ACCT2000 Chapter Notes - Chapter 11: Financial Audit, Audit Evidence, Analytical Review

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11 Oct 2018

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Auditing is objectively obtaining and evaluating evidence regarding asserting about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria. Internal auditing is an assurance and consulting activity designed to add value, improve organisational effectiveness and efficiency and accomplish organisation objectives. There are several different types of internal audits: A financial audit is the examination of the reliability and integrity of financial transactions, accounting records and financial statements. An information systems or internal control audit is the examination of the general and application controls of an is to assess its compliance with internal control policies and procedures and its effectiveness in safeguarding assets. An operational audit is the examination of the economical and efficient use of resources and the accomplishment of established goals and objectives. A compliance audit is the examination of organisational compliance with applicable laws, regulations, policies and procedures.

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1â28. Multiple Choice Questions
Select the best answer for each of the following items and give reasons for your choice.
a. Which of the following best describes the relationship between assurance services and
attest services?
(1) While attest services involve fi nancial data, assurance services involve nonfi nancial data.
(2) While attest services require objectivity, assurance services do not require objectivity.
(3) Both attest and assurance services require independence.
(4) Attest and assurance services are different terms referring to the same types of services.
b. Which of the following has primary responsibility for the fairness of the representations
made in fi nancial statements?
(1) Clientâs management.
(2) Independent auditor.
(3) Audit committee.
(4) AICPA.
c. The most important benefi t of having an annual audit by a public accounting fi rm is to:
(1) Provide assurance to investors and other outsiders that the fi nancial statements are reliable.
(2) Enable offi cers and directors to avoid personal responsibility for any misstatements in
the fi nancial statements.
(3) Meet the requirements of government agencies.
(4) Provide assurance that illegal acts, if any exist, will be brought to light.
d. The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board
(PCAOB). Which of the following is not one of the responsibilities of that board?
(1) Establish independence standards for auditors of public companies.
(2) Review fi nancial reports fi led with the SEC.
(3) Establish auditing standards for audits of public companies.
(4) Sanction registered audit fi rms.
e. Which of these organizations has the responsibility to perform inspections of auditors of
public companies?
(1) American Institute of Certifi ed Public Accountants.
(2) Securities and Exchange Commission.
(3) Financial Accounting Standards Board.
(4) Public Company Accounting Oversight Board.
f. Governmental auditing, in addition to including audits of fi nancial statements, often
includes audits of effi ciency, effectiveness, and:
(1) Adequacy.
(2) Evaluation.
(3) Accuracy.
(4) Compliance.
g. In general, internal auditorsâ independence will be greatest when they report directly to the:
(1) Financial vice president.
(2) Corporate controller.
(3) Audit committee of the board of directors.
(4) Chief executive offi cer.
h. Which of the following did not precipitate the passage of the Sarbanes-Oxley Act of 2002
to regulate public accounting fi rms:
(1) Disclosures related to accounting irregularities at Enron and WorldCom.
(2) Restatements of fi nancial statements by a number of public companies.

(3) Conviction of the accounting fi rm of Arthur Andersen LLP.
(4) Ethical scandals at the AICPA.
i. Which of the following organizations establishes accounting standards for U.S. government
agencies?
(1) The Financial Accounting Standards Board.
(2) The Governmental Accounting Standards Board.
(3) The Federal Accounting Standards Advisory Board.
(4) The Public Company Accounting Oversight Board.
j. Which of the following is correct about forensic audits?
(1) All audit engagements are forensic in nature.
(2) Forensic audits are performed by law fi rms; they are not performed by CPA fi rms.
(3) Forensic audits are equivalent to compliance audits.
(4) Forensic audits are usually performed in situations in which fraud has been found or is
suspected.
k. What best describes the purpose of the auditorsâ consideration of internal control in a
fi nancial statement audit for a nonpublic company?
(1) To determine the nature, timing, and extent of audit testing.
(2) To make recommendations to the client regarding improvements in internal control.
(3) To train new auditors on accounting and control systems.
(4) To identify opportunities for fraud within the clientâs operations.
l. Which of the following is an example of a compliance audit?
(1) An audit of fi nancial statements.
(2) An audit of a companyâs policies and procedures for adhering to environmental laws
and regulations.
(3) An audit of a companyâs internal control over fi nancial reporting.
(4) An audit of the effi ciency and effectiveness of a companyâs legal department.

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Assignment 3: External and Internal Audit

Auditing is a very broad topic that covers all aspects of an organization. An audit not only examines the accuracy of financial statements but also examines the effectiveness of internal controls as well as the efficiency of overall operations of the organization. To accomplish the objectives of different types of audit within an organization, the audit function is broken down into the role of internal auditor and the external auditor.

In your role as a partner in the CPA firm Dewey, Wright, and Moore, review the following information.

