Auditing and Assurance Services, 14e (Arens) Chapter 1 The Demand for Audit and Other Assurance Services

Learning Objective 1-1

1) The Sarbanes-Oxley Act applies to which of the following companies? A) All companies. ) !rivately hel" companies. #) !$blic companies. %) All p$blic companies an" privately hel" companies with assets greater than &'(( million. Answer) #
Terms) Sarbanes-Oxley Act %iff) *asy Objective) LO 1-1 AA#S ) +eflective thin,ing s,ills Topic) SO-

.) /hich of the following is consi"ere" a$"it evi"ence? A) Oral statements /ritten ma"e by management #omm$nications 0 1 ) Oral statements ma"e by management 1 #) Oral statements ma"e by management 0 %) Oral statements ma"e by management 1 Answer) #
Terms) A$"it evi"ence %iff) 2o"erate Objective) LO 1-1 AA#S ) +eflective thin,ing s,ills

A$"itor Observation 1 A$"itor Observation 0 A$"itor Observation 0 A$"itor Observation 0

/ritten #omm$nications 0 /ritten #omm$nications 0 /ritten #omm$nications 1

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7) *vi"ence is paramo$nt to a$"it an" attestation engagements. List the fo$r basic types of a$"it evi"ence. Answer) The fo$r types of a$"it an" attestation evi"ence incl$"e) 1. *lectronic an" "oc$mentary "ata abo$t economic transactions .. /ritten an" electronic comm$nications with o$tsi"ers 7. Observations by the a$"itor 8. Oral testimony of the a$"itee 9client)
Terms) asic types if a$"it evi"ence %iff) *asy Objective) LO 1-1 AA#S ) +eflective thin,ing s,ills

8) The criteria by which an a$"itor eval$ates the information $n"er a$"it may vary with the information being a$"ite". A) Tr$e ) :alse Answer) A
Terms) #riteria which an a$"itor eval$ates information %iff) *asy Objective) LO 1-1 AA#S ) +eflective thin,ing s,ills

') The criteria $se" by an external a$"itor to eval$ate p$blishe" financial statements are ,nown as generally accepte" a$"iting stan"ar"s. A) Tr$e ) :alse Answer)
Terms) #riteria $se" by external a$"itor to eval$ate p$blishe" financial statements %iff) *asy Objective) LO 1-1 AA#S ) +eflective thin,ing s,ills

;) The Sarbanes-Oxley Act establishes stan"ar"s relate" to the a$"its of privately hel" companies. A) Tr$e ) :alse Answer)
Terms) Sarbanes-Oxley Act %iff) *asy Objective) LO 1-1 AA#S ) +eflective thin,ing s,ills Topic) SO-

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<) The Sarbanes-Oxley Act is wi"ely viewe" as having $shere" in sweeping changes to a$"iting an" financial reporting. A) Tr$e ) :alse Answer) A
Terms) Sarbanes-Oxley Act %iff) *asy Objective) LO 1-1 AA#S ) +eflective thin,ing s,ills Topic) SO-

=) Only companies that file ann$al statements with the Sec$rities an" *xchange #ommission are re>$ire" to have an ann$al external a$"it. A) Tr$e ) :alse Answer)
Terms) +e>$ire" to have an ann$al external a$"it %iff) *asy Objective) LO 1-1 AA#S ) +eflective thin,ing s,ills

Learning Objective 1-.

1) +ecor"ing4 classifying4 an" s$mmari?ing economic events in a logical manner for the p$rpose of provi"ing financial information for "ecision ma,ing is commonly calle") A) finance. ) a$"iting. #) acco$nting. %) economics. Answer) #
Terms) +ecor"ing4 classifying4 an" s$mmari?ing economic events %iff) *asy Objective) LO 1-. AA#S ) +eflective thin,ing s,ills

.) /hich "epartment provi"es >$antitative information in or"er for management an" others to ma,e "ecisions? A) management information systems. ) a$"iting. #) finance. %) acco$nting. Answer) %
Terms) %epartment that provi"es >$antitative information for management %iff) 2o"erate Objective) LO 1-. AA#S ) +eflective thin,ing s,ills

