18 Questions
Match the following with the factor that impaired auditor independence and public trust:
Expansion of services = Expansion of audit services only Creation of PCAOB = Non-audit services (e.g., consulting, tax, accounts) SOX Act = Internal control outsourcing Big Four accounting firms = Non-audit services (e.g., consulting, tax, accounts)
Match the following with the responsibility of the audit committee:
Hiring external auditors = Overseeing the work of internal auditors Firing external auditors = Hiring external auditors Overseeing the work of external auditors = Overseeing the work of external auditors Monitoring auditor independence = Monitoring auditor independence
Match the following with the consequence of the SOX Act:
Weakened auditor independence = Connected the audit function to the corporate governance structure Strengthened auditor independence = Connected the audit function to the corporate governance structure Created the PCAOB = Created the PCAOB Reduced public trust = Weakened auditor independence
Match the following with the purpose of the PCAOB:
To regulate the auditing profession = To regulate the auditing profession To provide consulting services = To provide IT support To outsource internal control = To outsource internal control To provide accounting services = To provide accounting services
Match the following with the concept that was impacted by the expansion of services by public accounting firms:
Auditor independence = Auditor independence Public trust = Public trust ICFR effectiveness = ICFR effectiveness Corporate governance = Corporate governance
Match the following with the transformation of the Big Five accounting firms:
From public accounting firms to professional services firms = From public accounting firms to professional services firms From professional services firms to public accounting firms = From professional services firms to public accounting firms From market-driven service firms to firms serving public interests = From market-driven service firms to firms serving public interests From firms serving public interests to market-driven service firms = From firms serving public interests to market-driven service firms
Match the following benefits of external auditing with their descriptions:
Lend credibility to financial reports = Reducing information risk Protect investors from incomplete information = Adding value to corporate governance Detecting material misstatements = Preventing biased financial reports Serving as a corporate governance mechanism = Improving ICFR effectiveness
Match the following entities with their roles in corporate governance:
External auditors = Providing independent audit opinions Audit committees = Overseeing the internal audit function Independent public accountants = Auditing financial statements for publicly traded companies The Securities Exchange Act of 1934 = Regulating external audit requirements
Match the following concepts with their relationships to corporate governance:
Audit function = Value-added function for corporate governance ICFR system = Detecting and preventing material misstatements External audit failures = Raising concerns about corporate governance effectiveness Corporate governance mechanism = Protecting investors' interests
Match the following terms with their definitions in the context of corporate governance:
Information risk = Risk of financial reports being biased or misleading Audit failures = Failures of external auditors to detect material misstatements ICFR effectiveness = Ability of internal controls to prevent material misstatements Material misstatements = Inaccurate or incomplete information in financial reports
Match the following entities with their responsibilities in corporate governance:
Audit committees = Overseeing external auditors' work Independent public accountants = Auditing financial statements for publicly traded companies External auditors = Providing independent audit opinions The Securities Exchange Act of 1934 = Requiring external audits for publicly traded companies
Match the following benefits of external auditing with their purposes:
Lending credibility to financial reports = Reducing information risk Protecting investors from incomplete information = Adding value to corporate governance Serving as a corporate governance mechanism = Improving ICFR effectiveness Detecting material misstatements = Preventing biased financial reports
Match the following terms with their definitions:
Agency problems = Problems associated with the separation of ownership and control in the corporate structure Information asymmetry = Unequal access to information between management and investors Independent auditors = Gatekeepers who verify management assertions concerning financial statements Unqualified opinion = A high level of assurance that financial statements are free from material misstatements
Match the following Acts with their purposes:
Securities Act of 1933 = Protected investors from receiving misleading financial information Securities Exchange Act of 1934 = Established the role of auditors as gatekeepers
Match the following auditing standards with their requirements:
Current auditing standards = Provide reasonable assurance that financial statements are free from material misstatements Audit committees = Oversee the internal control and financial reporting process ICFR Effectiveness = Ensure that internal control over financial reporting is operating effectively Auditor independence = Ensure the auditor's objectivity and impartiality in auditing financial statements
Match the following terms with their descriptions:
Corporate governance = The system by which companies are directed and controlled Audit committees = Responsible for overseeing the external auditor Auditor independence = The auditor's freedom from bias and influence ICFR Effectiveness = The operating effectiveness of internal control over financial reporting
Match the following with their roles:
Independent auditors = Verify management assertions concerning financial statements Audit committees = Oversee the internal control and financial reporting process Management = Prepare financial statements and assertions SEC = Regulate and oversee publicly traded companies
Match the following concepts with their relationships:
Agency problems = Information asymmetry Auditor independence = ICFR Effectiveness Corporate governance = Audit committees Independent auditors = SEC
Learn about the role of external audits in ensuring the accuracy and reliability of financial reports, and how it protects investors from misleading information.
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