Dewey, Wright, and Moore has just been approached by a new client, AV Imports and Exports, a company that trades goods with various countries. You are in charge of an audit engagement. To determine whether to take on the engagement, you proceed with the overall assessment of risk.

You meet with company management, the board of directors, and the audit committee, and begin communication with the previous audit firm. You also schedule a meeting with the internal auditors to learn more about their role and function within the organization.

In preparation for your scheduled meeting, research the external and internal audit function using your textbook, the Argosy University online library resources, and the Internet. Complete the following:

Compare the similarities between the responsibilities of the external and internal audit functions.

Compare the differences between the benefits of the two functions.

Make a recommendation to the management team based on your research

Present the comparisons in a chart. Include a 3-5 page report summarizing and explaining the chart as well as outlining how you think Dewey, Wright, and Moore can use the services of the internal auditors as part of the overall audit the firm would provide. Give reasons for your assertions and cite your sources.

Submit your chart and report in Word format. Utilize at least three resources in preparing your report. Apply APA standards for writing style to your work.

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2-30	2â30. Multiple Choice Questions
	Select the best answer for each of the following items and give reasons for your choice.
A	a. Which of the following organizations can revoke the right of an individual to practice as a
	CPA?
	(1) The Public Company Accounting Oversight Board.
	(2) The American Institute of Certifi ed Public Accountants.
	(3) The Securities and Exchange Commission.
	(4) The applicable state board of accountancy.
B	b. The AICPA over time has played an important role in standards setting. Which of the following
	standards are currently established by the AICPA?
	(1) Accounting standards applicable to nonpublic companies.
	(2) Auditing standards applicable to audits of nonpublic companies.
	(3) Quality control standards applicable to audits of public companies.
	(4) Standards for reviews of the interim fi nancial information issued by public companies.
C	c. Which of the following does the FASB consider a source of nonauthoritative guidance for
	use when there is no authoritative guidance available?
	(1) The FASB Codifi cation.
	(2) FASB Concepts Statements.
	(3) SEC Rules.
	(4) SEC Interpretive Releases
D	d. Financial statement audits performed under PCAOB requirements are designed to provide
	which type(s) of assurance with respect to the detection of material misstatements due to
	errors or fraud?
		Reasonable	Absolute
1		Yes	Yes
2		Yes	No
3		No	Yes
4		No	No
E	e. A basic objective of a CPA fi rm is to provide professional services that conform with professional
	standards. Reasonable assurance of achieving this basic objective is provided through:
	(1) Compliance with generally accepted reporting standards.
	(2) A system of quality control.
	(3) A system of peer review.
	(4) Continuing professional education.
F	f. Which of the following is not explicitly included in a standard report for a nonpublic
	company?
	(1) The CPAâs opinion that the fi nancial statements comply with generally accepted
	accounting principles.
	(2) That generally accepted auditing standards were followed during the audit.
	(3) That internal control of the client was satisfactory.
	(4) An identifi cation of the fi nancial statements audited.
G	g. The general group of the 10 PCAOB Auditing Standards requires that:
	(1) The auditors maintain an independent mental attitude.
	(2) The audit be conducted in conformity with generally accepted accounting
	principles.
	(3) Assistants, if any, be properly supervised.
	(4) The auditors obtain an understanding of internal control.
H	h. Which AICPA quality control standard would most likely be satisfi ed when a CPA fi rm
	maintains records indicating which partners or employees of the fi rm were previously
	employed by the CPA fi rmâs clients?
	(1) Professional relationship.
	(2) Engagement performance.
	(3) Relevant ethical requirements.
	(4) Monitoring.
I	i. An audit provides reasonable assurance of detecting material:
	Fraudulent Financial	Misappropriation
	Reporting	of Assets
1	Yes	Yes
2	Yes	No
3	No	Yes
4	No	No
J	j. Which of the following is not included in an integrated audit report on the fi nancial statements
	of a public company?
	(1) The report states that the audit was performed in accordance with AICPA standards.
	(2) The report indicates that the fi nancial statements are the responsibility of management.
	(3) The report indicates that the auditors have also audited the effectiveness of the companyâs
	internal control.
	(4) The report is signed in the name of the CPA fi rm.
K	k. Audit fi rms that are subject to inspections by the PCAOB staff include:
	(1) All audit fi rms.
	(2) Audit fi rms that are registered with the SEC.
	(3) Audit fi rms that are registered with the PCAOB.
	(4) Audit fi rms that are registered with a state board of accountancy.
L	l. Which of the following is not a difference noted when comparing the AICPA audit report
	to the international audit report?
	(1) The international audit report may use the phrase âtrue and fair view.â
	(2) The international audit report may be signed using the personal name of the audit
	partner, the audit fi rm, or both.
	(3) The international audit report requires inclusion of the city of the CPA fi rm offi ce that
	performed the audit.
	(4) The international audit report includes an opinion on internal control.

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ACCT2000 Chapter Notes - Chapter 11: Financial Audit, Audit Evidence, Analytical Review

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