Test Bank for Auditing: A Practical Approach with Data Analytics, Raymond N. Johnson, Laura Davis Wiley, Robyn Moroney, Fiona Campbell, Jane Hamilton

Test Bank for Auditing: A Practical Approach with Data Analytics, Raymond N. Johnson, Laura Davis Wiley, Robyn Moroney, Fiona Campbell, Jane Hamilton

SAMPLE 

Question Type: Text Entry

100.             In the context of auditing and assurance standards, _______are the most specific and narrow.

A.    Audit services | Assurance services

Answer: Audit services, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Reporting, AACSB: Communication, Learning Objective: LO1.1, Solution: The relationship of assurance, attestation, and auditing services resembles overlapping umbrellas. Audit services are the most specific and narrow of the three services.

101.             As attestation services encompass more than just the inspection of historical financial statements, the term _______ is used rather than _______.

A.    practitioner

B.    auditor

Answer: N/A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Measurement Analysis and Interpretation, AACSB: Ethics, Learning Objective: LO1.1, Solution: In attestation services, the term practitioner is used rather than auditor because attestation services encompass more than just the audit of historical financial statements.

102.             Website security and IT operations are services that come under _______ services but fall outside _______ services.

Answer: N/A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Measurement Analysis and Interpretation, AACSB: Analytic, Learning Objective: LO1.3, Solution: Investors generally read financial statements to determine whether they should invest in the company. They are interested in the return on their investment and are concerned that the entity will remain a going concern (continue operating) into the foreseeable future. Investors may also be interested in the capacity of the company to pay a dividend. Prospective investors read financial statements to determine whether they should buy shares in the entity.

107.             _______ are users of financial statements who are particularly interested in determining whether the company is sufficiently credit worthy.

Lenders

Answer: N/A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Measurement Analysis and Interpretation, AACSB: Analytic, Learning Objective: LO1.3, Solution: Lenders may read financial statements to determine whether an entity is sufficiently credit worthy to make a loan to the entity and whether it can pay the interest and principal as they come due.

108.             _______ relates to the application of relevant training, knowledge, and experience that auditors use while making informed audit decisions in conducting an audit.

Professional judgment

Answer: N/A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Measurement Analysis and Interpretation, AACSB: Analytic, Learning Objective: LO1.4, Solution: Professional judgment relates to the application of relevant training, knowledge, and experience that auditors use while making informed audit decisions in conducting an audit. Auditors must use their judgment throughout the entire audit. For example, auditors must use judgment when determining if an information source is reliable. They must also use judgment when deciding if enough audit evidence has been gathered to support the audit opinion.

109.             _______relates to auditors remaining independent of the entity, its management and its staff when completing the audit work and thoroughly investigating all evidence presented by their client.

Professional skepticism

Answer: N/A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Measurement Analysis and Interpretation, AACSB: Analytic, Learning Objective: LO1.4, Solution: Professional skepticism means the auditors remain independent of the entity, its management and its staff when completing the audit work. In a practical sense, it means the auditors maintain a questioning mind and thoroughly investigate all evidence presented by their client.

110.             The accounting firm CBIZ/Mayer Hoffman McCann PC is one of the ________ firms. mid-tier

Answer: N/A, Taxonomy: Knowledge, Difficulty: Easy, AICPA: Customer Perspective, AACSB: Analytic, Learning Objective: LO1.4, Solution: Below the Big 4, the next tier of accounting firms is known as the mid-tier. The firms that comprise the mid-tier have a significant presence nationally

and most have international affiliations. The mid-tier firms in the U.S. include, among others, Grant Thornton LLP, BDO USA LLP, RSM LLP, CBIZ/Mayer Hoffman McCann PC, and CroweHorwath LLC. These firms service medium-sized and smaller clients.

111.             The paragraph of an unmodified audit report on the financial statements of a private firm explains that an audit was conducted and identifies the financial statements and the date of the financial statements is the _______ paragraph.

introductory

Answer: N/A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Reporting, AACSB: Ethics, Learning Objective: LO1.6, Solution: The introductory paragraph of an unmodified audit report on the financial statements explains that an audit was conducted and identifies the financial statements and the date of the financial statements.

112.             In an unmodified audit report on the financial statements of a private firm, the _______ paragraph states that the auditor believes that the financial statements are fairly presented, in all material respects, in accordance with the applicable financial reporting framework.

Opinion

Answer: N/A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Reporting, AACSB: Ethics, Learning Objective: LO1.6, Solution: In an unmodified audit report on the financial statements of a private firm, the opinion paragraph clearly states the auditor’s opinion that the financial statements are fairly presented, in all material respects, in accordance with the applicable financial reporting framework.

113.             In the title of an audit report on the effectiveness of ICFR for a public company, the term _______ emphasizes that the auditors are external to the company and therefore can provide an objective opinion.

independent

Answer: N/A, Taxonomy: Knowledge, Difficulty: Easy, AICPA BB: Governance Perspective, AACSB: Communication, Learning Objective: LO1.7, Solution: In the title of an audit report on the effectiveness of ICFR for a public company, the term “independent” emphasizes that the auditors are external to the company and therefore can provide an objective opinion.

