
Audit Services
services by an independent CPA that provide financial statement users with (1) an opinion on whether the financial statements are presented fairly, in all material respects,
in accordance with an applicable financial reporting framework and (2) an opinion on the
effectiveness of ICFR, which enhance the degree of confidence that intended users can
place in the financial statements
Attestation Services
Services performed when an independent practitioner, or CPA, is engaged to issue a report on subject matter that is the responsibility of another party
Relationship of assurance, attestation, and auditing services from most to least improved of quality (i.e., assurance)
Audit - highest quality/reasonable assurance (i.e., historical financial statements)
Attestation - mid quality/limited assurance (i.e., review of historical financial statements, examination of internal controls, review of financial forecast)
Assurance - lowest quality (i.e., compilation of historical financial statements, website security, IT operations, non-financial information)
Assurance Services
independent professional services that improve the quality of information, or its context, for decision makers
Applicable financial reporting framework refers to
the set of standards used in preparing the historical financial statements (i.e., GAAP, IFRS, or federal income tax basis of accounting)
Independent implies that the service is performed by
someone who was not involved with the creation of the information and who is objective
in the evaluation of the information
Quality refers to
the relevance and realiability of the information
Information refers to
subject matter that can be financial or nonfinancial, historical or prospective, standalone
data or entire systems of data, internal or external to a company
CPAs are the only _________ accounting professionals in the US and the ________ are issued at the ____________ level
Licensed accounting professionals in the US.
Licenses are issued at the state level, not federal
A state board of accountancy will only issue
a licence to practice after all three Es have been earned
CPA Es
Education, Exam, and Experience
Public companies, or issuers, in the US are required by federal government to have
an annual financial statement audit and an ICFR audit Private companies, or non-issuers, are _______ to have an annual audit by federal
government, but
Not required by law, other interested users may request audited financial statements (i.e., lenders)
ICFR
Internal Control over Financial Reporting
Integrated Audit
An audit that combines the financial statement audit with an audit of the effectiveness of
ICFR
The limitations of an audit are cause by
1. the nature of financial reporting
2. the nature of audit procedures
3. the need for the audit to be conducted within a reasonable period of time at a reasonable cost
The nature of financial reporting refers to
the use of judgment when preparing financial statements due to the subjectivity required
when arriving at accounting estimates and judgment required when selecting and applying accounting methods
The nature of audit procedures refers to
Reliance on evidence provided by the client and its managements, as well as the concept of materiality
Materiality
the ability of information to influence decisions that users make on the basis of the financial information of a specific reporting entity
Compliance Audit
an audit to determine whether the entity has conformed with regulations, rules, or processes
Operational (Performance) Audit
An assessment of the economy, efficiency, and effectiveness of an organization's operations
Operational Audit economy, efficiency, and effectiveness refer to
Economy refers to the cost of inputs
Efficiency refers to the relationship between inputs and outputs
Effectiveness refers to the achievement of certain goals or the production of a certain level of outputs
Internal Audit
A function within an entity which generally evaluates and improves risk management, internal control procedures, and elements of the governance process
Those charged with governance
Persons with responsibility for overseeing the strategic direction of the entity and the obligations related to the accountability of the entity
The external auditor may rely on the work done by
Internal auditors when evaluating the evidence needed to form an opinion on the financial statements or on ICFR
Financial Statement Users include Investors, suppliers, customers, lenders, employees, governments, and the general public
Sources of demand for audit and assurance services
Remoteness (users do not have access to the company)
Complexity (amounts affected by significant estimates requiring knowledge and experience to evaluate)
Competing incentives (determine biased information)
Reliability
Management is responsible for
1. Ensuring the information included in the financial statements is presented fairly and complies with the applicable financial reporting frameowrk
2. Designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of the financial statements
3. Providing the auditor with access to all records, documentation, and personnel relevant to the preparation and fair presentation of the financial statements, and any additional information the auditors may consider relevant to complete the audit
Also, mgmt is responsible for making estimates for some f/s items and selecting appropriate accounting policies within the applicable financial reporting framework
Auditors are responsible for
1. Conducting the audit in accordance with the appropriate auditing standards
2. Planning and performing the audit with professional skepticism
3. Planning and performing the audit with professional judgment
Professional Skepticism
An attitude that includes a questioning mind, being alert to conditions that may indicate possible misstatement due to fraud or error, and a critical assessment of audit evidence
Professional judgment
The application of relevant training, knowledge, and experience in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement
PCAOB
Public Company Accounting Oversight Board
Oversees the audits of public companies
PCAOB is a
non-profit corporation established through the SOX legislation in 2002.
Auditing Standards
(AS)
Standards issued by the PCAOB which provide minimum requirements and guidance for auditing services
AICPA is
American Institute of Certified Public Accountants
A private professional membership organization of CPAs representing the accounting profession
Also, responsible for creating and grading the Uniform CPA exam
Auditing Standards Board
