ACC 235 Chapter 1

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ACC 235 Chapter 1

  

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An assurance engagement would include
 
-Giving an opinion on a prize promoter’s claim about the amount of sweepstakes prizes awarded in the past
-Giving an opinion on the conformity of the financial statements of a university with generally accepted accounting principles
-Giving an opinion on the fair presentation of a newspaper’s circulation data
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A determination of cost savings obtained by outsourcing cafeteria services is most likely to be an objective of
 
operational auditing
The primary difference between operational auditing and financial auditing is that in operation auditing
 
the operational auditor is seeking to help management use resources in the most effective manner possible
According to the AICPA, the purpose of an audit of financial statements is to
 
enhance the degree of confidence that intended users can place in the financial statements
Bankers who are processing loan applications from companies seeking large loans will probably ask for financial statements audited by an independent CPA because
 
they generally see a potential conflict of interest between company managers who want to get loans and the bank’s needs for reliable financial statements
The Sarbanes-Oxley Act of 2002 prohibits public accounting firms from providing the following services to an audit client:
 
-Bookkeeping services
-Internal audit services
-Valuation services
Independent auditors of financial statements perform audits that reduce
 
information risk faced by investors
The primary objective of compliance auditing is to
 
determine whether auditee personnel are following laws, rules, regulations, and policies
These requirements are usually necessary to become licensed as a certified public accountant
 
-Successful completion of the Uniform CPA Examination-
The objective in an auditor’s review of credit rating of a client’s customers is to obtain evidence related to management’s assertion about
 
valuation and allocation
Someone verbally asserting that all expenses for the year have been recorded in the accounts is
 
not considered a sufficient basis for a CPA to conclude that all expenses have been recorded
The risk to investors that a company’s financial statements may be materially misleading is called
 
information risk
When auditing merchandise inventory at year-end, the auditor performs audit procedures to ensure that all goods purchased before year-end are received before the physical inventory count. This audit procedure provides assurance about the
 
cutoff management assertion
When auditing merchandise inventory at year-end, the auditor performs audit procedures to obtain evidence that no goods held on consignment are included in the client’s ending inventory balance. This audit procedure provides assurance about the
 
rights and obligation management assertion
When an auditor reviews additions to the equipment (fixed asset) account to make sure that repair and maintenance expenses are not understated, she wants to obtain evidence as to management’s assertion regarding
 
existence
The Sarbanes-Oxley Act of 2002 generally prohibits public accounting firms from:
 
-acting in a managerial decision-making role for an audit client
-auditing the firm’s own work on an audit client -providing tax consulting to an audit client without audit committee approval
Substantial equivalency refers to
 
permitting a CPA to practice in another state without having to obtain a license in that state
Reasons to obtain professional certification
 
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Attest engagement
 
Providing an opinion on subject matter or an assertion about the subject matter that is the responsibility of another party
Attestation
 
The lending of credibility to assertions made by a third party
Auditing
 
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
Business Risk
 
The probability an entity will fail to meet its objectives and, ultimately, fail
Cutoff (or cutoff date)
 
Refers to a date, normally the client’s year-end balance sheet date, around which transactions should be recorded in the proper period (year).
Financial reporting
 
Broad based process of providing statements of financial position (balance sheets), results of operations (income statements, statements of shareholders’ equity, and statements of comprehensive income), changes in cash flows, statements of cash flows), and accompanying disclosures (footnotes) to outside decision who have no internal source of information
Information risk
 
The probability that the information circulated by a company will be false or misleading
Internal auditing
 
An assurance and consulting activity that provides management with information regarding efficient and effective operations; compliance with laws, regulations, policies, and procedures; and other organizational performance issues designed to reduce risk and add value to the organization
Operational auditing
 
The study of business operations for the purpose of making recommendations about the efficient use of resources, effective achievement of business objectives, and compliance with company policies
Professional Skepticism
 
An auditor’s tendency not to believe management’s assertions without sufficient corroboration
Substantial Equivalency
 
The process through which CPAs licensed in one state can practice in another state
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