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7) 5n @a$"iting@ financial acco$nting "ata4 the primary concern is with) A) "etermining whether recor"e" information properly reflects the economic events that occ$rre" "$ring the acco$nting perio". ) "etermining if fra$" has occ$rre". #) "etermining if taxable income has been calc$late" correctly. %) analy?ing the financial information to be s$re that it complies with government re>$irements. Answer) A
Terms) A$"iting financial acco$nting "ata primary concern %iff) 2o"erate Objective) LO 1-. AA#S ) +eflective thin,ing s,ills

8) The trait that "isting$ishes a$"itors from acco$ntants is the) A) a$"itorAs ability to interpret acco$nting principles generally accepte" in the Bnite" States. ) a$"itorAs e"$cation beyon" the achelorAs "egree. #) a$"itorAs ability to interpret :AS Statements. %) a$"itorAs acc$m$lation an" interpretation of evi"ence relate" to a companyAs financial statements. Answer) %
Terms) %isting$ishes a$"itors from acco$ntants %iff) #hallenging Objective) LO 1-. AA#S ) +eflective thin,ing s,ills

') %isc$ss the "ifferences an" similarities between the roles of acco$ntants an" a$"itors. /hat a""itional expertise m$st an a$"itor possess beyon" that of an acco$ntant? Answer) The role of acco$ntants is to recor"4 classify4 an" s$mmari?e economic events in a logical manner for the p$rpose of provi"ing financial information for "ecision ma,ing. To provi"e relevant information4 acco$ntants m$st have a thoro$gh $n"erstan"ing of the principles an" r$les that provi"e the basis for preparing the acco$nting information. 5n a""ition4 acco$ntants m$st "evelop a system to ens$re that the entityAs economic events are properly recor"e" on a timely basis an" at a reasonable cost. The role of a$"itors is to "etermine whether the recor"e" information prepare" by acco$ntants properly reflects the economic events that occ$rre" "$ring the acco$nting perio". eca$se B.S. or international stan"ar"s provi"e the criteria for eval$ating whether financial information is properly recor"e"4 a$"itors m$st thoro$ghly $n"erstan" those acco$nting stan"ar"s. 5n a""ition to $n"erstan"ing acco$nting4 the a$"itor m$st possess expertise in the acc$m$lation an" interpretation of a$"it evi"ence. 5t is this expertise that "isting$ishes a$"itors from acco$ntants. %etermining the proper a$"it proce"$res4 "eci"ing the n$mber an" types of items to test4 an" eval$ating the res$lts are $ni>$e to the a$"itor.
Terms) +oles of acco$ntants an" a$"itors %iff) 2o"erate Objective) LO 1-. AA#S ) +eflective thin,ing s,ills

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Learning Objective 1-7

1) CCCCCCCC ris, reflects the possibility that the information $pon which the b$siness "ecision was ma"e was inacc$rate. A) #lient acceptance ) 5nformation #) $siness %) #ontrol Answer)
Terms) +is, that reflects the possibility that information $pon which b$siness ris, "ecision was ma"e %iff) 2o"erate Objective) LO 1-7 AA#S ) +eflective thin,ing s,ills

.) The $se of the #ertifie" !$blic Acco$ntant title is reg$late" by) A) the fe"eral government. ) state law thro$gh a licensing "epartment or agency of each state. #) the American 5nstit$te of #ertifie" !$blic Acco$ntants thro$gh the licensing "epartments of the tax an" a$"iting committees. %) the Sec$rities an" *xchange #ommission. Answer)
Terms) #ertifie" !$blic Acco$ntant title %iff) 2o"erate Objective) LO 1-7 AA#S ) +eflective thin,ing s,ills

7) :inancial statement $sers often receive $nreliable financial information from companies. /hich of the following is not a common reason for this? A) #omplex exchange transactions. ) Dol$mino$s "ata. #) +emoteness of information. %) *ach of these choices is a common reason for $nreliable financial information. Answer) %
Terms) #ommon reason for financial statements $sers receiving $nreliable financial information %iff) 2o"erate Objective) LO 1-7 AA#S ) +eflective thin,ing s,ills

8) *xplain what is meant by information ris,4 an" list the fo$r ca$ses of this ris,. Answer) 5nformation ris, reflects the possibility that the information $pon which the b$siness ris, "ecision was ma"e was inacc$rate. :o$r ca$ses of information ris, are) E remoteness of information4 E biases an" motives of the provi"er4 E vol$mino$s "ata4 an" E complex exchange transactions.
Terms) 5nformation ris, "efinition an" ca$ses %iff) *asy Objective) LO 1-7 AA#S ) +eflective thin,ing s,ills

