Auditing Standards Flashcards

Under GAAS, which party is responsible for the preparation and fair presentation of the financial statements?

Answer: Management

Management is responsible for preparing financial statements in accordance with the applicable financial reporting framework.

Which of the following is NOT a component of the COSO Internal Control — Integrated Framework?

Answer: Audit sampling

The five COSO components are control environment, risk assessment, control activities, information and communication, and monitoring activities — audit sampling is not one of them.

An auditor who discovers an illegal act by the client that is not material to the financial statements should:

Answer: Communicate the matter to the appropriate level of management

AU-C 250 requires the auditor to inform the appropriate level of management about an illegal act, even if immaterial.

Which assertion is the auditor testing when verifying that all sales transactions occurring during the period have been recorded?

Answer: Completeness

Completeness addresses whether all transactions and events that should have been recorded actually have been recorded.

The 'expectation gap' in auditing refers to:

Answer: The difference between what users expect from an audit and what auditors actually do

The expectation gap is the difference between users' beliefs about an audit's scope and assurance level and the actual scope and responsibilities under auditing standards.

Under AU-C 240, which of the following fraud risk factors relates to 'incentives/pressures'?

Answer: Significant pressure to meet analyst earnings forecasts

Pressure to meet earnings forecasts represents an incentive/pressure fraud risk factor in the fraud triangle.

Which procedure provides the highest level of assurance about the existence of accounts receivable?

Answer: Sending positive confirmations to customers

Positive confirmations require the recipient to respond regardless of agreement, providing strong third-party evidence of existence.