Auditing test bank chapter 1

9) What is an engagement to attest on internal control over financial reporting?

Answer: For an audit of internal control over financial reporting, management asserts that internal controls have been developed and implemented following well established criteria. Section 404 of the Sarbanes-Oxley Act requires public companies to report management's

assessment of the effectiveness of internal control over financial reporting. The Act also requires auditors for larger public companies to attest to the effectiveness of internal control over

financial reporting. This evaluation, which is integrated with the audit of financial statements, increases user confidence about future financial reporting, because effective internal controls reduce the likelihood of future misstatements in the financial statements. Terms: Engagement to attest on internal control over financial reporting Diff: Moderate Objective: LO 1-5

AACSB: Reflective thinking skills Topic: SOX

10) What are the five categories of attestation services?

Answer: The five categories of attestation services include: ? Audit of historical financial statements

? Audit of internal control over financial reporting ? Review of historical financial statements

? Attestation services on information technology

? Other attestation services that may be applied to a broad range of subject matter Terms: Categories of attestation services Diff: Moderate Objective: LO 1-5

AACSB: Reflective thinking skills

11) What is a WebTrust engagement? What is a SysTrust engagement? How do they differ? Answer: WebTrust is a service provided by a CPA where the CPA provides assurance that the Web Site owner has met established criteria related to business practices, transaction integrity, and information processes.

SysTrust is a service provided by a CPA to evaluate and test a system reliability in areas such as security and data integrity. There are five principles that must be addressed on a SysTrust engagement: security, availability, processing integrity, online privacy, and confidentiality.

WebTrust is primarily designed to provide assurance to third party users of a Web site. SysTrust provides assurance to management, the board of directors or third parties about the reliability of information systems used to generate real-time information. Terms: WebTrust and SysTrust engagements Diff: Challenging Objective: LO 1-5

AACSB: Reflective thinking skills

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12) CPA firms are never allowed to provide bookkeeping services for clients. A) True B) False Answer: B

Terms: CPA services provided to clients Diff: Moderate Objective: LO 1-5

AACSB: Reflective thinking skills

13) Section 404 of the Sarbanes-Oxley Act requires public companies to have an external auditor attest to their internal control over financial reporting. A) True B) False Answer: A

Terms: Section 404 of the Sarbanes-Oxley Act Diff: Moderate Objective: LO 1-5

AACSB: Reflective thinking skills Topic: SOX

14) Most public companies' audited financial statements are available on the SEC's EDGAR database. A) True B) False Answer: A

Terms: Public companies' audited financial statements: SEC's EDGAR database Diff: Challenging Objective: LO 1-5

AACSB: Reflective thinking skills

Learning Objective 1-6

1) One objective of an operational audit is to:

A) determine whether the financial statements fairly present the entity's operations. B) determine if the auditee is in compliance with GAAP. C) make recommendations for improving performance.

D) report on the entity's relative success in attaining profit maximization. Answer: C

Terms: Objective of operational audit Diff: Moderate Objective: LO 1-6

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2) An examination of part of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness is what type of audit? A) Operational audit B) Compliance audit

C) Financial statement audit D) Production audit Answer: A

Terms: Examination of part of an organization's procedures and method to evaluate efficiency and effectiveness Diff: Moderate Objective: LO 1-6

AACSB: Reflective thinking skills

3) An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is classified as a(n): A) audit of financial statements. B) compliance audit. C) operational audit. D) production audit. Answer: B

Terms: Audit to determine whether entity followed specific procedures or rules Diff: Moderate Objective: LO 1-6

AACSB: Reflective thinking skills

4) Which one of the following is more difficult to evaluate objectively?

A) Presentation of financial statements in accordance with generally accepted accounting principles

B) Compliance with government regulations C) Efficiency and effectiveness of operations D) All three of the above are equally difficult. Answer: C

Terms: Most difficult to evaluate objectively Diff: Challenging Objective: LO 1-6

AACSB: Reflective thinking skills

5) Which of the following audits can be regarded as generally being a compliance audit? A) IRS agents' examinations of taxpayer returns

B) GAO auditor's evaluation of the computer operations of governmental units C) An internal auditor's review of a company's payroll authorization procedures D) A CPA firm's audit of a public company Answer: A

Terms: Compliance audit Diff: Challenging Objective: LO 1-6

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6) Which of the following are required to have a written report regarding the assertion of another party? A) Financial Statement Operational Compliance Attestation Assurance Audit Audit Audit Engagement Engagement Y Y Y Y Y B) Financial Statement Operational Compliance Attestation Assurance Audit Audit Audit Engagement Engagement Y Y Y Y N C) Financial Statement Operational Compliance Attestation Assurance Audit Audit Audit Engagement Engagement Y Y Y N N D) Financial Statement Operational Compliance Attestation Assurance Audit Audit Audit Engagement Engagement N N N Y Y Answer: B

Terms: Required to have a written report Diff: Challenging Objective: LO 1-6

AACSB: Reflective thinking skills

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