Learning Objective 1-8

1) An a$"it of historical financial statements is most often performe" to "etermine whether the) A) organi?ation is operating efficiently an" effectively. ) entity is following specific proce"$res or r$les set "own by some higher a$thority. #) management team is f$lfilling its fi"$ciary responsibilities to sharehol"ers. %) none of these choices. Answer) % ' #opyright 3 .(1. !earson *"$cation4 5nc. p$blishing as !rentice 6all

Terms) A$"it of historical financial statements %iff) 2o"erate Objective) LO 1-8 AA#S ) +eflective thin,ing s,ills

Learning Objective 1-'

1) 5n the a$"it of historical financial statements4 what acco$nting criteria is most common? A) +eg$latory acco$nting principles. ) 5nternational financial reporting stan"ar"s. #) Fenerally accepte" acco$nting principles. %) an" # *) All of the above. Answer) #
Terms) 2ost common acco$nting criteria %iff) *asy Objective) LO 1-' AA#S ) +eflective thin,ing s,ills

.) Any service that re>$ires a #!A firm to iss$e a report abo$t the reliability of an assertion that is ma"e by another party is a9n)) A) acco$nting an" boo,,eeping service. ) attestation service. #) ass$rance service. %) tax service. Answer)
Terms) Strengthen internal controls over acco$nting for materials $se" in pro"$ction %iff) *asy Objective) LO 1-' AA#S ) +eflective thin,ing s,ills

7) Three common types of attestation services are) A) a$"its4 reviews4 an" attestations regar"ing internal controls. ) a$"its4 verifications4 an" attestations regar"ing internal controls. #) reviews4 verifications4 an" attestations regar"ing internal controls. %) a$"its4 reviews4 an" verifications. Answer) A
Terms) Types of attestation services %iff) *asy Objective) LO 1-' AA#S ) +eflective thin,ing s,ills

8) /hich of the following services provi"es the lowest level of ass$rance on a financial statement? A) A review. ) An a$"it. #) 1either service provi"es ass$rance on financial statements. %) *ach service provi"es the same level of ass$rance on financial statements. Answer) A
Terms) Service provi"es lowest level of ass$rance on a financial statement %iff) 2o"erate Objective) LO 1-' AA#S ) +eflective thin,ing s,ills

') /hich of the following is not a SysTrust Services principle as "efine" by the A5#!A? A) Online privacy. ) Availability. #) !rocessing integrity. %) Operational integrity. Answer) %
Terms) SysTr$st Services principles "efine" by A5#!A

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%iff) 2o"erate Objective) LO 1-' AA#S ) +eflective thin,ing s,ills

;) The Sarbanes-Oxley Act prohibits a #!A firm that a$"its a p$blic company from provi"ing which of the following types of services to that company? A) +eviews of >$arterly financial statements. ) !reparation of corporate tax ret$rns. #) 2ost cons$lting services. %) Tax services. Answer) #
Terms) Sarbanes-Oxley Act %iff) #hallenging Objective) LO 1-' AA#S ) +eflective thin,ing s,ills Topic) SO-

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<) /hich of the following are re>$ire" to have a written report regar"ing the assertion of another party? A) :inancial Operational #ompliance Attestation Ass$rance Statement A$"it A$"it A$"it *ngagement *ngagement 0 0 0 0 0 ) :inancial Statement A$"it 0 #) :inancial Statement A$"it 0 %) :inancial Statement A$"it 1 Answer)
Terms) +e>$ire" to have a written report %iff) #hallenging Objective) LO 1-' AA#S ) +eflective thin,ing s,ills

Operational A$"it 0 Operational A$"it 0 Operational A$"it 1

#ompliance A$"it 0 #ompliance A$"it 0 #ompliance A$"it 1

Attestation *ngagement 0 Attestation *ngagement 1 Attestation *ngagement 0

Ass$rance *ngagement 1 Ass$rance *ngagement 1 Ass$rance *ngagement 0

=) Attestation services on information technology incl$"e WebTrust services an" SysTrust services. /hich of the following statements most acc$rately "escribes SysTrust services? A) SysTrust services provi"e ass$rance on b$siness processes4 transaction integrity an" information processes. ) SysTrust services provi"e ass$rance on system reliability in critical areas s$ch as sec$rity an" "ata integrity. #) SysTrust services provi"e ass$rance on internal control over financial reporting. %) SysTrust services provi"e ass$rance as to whether acco$nting personnel are following proce"$res prescribe" by the company controller. Answer)
Terms) Attestation services on information technologyG /ebTr$st an" Systr$st services %iff) #hallenging Objective) LO 1-' AA#S ) +eflective thin,ing s,ills

