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Question
Your classmate asserts, "Accountants shouldn't need to take business courses besides accounting, because they are only interested in the financial statements of a company." Defend or refute this statement.
The classmate is misguided. Auditors need to develop a comprehensive understanding of business. Most business concepts and risks have the potential to affect the financial statements either immediately or in the long run. In addition, a thorough understanding of business risks increases the likelihood of identifying material misstatements in the financial statements. Therefore, an auditor should be familiar with an entity's business environment for numerous reasons, including evaluating the going concern assertion.
Answer
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Related questions
Q:
For which of the following internal controls would an auditor be least likely to perform tests of internal controls closer to the "as of" date?
A. Withdrawals from Federal Bank of more than $5 million must include a manager's signature.
B. At the end of each day at Federal Bank, the total cash in the vault is reconciled with daily registers of deposits and withdrawals.
C. Federal Bank has just started establishing trusts for its customers and it has only set up ten such trusts. Before making an investment for a trust, bank employees must verify that the investment is in accordance with stated investment policies.
D. On an annual basis, Federal Bank management performs credit checks on its loan customers before determining the value of loans it will not be able to collect on.
Q:
S&H Associates has just performed an audit of Bob's Bikes. S&H was unable to obtain a written representation from management about internal control. Which of the following is true?
A. S&H must still assume that management has assessed the effectiveness of internal control.
B. Depending on other factors in the audit, S&H can still issue an unqualified opinion.
C. S&H should consider this situation a limitation on the scope of the audit.
D. Management does not need to give S&H a letter if it has disclosed all known internal control deficiencies.
Q:
During consideration of internal control in a financial statement audit of a nonpublic company, an auditor is not obligated to
A. Search for significant deficiencies in the operation of internal control.
B. Understand the internal control environment and the information system.
C. Determine whether the controls relevant to audit planning have been placed in operation.
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Q:
Which of the following is a general control that would most likely assist an entity whose systems analyst left the entity in the middle of a major project?
A. Grandfather-father-son record retention.
B. Input and output validation routines.
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Q:
If auditors conduct substantive procedures as of 10/31 for an entity with a 12/31 year-end
A. Additional tests are seldom conducted for the remaining period.
B. Additional control tests are required in the remaining period.
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B. Inquiry.
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In an audit of financial statements of a private company in accordance with generally accepted auditing standards, an auditor is required to
A. Identify specific internal control activities relevant to management's financial statement assertions.
B. Perform tests of controls to evaluate the effectiveness of the entity's accounting system.
C. Determine whether procedures are suitably designed to prevent or detect material misstatements.
D. Document the auditor's understanding of the entity's internal control.
Q:
In obtaining an understanding of an entity's internal control in a financial statement audit of a nonpublic company, an auditor is not obligated to
A. Determine whether the control activities have been placed in operation.
B. Perform procedures to understand the design of the internal control policies.
C. Document the understanding of the entity's internal control components.
D. Search for significant deficiencies in the operation of the internal control.
Q:
It is important for the CPA to consider the competence of the entity's employees because their competence bears directly and importantly upon the
A. Cost/benefit relationship of the system of internal control.
B. Achievement of the objectives of the system of internal control.
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Q:
A substantive strategy differs from a reliance strategy in that a substantive strategy includes
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B. Extra tests of controls.
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Q:
An IT specialist is least likely to be necessary when
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B. The entity participates heavily in electronic commerce.
C. The system has not changed from the prior year.
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Q:
The control environment component of internal control includes all of the following except:
A. Management's operating style.
B. Access to computer programs.
C. Organizational structure.
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Q:
A field test is a
A. Test to ensure that a numerical value in a field does not exceed some predetermined value.
B. Check to ensure that the value in a field falls within an allowable range of values.
C. Check to ensure that the data in a field have the proper arithmetic sign.
D. Check on a field to ensure that it contains either all numeric or all alphabetic characters.
Q:
A limit test is a
A. Test to ensure that a numerical value does not exceed some predetermined value.
B. Check to ensure that the value in a field falls within an allowable range of values.
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D. Check on a field to ensure that it contains either all numeric or alphabetic characters.
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C. Limited liability.
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Q:
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A. Form a basis for evaluating employees.
B. Monitor production quality.
C. Avoid clerical errors.
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Q:
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Q:
Who bears ultimate responsibility for the financial statements?
A. Management of the organization, equally with the external auditor that audits the statements.
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Q:
What is the general character of the work conducted in performing a forensic audit for a company?
A. Providing assurance that the financial statements are not materially misstated.
B. Detecting or deterring fraudulent activity.
C. Offering an opinion on the reliability of the specific assertions made by management.
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Q:
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B. Evaluation.
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A typical objective of an operational audit is for the auditor to
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B. Evaluate the feasibility of attaining the entity's operational objectives.
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An "in-charge" auditor typically holds the rank of
A. Associate.
B. Senior.
C. Manager.
D. Partner.
Q:
The accuracy of information included in footnotes accompanying the audited financial statements issued by a company whose shares are traded on a stock exchange is the primary responsibility of
A. The stock exchange officials.
B. The independent auditor.
C. The company's management.
D. The Securities and Exchange Commission.
Q:
The first PCAOB general standard requires that the examination of financial statements is to be performed by a person or persons having adequate technical training and
A. Independence with respect to the financial statements and supplementary disclosures.
B. Exercising professional care as judged by peer reviewers.
C. Proficiency as an auditor, which likely has been acquired from previous experience.
D. Objectivity as an auditor as verified by proper supervision.
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The IAASB and the ASB collaborated on a replacement for the 10 GAAS standards which include principles underlying an audit conducted in accordance with generally accepted auditing standards.
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Q:
Explain the relationship between audit, attest and assurance services.