114.             In an audit report on the effectiveness of ICFR for a public company, report _______ indicates that the firm is registered with the PCAOB.

title

Answer: N/A, Taxonomy: Knowledge, Difficulty: Easy, AICPA BB: Governance Perspective, AACSB: Ethics, Learning Objective: LO1.7, Solution: In the title of an audit report on the effectiveness of ICFR for a public company, the term “registered” is required to indicate that the firm is registered with the PCAOB.

115.             One of the factors that impacts auditor performance is _______. audit standards, ethical standards, regulations, legislation, or firm policy and procedures.

Answer: N/A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Measurement Analysis and Interpretation, AACSB: Communication, Learning Objective: LO1.8, Solution: Auditor performance is impacted by audit standards, ethical standards, regulations, legislation, and firm policy and procedures.

116.             Briefly describe the similarities between assurance, attestation, and audit services.

The terms assurance, attestation, and auditing are sometimes used interchangeably, but they actually represent different types of services. They are similar in that they all represent a common process of an independent accounting firm taking information prepared by someone else and comparing that information to an established set of criteria. At the end of the service, the independent accounting firm provides a written report about the results of the service performed. This process is important because it adds credibility, or integrity, to the information, which makes it more useful for decision making.

Answer: N/A, Taxonomy: Knowledge, Difficulty: Medium, AICPA FC: Measurement Analysis and Interpretation, AACSB: Analytic, Learning Objective: LO1.1,

117.             In an attestation engagement, what is a CPA is engaged to provide?

Attestation services are performed when an independent practitioner, or CPA, is engaged to issue a report on subject matter that is the responsibility of another party.

Answer: N/A, Taxonomy: Knowledge, Difficulty: Medium, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.1,

118.             What is the primary goal of the CPA in performing the attest function?

The CPA's primary goal is to determine whether the client's assertions are fairly stated.

Answer: N/A, Taxonomy: Knowledge, Difficulty: Easy, AICPA FC: Measurement Analysis and

Interpretation, AACSB: Analytic, Learning Objective: LO1.1,

Question Type: Short Answer

119.          Briefly describe the focus of each of the following professional engagements:

1-   Auditing Engagement

2-   Attestation Engagement

3-   - Assurance Engagement

A. 1- Auditing Engagement - financial statements

2- Attestation Engagement - financial information about the entity

3 - Assurance Engagement - any information as requested by the entity

Answer: N/A, Taxonomy: Analysis, Difficulty: Medium, AICPA FC: Research, AACSB: Analytic, Learning Objective: LO1.2,

120.          Your client, McCoy Manufacturing, wants an audit so he can tell his bank that his financial statements have been certified to be 100% accurate. Explain why you, the auditor, are unable to provide absolute assurance on the accuracy of the financial statements.

Answer: N/A, Taxonomy: Synthesis, Difficulty: Hard, AICPA BB: Governance Perspective, AACSB: Reflective Thinking, Learning Objective: LO1.6,

Solution: The responsibility of the auditor is to provide an opinion on whether the financial statements are presented fairly in accordance with the applicable financial reporting framework. An opinion is defined as a judgment about matters that are subjective. The preparation of financial statements is considered somewhat subjective because management must make some estimates and choose between different accounting methods. Therefore, the auditor is only required to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. Reasonable assurance is a high, but not absolute, level of assurance (AU-C 200.06). In other words, the auditor does not “guarantee” or “certify” that the financial statements are 100% accurate because that is considered absolute assurance which is not possible with content that is subjective.

121.          Below is a sample of the first section of a standard audit report for Gawronski's Hockey Manufacturing Company, a private company. There are two errors in this report. Describe the errors.

Auditor's Report

To the creditors of Gawronski's Hockey Manufacturing Company:

 Report on the Financial Statements

We have audited the accompanying financial statements of Gawronski's Hockey

Manufacturing Company, which comprises the balance sheets as of December 31, 2022 and 2021, and the related statements of income, changes in equity and cash flows for the years then ended, and the related notes to the financial statements.

Answer: N/A, Taxonomy: Evaluation, Difficulty: Hard, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.6,

Solution: [1] Title – the term independent is missing in the title of the report

[2] Address – The report is addressed to the creditors of the company rather than the owners or shareholders of the company and to the board of directors, if applicable.

122.     Below is a sample of the auditor's responsibility section of a standard audit report for Gawronski's Hockey Manufacturing Company, a private company. There are two errors in this report. Describe the errors.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted accounting principles. Those standards require that we plan and perform the audit to obtain absolute assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Answer: N/A, Taxonomy: Evaluation, Difficulty: Hard, AICPA FC: Reporting, AACSB: Analytic, Learning Objective: LO1.6,

Solution: Both errors are in the first paragraph

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain absolute assurance about whether the financial statements are free from material misstatement.

1)   The appropriate audit standards would be those issued by the ASB since the company is a private company.

2)   Audits provide reasonable assurance, not absolute.

123.     Below is a sample of the auditor's opinion section of a standard audit report for Gawronski's Hockey Manufacturing Company, a private company. There are two errors in this report. Describe the errors. Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Gawronski's Hockey Manufacturing Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in accordance with auditing standards generally accepted in the United States of America.

Keith Christy, Partner

Adrian, Michigan

February 15, 2023

Answer: N/A, Taxonomy: Evaluation, Difficulty: Hard, AICPA FC: Reporting, AACSB: Analytic,

Learning Objective: LO1.6,