33 challenging to do an audit it is necessary for

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Unformatted text preview: return. The criteria are the internal revenue code and interpretations. (C) The information used by an internal auditor when performing an operational audit of the payroll system could include various items such as the number of errors made, costs incurred by the payroll department, and number of payroll records processed each month. The criteria would consist of company standards for departmental efficiency and effectiveness. 34. challenging Explain what is meant by information risk, and discuss the four causes of this risk. Answer: Information risk is the possibility that information upon which a business decision is made is inaccurate. Four causes of information risk are: • • • • 35. challenging remoteness of information, biases and motives of the provider, voluminous data, and complex exchange transactions. Attestation services fall into five categories. What are these categories? Answer: The five categories of attestation services include: • audits of historical financial statements, • attestation on internal control over financial reporting, 1-87 • • • reviews of historical financial statements, attestation services on information technology, and other attestation services that may be applied to a broad range of subject matter. 1-88 36. challenging Discuss four factors that are likely to significantly reduce information risk in the next five to ten years. Answer: Four factors that are likely to significantly reduce information risk in the next five to ten years are: • technological advances, • more companies will go on-line, reducing the risk of investors obtaining outdated information, • new accounting and auditing standards, and • auditors will find more efficient and effective audit techniques. Other Objective Answer Format Questions 37. easy a The criteria by which an auditor evaluates the information under audit may vary with the information being audited. a. True b. False 38. easy b The criteria used by an external auditor to evaluate published financial statements are known as generally accepted auditing standards. a. True b. False 39. (SOX) easy b The Sarbanes-Oxley Act establishes standards related to the audits of privately held companies. a. True b. False 40. (SOX) easy a The Sarbanes-Oxley Act is widely viewed as having ushered in sweeping changes to auditing and financial reporting. a. True b. False 41. easy b Only companies that file annual statements with the Securities and Exchange Commission are required to have an annual external audit. a. True b. False 42. easy b The financial statements most commonly audited by external auditors are the balance sheet, the income statement, and the statement of changes in retained earnings. a. True b. False 43. medium b The primary purpose of a compliance audit is to determine whether the financial statements are prepared in compliance with generally accepted accounting principles. a. True b. False 44. medium a Results of compliance audits are typically reported to someone within the organizational unit being audited rather than to a broad spectrum of outside users. a. True b. False 1-89 45. medium b The primary role of the United States General Accounting Office is the enforcement of the federal tax laws as defined by Congress and interpreted by the courts. a. True b. False 46. medium b CPA firms are never allowed to provide bookkeeping services for audit clients. a. True b. False 47. (SOX) medium a Section 404 of the Sarbanes-Oxley Act requires public companies to have an external auditor attest to their internal control over financial reporting. a. True b. False 48. (SOX) challenging b The Sarbanes-Oxley Act requires a company’s chairman of the board of directors, CEO, and CFO to certify the company’s financial statements. a. True b. False 49. (SOX) challenging b The criterion that is most likely to be used as a framework in evaluating a company’s internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act is the Enterprise Risk Management framework. a. True b. False 50. challenging a Most public companies’ audited financial statements are available on the SEC’s EDGAR database. a. True b. False Chapter 6 Multiple-Choice Questions 1. easy a The objective of the ordinary audit of financial statements is the expression of an opinion on: a. the fairness of the financial statements. b. the accuracy of the financial statements. c. the accuracy of the annual report. d. the balance sheet and income statement. 2. easy c If the auditor believes that the financial statements are not fairly stated or is unable to reach an conclusion because of insufficient evidence, the auditor: a. should withdraw from the engagement. b. should request an increase in audit fees so that more resources can be used to conduct the audit. c. has the responsibility of notifying financial statement users through the auditor’s report. d. should notify regulators of the circumstances. 3. easy d Auditors accumulate evidence to...
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This note was uploaded on 02/04/2014 for the course ACCOUNTING 211 taught by Professor Alikapur during the Fall '13 term at American University of Sharjah.

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