Preliminary Audit and Assurance Concepts

Questions and Answers

The study of business operations for the purpose of making recommendations about the efficient use of resources, effective achievement of business objectives, and compliance with company policies is referred to as:

Compliance auditing

Environmental auditing

Financial auditing

Operational auditing (correct)

Which of the following is the essential purpose of the audit function?

Assurance of the consistent application of correct accounting procedures

Determination of whether the client's financial statement assertions are fairly stated (correct)

Examination of individual transactions to certify as to their validity

Detection of fraud

Which of the following is the ASB assertion about classes of transactions and events and related disclosures most closely related to the auditor's testing?

Classification (correct)

Completeness

Occurrence

Accuracy

Which of the following best describes the primary role and responsibility of an independent external auditor?

Express an opinion on the fairness of a company's annual financial statements and footnotes Signup and view all the answers

Which of the following best describes the main reason independent auditors report on management's financial statements?

The management that prepares the statements and the persons who use the statements may have conflicting interests Signup and view all the answers

The auditor's judgment concerning the overall fairness of the presentation of financial position, results of operations, and cash flows is applied within the framework of:

The applicable financial reporting framework (i.e., GAAP in the United States) Signup and view all the answers

Assurance services involve all of the following, except:

Providing absolute rather than reasonable assurance Signup and view all the answers

Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of:

Professional skepticism Signup and view all the answers

Which of the following best describes assurance services?

Independent professional services that improve the quality of information for decision makers Signup and view all the answers

Control risk is:

The probability that a material misstatement could not be prevented or detected by the entity's internal control policies and procedures Signup and view all the answers

Study Notes

Audit and Assurance Concepts

Operational Auditing: Evaluates business operations to enhance resource efficiency, achieve objectives, and ensure policy compliance.
Audit Function Purpose: The core aim is to assess whether a client's financial statement assertions are presented fairly.
ASB Assertion: Related to transactions and disclosures—classification is crucial in capitalizing work orders on equipment.

Role of Independent External Auditor

Primary Responsibility: To express an opinion regarding the fairness of a company's financial statements and notes.
Reason for Reporting: Independent audits address the conflicts of interest between management preparing financial statements and users relying on them.

Auditor's Judgment

Fairness is assessed within the framework of the applicable financial reporting standards, such as GAAP in the U.S.

Assurance Services

Key Components: Assurance services include the relevance and reliability of information, traditionally focusing on financial statements and may include nonfinancial information.
Nature of Assurance: Assurance does not provide absolute certainty but offers reasonable assurance in the evaluation process.

Risk in Auditing

Material Misstatement Risk: Audits must be approached with professional skepticism due to the risk associated with undetected material misstatements.

Definition of Assurance Services

Assurance services are independent professional services that enhance the quality of information available to decision-makers, rather than just examining the financial statements.

Control Risk

Control risk is defined as the likelihood that a material misstatement will not be prevented or identified by the organization's internal control systems.

Description

This quiz covers fundamental principles of audit and assurance concepts important for evaluating business operations. It focuses on key areas such as efficient resource use and effective achievement of business objectives. Perfect for students in accounting or finance.