ACCT5125W Exam 1: Accounting and Auditing Concepts, Exams of Accounting

Download ACCT5125W Exam 1: Accounting and Auditing Concepts and more Exams Accounting in PDF only on Docsity! ACCT5125W Exam 1-6 questions with correct answers Accounting vs. Auditing - ANSWER: ✔✔Accounting - collection, classification, measuring summarization, and communication of financial data Auditing - review measurements and communications of financial data. Analytical, cricial, inestigative. Proves the financial data. principal agent relationship - ANSWER: ✔✔agent hires auditor to report on the fairness of the agents financial reports. Agent pays auditor to reduce principal's information risk auditor's role - ANSWER: ✔✔reduce information asymmetry independence - ANSWER: ✔✔free of bias Assurance, attest, auditing - ANSWER: ✔✔Assuance = big Attest = middle Auding = small assurance - ANSWER: ✔✔improve quality of information or its context for decision makers -Internal control Audits - sox -Compliance audits - FDICIA, AML -Operational Audits - internal audit reviews, process improvement -Forensic Audits- Fraud prevention, detection, criminal investigations -Risk Advisory -CPA Performance review attest - ANSWER: ✔✔report of a specific subject matter or assertion on a subject matter -Non audit reports on internal controls -financial forecasts auditing - ANSWER: ✔✔evaluates evidence & assertions about economic actions or events -Forensic -Compliance -Financial Statements -Internal Control Iron Curtain method - ANSWER: ✔✔balance sheet materiality rollover method - ANSWER: ✔✔income statement materiality Financial Statement Audit - ANSWER: ✔✔Audit Risk Materiality Evidence audit risk - ANSWER: ✔✔auditor may unknowingly fail to detect material misstatements reasonable assurane textbook materiality - ANSWER: ✔✔magnitude of misstatement that would change a "reasonable person"'s judgement of the information supreme court materiality - ANSWER: ✔✔the misstatement would be viewed be reasonable investor as having altered the "total mix" of information available three auditing standards categories - ANSWER: ✔✔General fieldwork Reporting General Standards - ANSWER: ✔✔-training -independence -due professional care Standards of Field work - ANSWER: ✔✔-planning & supervision -understand Internal controls -Sufficient & appropriate evidence standards of reporting - ANSWER: ✔✔-GAAP -Consistency -Disclosures -Opinion ASB Principles underlying audit - ANSWER: ✔✔-purpose -responsibilites -perfromance -reporting GAAS & SAS - ANSWER: ✔✔Minimum standards of performance for auditors PCAOB - Statements of Auditing Standards (SAS) = interpretations of GAAS purpose - ANSWER: ✔✔to express an opinion of financial statements responsibilities - ANSWER: ✔✔have competence and capability, ethics, professional skeptisim, professional judgement performance - ANSWER: ✔✔sufficient and appropriate evidence supporting reasonable assurance reporting - ANSWER: ✔✔express a written opinion based on evidence ethics - ANSWER: ✔✔system or code of conduct on moral duties and obligations professionalism - ANSWER: ✔✔conduct, aims and qualities that characterize a profession Three phases of audit planning - ANSWER: ✔✔-client acceptance & continuance -Preliminary Engagement activities -plan the audit Continuing client retention - ANSWER: ✔✔-evaluate client retention periodically -near audit completion or after significant events -conflicts over accounting issues -disputes over fees preliminary engagement activities - ANSWER: ✔✔-audit team requirements -compliance, ethics, indepdence terms of engagement - ANSWER: ✔✔1. the engagement letter 2. use of internal auditors 3. role of audit committee Engagement letter - ANSWER: ✔✔-objectives of engagement -mgmt responsibilities -auditor's responsiblies -limitations of engagement -use of specialists or internal auditors -addtional services provided internal audit function needs - ANSWER: ✔✔-objectivity -competence -systematic and disciplined approach audit committee - ANSWER: ✔✔-subcommittee of BOD -no requirements for privately held companies Section 301 of Sarbanes Oxley Act -independent -overall audit form -approve nonaudit services -authroity to follow compliants and engage legal counsel assess business risk - ANSWER: ✔✔understand business transactions accounts likely to contain errors establish materiality - ANSWER: ✔✔establish planning materiality establish tolerable misstatement for specific accounts establish tolerable misstatement for disclosures then evaluate finding illegal acts - ANSWER: ✔✔direct and material indirect and material Assess risk steps - ANSWER: ✔✔1. assess business risks 2. relate business risks to what can go wrong at transaction, account balance, or disclosure level 3. assess risk of MM - equation business risk - ANSWER: ✔✔events that would prevent the company from achieving its business objectives porter's 5 forces - ANSWER: ✔✔-potential entrants -buyers -substitutes -suppliers center = competition gather evidence - ANSWER: ✔✔-inquiries -analytical procedures -observation & inspection misstatements - ANSWER: ✔✔-inaccuracy in gather/processing data -omission -disclosures not with GAAP -overlooking or clear misinterpretation of facts -judgements by management unreasonable or accounting policies inappropriate unintential misstatements - ANSWER: ✔✔-mistakes in gathering date -unreasonable accounting estimates from oversight/misinterpration of facts -mistakes in application of accounting principles identify intentional misstatement - ANSWER: ✔✔-communicate among audit team -inquire management & others -analytical procedures -unexpected period end adjustments missappropriation of assets - ANSWER: ✔✔-stealing assets -paying for good/services not recieved by company -embezzling cash received response to risk assessment for high risk areas - ANSWER: ✔✔-emphasize professional skepticism -assign staff with speiclized skills -more supervision -unpredictablity