Auditing Chapters 1 & 2 Midterm

Front 1

Auditing is

Back 1

The accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and establish criteria.

Front 2

Who should auditing be done by?

Back 2

Auditing should be done by a competent, independent person.

Front 3

What must you be to be an auditor?

Back 3

Competent and independent

Front 4

What do auditors do?

Back 4

Auditing is evaluating if something meets a set of standards.

Front 5

When we say auditors must be independent what 2 categories does that encompass?

Back 5

Must be independent in fact and appearance.

Front 6

What does it mean to be independent in fact?

Back 6

To be independent in fact means we don't let personal views affect our decisions.

Front 7

What does it mean to be independent in appearance?

Back 7

Does an independent person think I am independent? Am I related to the family, do I own stock in the company? If so then I am not independent in appearance because I have incentive for the company to do well.

Front 8

What are assurance services?

Back 8

Assurance services are independent professional services that improve the quality of information for decision makers. Who is this done by? CPA's, and others. Examples of assurance services are BBB, Consumer reports.

Front 9

What are some examples of assurance services?

Back 9

Better Business Bureau
Consumer reports

Front 10

Who performs assurance services?

Back 10

CPA's
Census Bureau
FDA
EPA
FDIC

Front 11

What is the highest level of an attestation service?

Back 11

Audit is the highest level. Audits check to see if the financial statements have been prepared in accordance with GAAP.

Front 12

Review

Back 12

A review is an attestation service which offers moderate assurance. Evidence is lower than an audit. We can only say I see no problems with the fin. statements. SEC does not allow this. Not enough evidence.

Front 13

Internal Controls for financial reporting

Back 13

These are attestation services

SEC 404 requires these to be tested and compared to assurance. Such as the COSO framework.

Front 14

COSO

Back 14

Committee of Sponsoring Organizations

Front 15

Webtrust and systrust

Back 15

Give people assurance that they are getting what they should get

Front 16

What are some types of things that are assured and what are they assured by?

Back 16

Number of radio listeners - assured by arbitron

Make up ingredients
Population - assured by census bureau
Ingredients in drugs - FDA
Emission and pollution standards - EPA
Banks - Assured by FDIC
Judging - CPA firms

Front 17

If a tax return is being audited who performs the audit?
What is the criteria used?
What is the nature of evidence used?

Back 17

IRS performs audit
IRS code is used to determine correspondence
CAncelled checks/supporting records are used as evidence

Front 18

IF financial statements are being audited who preforms the audit?
What is the criteria used?
What is the nature of evidence used?

Back 18

CPA performs the audit
GAAP is used to determine correspondence
Books of the company are used as evidence

Front 19

If the efficiency and effectiveness of a computer installation is being audited who performs the audit?
What criteria is used to determine correspondence?
What is the nature of evidence used?

Back 19

The audit should be performed by an competent independent person, a techie who is not affiliated.
Operational efficiency standards should be used to determine correspondence
The evidence used would be error codes, costing, industry standards, ect.

Front 20

What are the factors for determining interest rate?

Back 20

Risk free interest rate + business risk + Information risk

Front 21

What are risk free interest rates?

Back 21

US T notes for the same time frame of the bank loan desired

Front 22

Business risk factors?

Back 22

Economic conditions
Business conditions

Front 23

Information risk

Back 23

Risk of inaccurate financial statements
Auditing reduces information risk
Stability in financial markets and reducing info risk.

Front 24

What are the causes of information risk and how do we reduce them?

Back 24

REmoteness of information
Biases and motives of provider
Voluminous Data
Complex exchange transactions.

Front 25

What are some ways to reduce information risk?

Back 25

User verifies information
User shares information risk with management
Information is audited.

Front 26

Why do companies not on stock exchange sometimes have audits?

Back 26

To get cheaper interest rate with bank when they apply for a loan.

Front 27

Operational audit

Back 27

Review part of an organization's operating proceedures and methods to evaluate efficiency and effective.
This can be fun and interesting.
Example: Looking at a bank teller to see if they are handling $ effectively. These happen all the time in the business world/

Front 28

Compliance Audit

Back 28

Audit for proceedures, rules, and regulations. Are they being followed? Usually these are performed by government agencies.

Front 29

Financial statement audits

Back 29

These are done by CPA's Big accounting firms work is done by staff, reviewers review, and managers look at certain things.

Front 30

General Qualifications and Conduct for Auditing

Back 30

Adequate Training and proficiency
Independence in mental attitude
Due professional care
TIP
T-Training
I-Independence
P-Professional care

Front 31

Generally Accepted Auditing Standards
Fiend work and performance of the audit

Back 31

Proper planning and supervision
Sufficient understanding of internal control
Sufficient competent Evidence
PIE
P-Planning
I-Internal control
E-Evidence

Front 32

Generally Accepted Auditing Standards
Reporting Results

Back 32

Whether statements were prepared in accordance with GAAP
Circumstances when GAAP not consistently followed
Adequacy of information disclosures
Expression of opinion on financial statements

Front 33

WHo is responsible for auditing oversight?

Back 33

PCAOB- Public Company Accounting Oversight Board 0 This was established by Sarbanes Oxley. Establishes auditing and quality control standards for audits of public companies.

Front 34

What does the SEC require?

Back 34

THey require an audit of the financial statements for all public companies

Front 35

What are the required filings for a public company?

Back 35

S1-7 New securities
8-K-7 Significant event (change in auditors, officers, buying subsidiary)
10-K-7 Annual report
10-Q-7 Quarterly report

Front 36

AICPA

Back 36

American Institute of Certified Publicic ACcountants
National professional association.
3/4 of all CPA's are members. These individuals write and grade the CPA exam. They set standards for consulting, professional code of conduct, and auditing standards for non-public companies.