A100_final_exam_review_questions - Some A100 Final Exam...

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Some A100 Final Exam Review Materials – Questions 1. Financial Statements are considered to conform to GAAP if: a. The accounting principles used by management have general acceptance b. The accounting principles used by management are appropriate in the circumstances c. The financial statements contain adequate disclosure d. The financial statements present the substance of events and transactions within an acceptable range of tolerable error (materiality) e. ALL of the above answers are correct 2. Which of the services provided by CPA’s is substantially less in scope than an audit but does provided limited assurance to financial statement users? a. Assembly b. Compilation c. Review d. Disclosure e. Investigation 3. Which of the following terms relates to whether information in the financial statements, including the related notes, clearly explains matters that may affect their use and understandability? a. Monetary measurement b. Adequate disclosure c. Audit opinion d. Going concern e. Materiality 5. What is meant by material misstatement? How do you think an auditor decides if something is material? Material misstatements are errors or differences in the financial statement that change the way a user would view the information in the financial statements. Material misstatements could change a financial statement user’s conclusion. For example, if a company reported net income of $100,000 when it really should have only been reported at $10,000 that would be a material misstatement. However if the net income really should have been $100,100 that is not a material misstatement since it would not change the decisions/opinions of the user of the financial information. Auditors become familiar with the significant accounts and balances shown on the financial statements and use their experience and judgment to determine what they feel would significantly affect the way someone would perceive the financial information. This is a highly subjective process and even though some CPA firms
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may use statistical calculations and tools to help them determine materiality ultimately it is based on the opinion of the auditor. 6. Is the detection of fraud the primary objective of a financial statement audit? No, although many people feel it should be! The primary objectives of an audit is to obtain reasonable assurance that the financial statements were prepared in accordance with GAAP and are free from “material misstatements.” 7. Should auditors review every transaction of the company being audited? No, this would not be cost effective. Auditors use a variety of procedures to obtain reasonable assurance that the financial statements are free from material misstatements – but this does not include examining each and every transaction. Some of the procedures that auditors perform during an audit include:
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A100_final_exam_review_questions - Some A100 Final Exam...

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