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H) Two types of attestation services provi"e" by #!A firms are a$"its an" reviews. %isc$ss the similarities an" "ifferences between these two types of attestation services. /hich type provi"es the least ass$rance? Answer) 5n both the review an" a$"it of the historical financial statements4 management asserts that the statements are fairly state" in accor"ance with acco$nting stan"ar"s. The #!A provi"es a lower level of ass$rance for reviews of financial statements compare" to the high level for a$"its4 therefore less evi"ence is nee"e". A review is often a"e>$ate to meet financial statement $sersA nee"s. 5t can be provi"e" by a #!A firm at a m$ch lower fee than an a$"it beca$se less evi"ence is nee"e".
Terms) Attestation servicesG A$"its an" reviews of historical financial statements %iff) 2o"erate Objective) LO 1-' AA#S ) +eflective thin,ing s,ills

1() /hat is an engagement to attest on internal control over financial reporting? Answer) :or an a$"it of internal control over financial reporting4 management asserts that internal controls have been "evelope" an" implemente" following well establishe" criteria. Section 8(8 of the Sarbanes -Oxley Act re>$ires p$blic companies to report managementAs assessment of the effectiveness of internal control over financial reporting. The Act also re>$ires a$"itors to attest to the effectiveness of internal control over financial reporting. This eval$ation4 which is integrate" with the a$"it of financial statements4 increases $ser confi"ence abo$t f$t$re financial reporting4 beca$se effective internal controls re"$ce the li,elihoo" of f$t$re misstatements in the financial statements.
Terms) *ngagement to attest on internal control over financial reporting %iff) 2o"erate Objective) LO 1-' AA#S ) +eflective thin,ing s,ills Topic) SO-

11) /hat are the five categories of attestation services? Answer) The five categories of attestation services incl$"e) E a$"it of historical financial statements4 E attestation on internal control over financial reporting4 E review of historical financial statements4 E attestation services on information technology4 an" E other attestation services that may be applie" to a broa" range of s$bject matter.
Terms) #ategories of attestation services %iff) 2o"erate Objective) LO 1-' AA#S ) +eflective thin,ing s,ills

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1.) /hat is a WebTrust engagement? /hat is a SysTrust engagement? 6ow "o they "iffer? Answer) WebTrust is a service provi"e" by a #!A where the #!A provi"es ass$rance that the /eb Site owner has met establishe" criteria relate" to b$siness practices4 transaction integrity4 an" information processes. SysTrust is a service provi"e" by a #!A to eval$ate an" test a system reliability in areas s$ch as sec$rity an" "ata integrity. There are five principles that m$st be a""resse" on a SysTrust engagement) sec$rity4 availability4 processing integrity4 online privacy4 an" confi"entiality. WebTrust is primarily "esigne" to provi"e ass$rance to thir" party $sers of a /eb site. SysTrust provi"es ass$rance to management4 the boar" of "irectors or thir" parties abo$t the reliability of information systems $se" to generate real-time information.
Terms) /ebTr$st an" SysTr$st engagements %iff) #hallenging Objective) LO 1-' AA#S ) +eflective thin,ing s,ills

17) #!A firms are never allowe" to provi"e boo,,eeping services for clients. A) Tr$e ) :alse Answer)
Terms) #!A services provi"e" to clients %iff) 2o"erate Objective) LO 1-' AA#S ) +eflective thin,ing s,ills

18) Section 8(8 of the Sarbanes-Oxley Act re>$ires p$blic companies to have an external a$"itor attest to their internal control over financial reporting. A) Tr$e ) :alse Answer) A
Terms) Section 8(8 of the Sarbanes-Oxley Act %iff) 2o"erate Objective) LO 1-' AA#S ) +eflective thin,ing s,ills Topic) SO-

1') 2ost p$blic companiesA a$"ite" financial statements are available on the S*#As *%FA+ "atabase. A) Tr$e ) :alse Answer) A
Terms) !$blic companiesA a$"ite" financial statements) S*#As *%FA+ "atabase %iff) #hallenging Objective) LO 1-' AA#S ) +eflective thin,ing s,ills

