Review of Auditing Theory

As the acceptable level of detection risk decreases, the assurance directly provided from

• Substantive tests should increase.

• Substantive tests should decrease.

• Tests of controls should increase.

• Tests of controls should decrease.

A summary of findings rather than assurance is most likely to be included in a(n):

• Agreed-upon procedures report.

• Compilation report.

• Examination report.

• Review report.

The primary goal of the CPA in performing the attest function is to

• Detect fraud

• Examine individual transactions so that the auditor may certify as to their validity

• Determine whether the client's assertions are fairly stated

• Assure the consistent application of correct accounting procedures

The attest function:

• Is an essential part of every engagement by the CPA, whether performing auditing, tax work, or other services.

• Includes the preparation of a report of the CPA's findings.

• Requires consideration of internal control.

• Requires a complete review of all transactions during the period under examination.

Governmental auditing often extends beyond examinations leading to the expression of opinion on the fairness of financial presentation and includes audits of efficiency, economy, effectiveness, and also:

• Accuracy.

• Evaluation.

• Compliance.

• Internal control.

The permanent file of an auditor's working papers generally would not include

• Bond indenture agreements.

• Lease agreements.

• Working trial balance.

• Flowchart of internal control.

The assessment of the risks of material misstatement at the financial statement level is affected by the auditor's understanding of the control environment. Weaknesses in the control environment ordinarily will lead the auditor to

• Have more confidence in internal control and the reliability of audit evidence generated internally within the entity.

• Conduct some audit procedures at an interim date rather than at period end.

• Modify the nature of audit procedures to obtain more persuasive audit evidence.

• Decrease the number of locations to be included in the audit scope.

Which of the following statements is correct concerning an auditor's required communication with those charged with governance of an audit client?

• This communication is required to occur before the auditor's report on the financial statements is issued.

• This communication should include discussion of any significant disagreements with management concerning the financial statements.

• Any significant matter communicated to the audit committee also should be communicated to management.

• Significant audit adjustments proposed by the auditor and recorded by management need not be communicated to those charged with governance.

Assurance engagement

• Is an engagement in which a practitioner is engaged to issue, or does issue, a written communication that expresses a conclusion about the reliability of a written assertion that is the responsibility of another party.

• Is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users.

• Is an engagement in which the auditor provides a moderate level of assurance that the information subject to the engagement is free of material misstatement.

• Is an engagement intended to enhance the credibility of information about a subject matter by evaluating whether the subject matter conforms in all material respects with suitable criteria, thereby improving the likelihood that the information will meet the needs of an intended user.

The audit working paper that reflects the major components of an amount reported in the financial statements is the

• Interbank transfer schedule.

• Carryforward schedule.

• Lead schedule.

• Supporting schedule.