Business Assurance and Risk Management

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Questions and Answers

What is the first step in the professional judgment framework of accounting and auditing?

Document rationale for the professional judgment.

Gather and evaluate the relevant evidence.

Consider the possible alternatives. (correct)

Reach an audit conclusion.

Which organization is responsible for the annual Hall of Fame voting process?

Baseball Hall of Fame Board

Major League Baseball Executive Office

Baseball Writers' Association of America (correct)

Professional Baseball Players Association

Who is responsible for verifying the eligibility of voters in the Hall of Fame voting process?

EY, one of the largest audit firms (correct)

The Sports Media Association

Major League Baseball auditors

Baseball Hall of Fame Management

What aspect of professional judgment must be carefully documented according to the framework?

Rationale for the professional judgment reached. Signup and view all the answers

Which type of service is NOT categorized under auditing and assurance services?

Human Resource Consulting Signup and view all the answers

What is the primary purpose of assurance services?

To improve the quality of information for decision makers Signup and view all the answers

Which of the following is NOT an element of assurance services?

Advisory recommendations Signup and view all the answers

What does information risk refer to?

The likelihood of information being false or misleading Signup and view all the answers

Which of the following is an example of an attestation engagement?

Examination of management’s discussion and analysis Signup and view all the answers

What is a common demand from users regarding information provided by companies?

Timeliness of information Signup and view all the answers

Which of the following best describes the relationship between assurance, attestation, and audit engagements?

Assurance services enhance the quality of information, while attestation focuses on assertions Signup and view all the answers

Which of the following is an assurance service?

Investment management policy evaluation Signup and view all the answers

What do users expect from third-party assessments of information?

Independent evaluation of reliability Signup and view all the answers

Which Big Four CPA firm has the highest total revenues?

Deloitte Signup and view all the answers

What percentage of EY's total revenue comes from auditing and assurance services?

34% Signup and view all the answers

Which service contributes the most to Deloitte's total revenue?

Advisory services revenues Signup and view all the answers

Which of the following services is prohibited by the Sarbanes-Oxley Act for audit clients?

Internal audit outsourcing Signup and view all the answers

What is the percentage of total revenue from tax services for PwC?

24% Signup and view all the answers

Which service provides the least revenue for KPMG?

Auditing and assurance services Signup and view all the answers

How much revenue does PwC generate from auditing and assurance services?

$17.0 billion Signup and view all the answers

Which of the following services is not included in the prohibited list by Sarbanes-Oxley for audit clients?

Auditing services Signup and view all the answers

What is the general educational requirement for a Certified Public Accountant (CPA)?

At least 150 semester hours Signup and view all the answers

How many years of experience is generally required for certification as a Certified Internal Auditor (CIA)?

2 years of internal auditing experience Signup and view all the answers

Which certification requires a bachelor’s degree or passing specific examinations such as CPA, CFA, CIA, or CFE?

Certified Management Accountant (CMA) Signup and view all the answers

What is the typical experience requirement for a Certified Information Systems Auditor (CISA)?

5 years of professional experience in information systems auditing Signup and view all the answers

For the Certified Fraud Examiner (CFE) certification, what is an alternative requirement if the educational prerequisites are not met?

Relevant professional experience may reduce education requirements Signup and view all the answers

What level of education is generally NOT required for the Certified Internal Auditor (CIA)?

Doctorate degree Signup and view all the answers

How does the experience requirement for the Certified Management Accountant (CMA) differ compared to that of the Certified Internal Auditor (CIA)?

CMA requires more experience Signup and view all the answers

What is an alternative to a degree for obtaining a Certified Public Accountant (CPA) certification?

Working under a licensed CPA Signup and view all the answers

What is one of the key focus areas of the Certified Public Accountant (CPA) exam coverage?

Auditing and attestation Signup and view all the answers

Which area is included in the Certified Internal Auditor (CIA) exam coverage?

Business knowledge of internal auditing Signup and view all the answers

What is a primary focus of the Certified Fraud Examiner (CFE) exam?

Fraud prevention and deterrence Signup and view all the answers

Which of the following is NOT covered in the exam for Certified Management Accountant (CMA)?

Auditing and attestation Signup and view all the answers

In which area does the Certified Information Systems Auditor (CISA) exam place significant emphasis?

