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Unformatted text preview: tation services are: audits of historical
financial statements and reviews of historical financial statements.
While both services involve the accumulation and evaluation of
evidence regarding assertions made by management in the
company’s financial statements, a review involves a less extensive
examination and provides a lower level of assurance about the
client’s financial statements than an audit. 1-84 29.
medium Discuss the differences and similarities between the roles of accountants and auditors. What
additional expertise must an auditor possess beyond that of an accountant?
Answer: The role of accountants is to record, classify, and summarize
economic events in a logical manner for the purpose of providing
financial information for decision making. To do this, accountants
must have a sound understanding of the principles and rules that
provide the basis for preparing the financial information. In addition,
accountants are responsible for developing systems to ensure that
the entity’s economic events are properly recorded on a timely basis
and at a reasonable cost.
The role of auditors is to determine whether the financial information prepared by
accountants properly reflects the economic events that occurred. To do this, the auditor
must not only understand the principles and rules that provide the basis for preparing
financial information, but must also possess expertise in the accumulation and evaluation
of audit evidence. It is this latter expertise that distinguishes auditors from accountants.
medium Discuss the similarities and differences between financial statement audits, operational audits,
and compliance audits. Give an example of each type.
Answer: Financial statement audits, operational audits, and compliance audits
are similar in that each type of audit involves accumulating and
evaluating evidence about information to ascertain and report on
the degree of correspondence between the information and
established criteria. The differences between each type of audit are
the information being examined and the criteria used to evaluate
the information. An example of a financial statement audit would be
the annual audit of IBM Corporation, in which the external auditors
examine IBM’s financial statements to determine the degree of
correspondence between those financial statements and generally
accepted accounting principles. An example of an operational audit
would be an internal auditor’s evaluation of whether the company’s
computerized payroll-processing system is operating efficiently and
effectively. An example of a compliance audit would be an IRS
auditor’s examination of an entity’s federal tax return to determine
the degree of compliance with the Internal Revenue Code.
medium Discuss the similarities and differences between the roles of independent auditors, GAO
auditors, internal revenue agents, and internal auditors.
Answer: The roles of all four types of auditors are similar in that they involve the
accumulation and evaluation of evidence about information to
ascertain and report on the degree of correspondence between the
information and established criteria. The differences in their roles
center around the information audited and the criteria used to
1-85 evaluate that information. Independent auditors primarily audit
companies’ financial statements. GAO auditors’ primary
responsibility is to perform the audit function for Congress. IRS
auditors are responsible for the enforcement of federal tax laws.
Internal auditors primarily perform operational and compliance
audits for their employing company. 1-86 32. (SOX)
medium What is an engagement to attest on internal control over financial reporting?
Section 404 of the Sarbanes-Oxley Act requires public companies to report management’s
assessment of the effectiveness of internal control over financial reporting. The Act further
requires auditors to attest to the effectiveness of internal control over financial reporting.
This evaluation, which is integrated with the audit of financial statements, provides
forward-looking information, because effective internal controls reduce the likelihood of
future misstatements in the financial statements. 33.
challenging To do an audit, it is necessary for information to be in a verifiable form and
some criteria by which the auditor can evaluate the information. (A) What
information and criteria would an independent CPA firm use when auditing a
company’s historical financial statements? (B) What information and criteria
would an Internal Revenue Service auditor use when auditing that same
company’s tax return? (C) What information and criteria would an internal
auditor use when performing an operational audit to evaluate whether the
company’s computerized payroll processing system is operating efficiently and
Answer: (A) The information used by a CPA firm in a financial statement audit is
the financial information in the company’s financial statements. The
most commonly used criteria are accounting principles generally
accepted in the United States.
(B) The information used by an IRS auditor is the financial information in the company’s
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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.
- Fall '13