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44 Cards in this Set

  • Front
  • Back

What are the primary ways that information of a company's financial position and performance are provided to external parties?

Financial Statements

Who prepares/responsible for the financial statements of a company?


What is the purpose of an audit?

To provide and independent opinion on whether a set of financial statements are presented fairly in all material respects, in conformity with a financial reporting framework.

What are the 2 forms of independence for a auditor?

1. Independence in mind

2. Independence in appearance

What are the overall objectives of Auditor? (2)

1. Exercise professional judgement to plan, perform audit with professional skepticism

2. Gather evidence to obtain reasonable assurance about whether financial statements are presented fairly

What does professional skepticism mean?

He/she is adopting a questioning mind and critically assessing evidence that is provided by the auditing process.

What is the difference between sufficient and appropriate evidence?

Sufficient is a quantity concept, the auditor believes he/she has enough evidence to obtain that reasonable assurance where Appropriate evidence is a quality concept, where the evidence that is gathered is right evidence that the auditor hopes to gather to achieve his/her goal.

What must the auditing report comply with?

Generally Accepted Auditing Standards (GAAS)

When representing financial statements are presented fairly in conformity with financial reporting framework, management implicitly and explicitly makes assertions about what in the financial statements? (4)

1. Recognition

2. Measurement

3. Presentation

4. Disclosure of information in financial statements

Auditors use management's assertions to assess the risks of material misstatement and to _____, ____, and ______ procedures to obtain evidence regarding management's assertions

Plan, Design, and perform

- They use managements assertions as a framework for engagements

In the plan and performing stage of the audit, Assertions about classes of transactions, events for the period (Income statement, Statement of cash flows), include what? (5)

1. Occurrence: (The recorded transactions and events, actually occured)

2. Completeness: (That all transactions and

events that should be recorded, were recorded)

3. Accuracy: amounts and other date were recorded appropriately

4. Cutoff: Transactions and events were recorded in the actual period

5. Classification: The transactions and events were recorded in the proper accounts.

When planning and performing an audit, Assertions about account balances and balance sheet data include What?

1. Existing: that assets, liabilities, and equity interest, exist

2. Rights, Obligations: That the entity holds/controls its assets and liabilities are its obligations

3. Completeness: Assets, liabilites, and equity interest that should be recorded, were recorded.

4. Valuation, allocation: Assets, Liabilities, and equity interest are recorded in the appropriate amounts and any valuation or allocation adjustments are properly recorded.

When planning and performing and audit, assertions about presentation on face of financial statements, disclosure include what? (2)

1. Occurence, rights, obligations (disclosed transactions, events, and other matters have occurred AND pertain to the entity)

2. Completeness. (That all disclosures that should have been included, were included)

Some assertions overlap categories. There are how many assertions that form the foundation of financial statement audit. What are they? What can we use to remember this?



C = Completeness

A = Accuracy

V= Valuation and Allocation

E = Existence

C = Cutoff

R = Rights and obligations

O = Occurrence

C = Classification and Understandability

The PCOB's auditing standards identify how many assertions to be applied to transactions, balances, and the presentation and disclosures of financial statements?


What assertions does the PCOB's auditing standards identify? (5)

1. Existence/occurrence: (assets/liabilities of company exist at given date, Recorded transactions have occurred during given period)

2. Completeness: All transactions, accounts should be presented in financial statements are so included.

3. Valuation/allocation: Assets, liability, equity, revenue, expense, components have been included in financial statements at appropriate amounts.

4. Rights, obligations: Company hold/controls rights to assets, liabilities are obligations of company at given date.

5. Presentation, Disclosure: Components of financial statements are properly classified, described, disclosed. (in the footnotes of the financial statements)

What are the 3 levels of professional responsibilities that are used in BOTH the GAAS and PCOB's auditing standards to describe requirements of auditors?

1. Unconditional responsibilities (auditor MUST comply with an unconditional requirement whenever it is relevent.

2. Presumptively mandatory responsibility (an auditor SHOULD obtain an engagement letter between the auditor and client, rare cases cause for to auditor to judge if it is necessary)

3. Use professional judgements when determining whether to perform actions or procedures when the standards use "MIGHT" or "COULD".

What does the word "MUST" indicate?

An unconditional requirement exists (Example: an auditor MUST be independent)

A Preparation requires what of the practitioner? (2)

1. no assurance

2. no report

A Compilation requires what of the practitioner? (1)

Disclaimer of any assurance

A Review requires what of the practitioner? (1)

Limited Assurance

An Examination or audit requires what of the practitioner? (2)

1. Positive assurance OR

2. Opinion Expressed

Agreed-upon procedures require what of the practitioner? (1)

Results of the procedures but NO assurance

What are the Statements on Auditing Standards? (SASs)

They are issued by the Auditing Standards Board. They apply to audits of nonissuers' financial statements.

How are the SASs codified?

Using the AU-C prefix

What are the Statements on Standards for Accounting and Review Services (SSARs)?

They are Issued by the AICPA's Accounting and Review Services Committee (ARSC). They apply to preparations, compilations, and reviews of nonissuers' financial statements.

How are the SSARSs codified?

AR-C 60, 70, 80, 90, and 120

What are the Statements on Standards for Attestation Engagements (SSAEs)?

They are issued by the AICPA's Auditing Standard's Board (ASB) or another AICPA designated body. They apply to examinations, reviews, and agreed-upon procedures engagements for subject matter other than traditional financial statements.

What did the federal legislation, Sabanes-Oxley Act of 2002 (SOX), create?

The Public Company Accounting Oversight Board (PCAOB)

The PCAOB's standards apply to the audits of _______ by public accounting firms.

audits of issuers

To Make U.S. generally accepted auditing standards (GAAS) easier to read, understand, and apply, what board undertook a clarity project?

The AICPA's Auditing Standards Board (ASB)

What does AICPA stand for?

The American Institute of Certified Public Accountants

What were the results of the clarification project that was undertaken by the AICPA's ASB?

a redrafting of its standards into a new codification of Statements on Auditing Standards. Each Clarified statement states

1. objectives

2. Definitions (if relevant)

3. Requirement

4. Application and other explanatory material.

Each code of the AICPA's ASB have ___-_____ identification codes and each code has the prefix ______ where C means what?

3-digit, AU-C, Clarified

Example: AU-C 210 "Terms of Engagement"

The ASB's standards apply to audits of nonissuers. What do nonissuers mean?

Nonpublic companies

What are issuers?

Public companies required to file with the Securities and Exchange Commission

Audits of Issuers are regulated by whom?


Which act authorized the PCOAB to establish auditing and related professional practice standards to be used by registered public accounting firms?

The Sarbanes Oxley Act of 2002

The PCAOB reorganized it auditing standards in 2015. Each standard has an ____ prefix followed by a ____ digit number. However, in most cases, the PCAOB standards are similar to current ASB standards.

AS prefix, 4 digit

Example: AS 1005 "Independence"

The Government Auditing Standards (The Yellow Book issued by the Government Accountability Office) applies to what? (2)

1. audits of the federal government's entities, programs, activities, and functions

2. Federal awards to nonfederal entities

What is the GAO?

Government Accountability Office

The GAO requires governmental auditors to follow what standards? What is the exception?

The ASB standards, except as otherwise provided in the yellow book.

Audits under the Single Audit Act also follow the ____ ___ _____ ___ ____ Audit requirements for federal awards (2 CFR 200)

Office of Budget and Management (OMB)

An auditor is deemed to be associated with financial information when the procedures applied suffice to report in accordance with what?

GAAS (AU-C 200)