Information systems operations and business resilience Signup and view all the answers

What is a unique component of the Certified Internal Auditor (CIA) exam compared to the CPA exam?

Essentials of internal auditing Signup and view all the answers

Which of the following topics is included in the exam coverage for Certified Fraud Examiner (CFE)?

Investigation of fraud schemes Signup and view all the answers

Which regulatory topic is part of the Certified Public Accountant (CPA) exam requirements?

Financial accounting and reporting Signup and view all the answers

What is the total number of questions included in the AUD section of the CPA exam?

72 multiple-choice questions and 8-9 task-based simulations Signup and view all the answers

Which skill has the highest weight allocation in the AUD section of the CPA exam?

Application Signup and view all the answers

In the new CPA exam structure proposed for 2024, which section is NOT included?

Financial Statement Analysis Signup and view all the answers

What is the weight allocation for the content area of 'Assessing Risk and Developing a Planned Response' in the AUD section?

25-35% Signup and view all the answers

Which of the following skill categories has the least weight in the AUD section?

Evaluation Signup and view all the answers

How many hours are allotted for completing the AUD section of the CPA exam?

4 hours Signup and view all the answers

Which of the following statements about the CPA exam changes in 2024 is true?

New sections will be introduced to the exam. Signup and view all the answers

What is the weight allocation for the content area of 'Forming Conclusions and Reporting' in the AUD section?

10-20% Signup and view all the answers

Study Notes

User Demand for Reliable Information

Business risk is the risk an entity will fail to meet its objectives.
Today's environment is complex with information demanded by remote users and in a timelier manner, having far-reaching consequences.
Information risk is the probability that information circulated by a company will be false or misleading.
Users demand independent third-party assessments of the information.

Relationships Among Assurance, Attestation, and Audit Engagements

Assurance engagements are a broader category encompassing attestation engagements.
Attestation engagements are a service where a practitioner examines whether management's assertions about a subject matter can be relied upon.
Financial statement audit engagements are a type of attestation engagement.

Assurance Services

Assurance services are independent professional services that improve information quality or context for decision-makers.
Examples include cybersecurity risk assessment, XBRL reporting, investment management policy evaluation, internal audit outsourcing, and fraud prevention.

Assurance Elements

Independence is crucial, eliminating conflicts of interest.
Professional service relies on education and experience.
Improving information quality is the key objective.
Relevance and reliability/credibility reflect the usefulness and trustworthiness of the information.
Services benefit decision-makers, the beneficiaries.
Assurance focuses on using information for decision-making, not providing recommendations.

Attestation Engagements

Attestation engagements, as defined by the AICPA, examine whether assertions made about a subject matter are reliable.
These engagements can cover financial forecasts/projections, examination of management discussion and analysis, and pro-forma financial information.
They can also include non-financial aspects like internal control system effectiveness, environmental compliance, and sustainability reporting.

AAA Definition of Financial Statement Auditing

Auditing is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the correspondence between the assertions and established criteria.
Auditors communicate their findings to interested users (e.g., creditors, investors).
GAAP and generally accepted auditing standards are relevant concepts.

Audits

Audits are logical, not haphazard, processes focused on collecting and evaluating evidence.
Management assertions about activities and balances form the basis of financial statements.
The audit's goal is to provide an opinion on whether the financial statements fairly present their subject matter in accordance with an applicable financial reporting framework.
This enhances user confidence and is based on GAAS and ethical requirements.

Sarbanes-Oxley Act of 2002

Management is responsible for financial reporting.
Key officials (CEO and CFO) must certify financial statements, stating they are truthful, without false/misleading elements, and accurately depict the company's financial condition.

Sarbanes-Oxley and Management's Responsibility for Financial Reporting

Management must assert the effectiveness of internal controls over financial reporting.
Auditors assess internal controls and issue an attestation report (Section 404) to guarantee these controls are correctly designed and function effectively.

Management Financial Statement Assertions (PCAOB)

Existence/occurrence asserts asset and liability existence and valid transactions occurred.
Completeness ensures all balances/transactions are recorded in the financial statements.
Valuation/allocation signifies valuation according to GAAP.
Rights and obligations confirm the entity's ownership/responsibility for reported assets/liabilities.
Presentation/disclosure dictates correct presentation in financial statements and footnotes.

Management's Financial Statement Assertions (ASB)

Assertions about classes of transactions ensure events are valid.
Cutoff mandates correct period recording of transactions.
Completeness means all transactions are recorded in the proper period.
Accuracy ensures transactions are recorded correctly.
Rights and obligations confirm entity ownership/responsibility (similar to PCAOB assertion).
Classification ensures proper account posting.
Presentation mandates GAAP-compliant disclosures.

Management Assertions

PCAOB and ASB assertions about classes of transactions and events, and related disclosures (occurrence, cutoff, completeness, accuracy, rights/obligations, classification, presentation).
Assertions about account balances and related disclosures (existence, completeness, accuracy/allocation, rights/obligations, presentation).

Professional Skepticism

Professional skepticism involves a critical approach to evidence.
Inquiry alone isn't enough, requiring corroborating evidence.
Unusual financial trends warrant further investigation.
Documents should be thoroughly checked and verified.
Auditors should ask questions, get answers, and verify solutions.
Potential conflicts of interest between the auditor and the client necessitate skepticism in audits.

A Professional Judgment Process

A structured five-step professional judgment process clarifies issues and objectives, considers possible alternatives, gathers evidence, reaches audit conclusions, and documents the rationale for the chosen conclusion.

Public Accounting Services

Public accounting services encompass auditing and assurance services, including financial statement audits, non-audit/attestation engagements, compilations, reviews, tax services, and advisory services.

Baseball Hall of Fame

The Baseball Writers' Association of America (BBWAA) conducts the Hall of Fame vote.
An external audit firm (e.g., EY) verifies voter eligibility and voting process accuracy.

Public Accounting Firm Organization

(Illustrative organizational charts)

A typical structure shows a hierarchical arrangement from Chair and CEO to partnering, managerial, senior, and staff levels across various service areas within the firm.

Revenues for the Big Four CPA Firms

(Data in billions of dollars)

Revenues for Deloitte, EY, KPMG, and PwC are presented, specifying auditing and assurance, tax, and advisory services revenues, expressed both in absolute amounts and as percentages of total revenue.

Prohibited Professional Services

Sarbanes-Oxley prohibits certain non-audit services for audit clients, including bookkeeping, financial information system design/implementation, appraisal/valuation services, actuarial services, internal audit outsourcing, management/human resources services, investment/broker/dealer services, and unrelated legal/expert services.

No Audit?

Tax consulting on aggressive tax law interpretations or certain listed transactions is prohibited.
Contingent fees are prohibited, as are tax services for executives.
However, corporate tax returns are generally allowable.

Is There Room for Public Accounting Firms?

Some predict public accounting firms expanding into legal services.
The American Bar Association encourages examining non-lawyer firm ownership.
The Big 4 are expanding into legal service delivery; however, rigorous regulatory issues, including independence checks, persist.

Learning Objectives (Chapter 1)

Internal auditing, governmental, and operational auditing are covered.
Describing audits and auditors in these areas is a primary objective.
Requirements for becoming a CPA (Certified Public Accountant) and other accounting professional certifications are addressed.

Become a Professional and Get Certified!

Education requirements (150 hours or more) and an examination are mandatory.
At least one year of public or two years of private-sector experience is necessary.
A state certificate/license is required.
Relevant skill sets and education combine to complete requirements.

Certification Requirements

Certification requirements vary by certification type (CPA, CISA, CIA, etc.)
Education (degree requirements), experience (public/private sector or relevant), and examinations (specific content) are all pivotal elements.

Uniform CPA Examination

The Uniform CPA exam comprises four sections: Auditing and Attestation (AUD), Financial Accounting and Reporting (FAR), Regulation (REG), and Business Environment and Concepts (BEC).
Each section has a specific format with multiple-choice and task-based simulations.

Auditing and Attestation Section (AUD)

The AUD section focuses on ethics, professional responsibilities, risk assessment, audit procedures, obtaining evidence, and forming audit conclusions.
Specific knowledge and application of specific skills form the foundation for this section.

The New Uniform CPA Examination

New sections are anticipated for the 2024 CPA exam (Business Analysis and Reporting (BAR), Information and Systems Control (ISC), and Tax Compliance and Planning (TCP)), signifying a broader focus and structure.

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Description

This quiz covers essential concepts related to business risk, assurance services, and attestation engagements. Explore the complexities of information reliability and the standards required for independent assessments. Test your knowledge on how these elements interact in today's business environment.