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Learning Objective 1-;

1) One objective of an operational a$"it is to) A) "etermine whether the financial statements fairly present the entityAs operations. ) eval$ate the feasibility of attaining the entityAs operational objectives. #) ma,e recommen"ations for improving performance. %) report on the entityAs relative s$ccess in attaining profit maximi?ation. Answer) #
Terms) Objective of operational a$"it %iff) 2o"erate Objective) LO 1-; AA#S ) +eflective thin,ing s,ills

.) An examination of part of an organi?ationAs proce"$res an" metho"s for the p$rpose of eval$ating efficiency an" effectiveness is what type of a$"it? A) Operational a$"it. ) #ompliance a$"it. #) :inancial statement a$"it. %) !ro"$ction a$"it. Answer) A
Terms) *xamination of part of an organi?ationAs proce"$res an" metho" to eval$ate efficiency an" effectiveness %iff) 2o"erate Objective) LO 1-; AA#S ) +eflective thin,ing s,ills

7) An a$"it to "etermine whether an entity is following specific proce"$res or r$les set "own by some higher a$thority is classifie" as a9n)) A) a$"it of financial statements. ) compliance a$"it. #) operational a$"it. %) pro"$ction a$"it. Answer)
Terms) A$"it to "etermine whether entity followe" specific proce"$res or r$les %iff) 2o"erate Objective) LO 1-; AA#S ) +eflective thin,ing s,ills

8) /hich one of the following is more "iffic$lt to eval$ate objectively? A) !resentation of financial statements in accor"ance with generally accepte" acco$nting principles. ) #ompliance with government reg$lations. #) *fficiency an" effectiveness of operations. %) All three of the above are e>$ally "iffic$lt. Answer) #
Terms) 2ost "iffic$lt to eval$ate objectively %iff) #hallenging Objective) LO 1-; AA#S ) +eflective thin,ing s,ills

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') /hich of the following a$"its can be regar"e" as generally being a compliance a$"it? A) 5+S agentsA examinations of taxpayer ret$rns. ) FAO a$"itorAs eval$ation of the comp$ter operations of governmental $nits. #) An internal a$"itorAs review of a companyAs payroll a$thori?ation proce"$res. %) A #!A firmAs a$"it of a p$blic company. Answer) A
Terms) #ompliance a$"it %iff) #hallenging Objective) LO 1-; AA#S ) +eflective thin,ing s,ills

;) %isc$ss the similarities an" "ifferences between financial statement a$"its4 operational a$"its4 an" compliance a$"its. Five an example of each type. Answer) :inancial statement a$"its4 operational a$"its4 an" compliance a$"its are similar in that each type of a$"it involves acc$m$lating an" eval$ating evi"ence abo$t information to ascertain an" report on the "egree of correspon"ence between the information an" establishe" criteria an"Ior proce"$res4 r$les4 or reg$lations. The "ifferences between each type of a$"it are the information being examine" an" the criteria $se" to eval$ate the information. An operational a$"it eval$ates the efficiency an" effectiveness of an" part of an organi?ationAs operating proce"$res an" metho"s. At completion of an operational a$"it4 management normally expects recommen"ations for improving operations. 5n operational a$"iting4 the reviews are not limite" to acco$nting. 5t is more "iffic$lt to objectively eval$ate whether the efficiency an" effectiveness of operations meets establishe" criteria than it is for compliance an" financial statement a$"its. Also4 establishing criteria for eval$ating the information in an operational a$"it is extremely s$bjective. Th$s4 operational a$"iting is more li,e management cons$lting than what is $s$ally consi"ere" a$"iting. A compliance a$"it is con"$cte" to "etermine whether the a$"itee is following specific proce"$res4 r$les4 or reg$lations set by some higher a$thority. +es$lts of compliance a$"its are typically reporte" to management4 li,e in the operational a$"its4 rather than to o$tsi"e $sers as is "one with financial statement a$"its. A financial statement a$"it is con"$cte" to "etermine whether financial statements are state" in accor"ance with specifie" criteria4 normally the B.S. or international stan"ar"s. A$"itors not only foc$s on acco$nting transactions4 b$t also foc$s on an integrate" approach in which both the ris, of misstatements an" the operating controls are consi"ere". The a$"itor m$st have a thoro$gh $n"erstan"ing of the entity an" its environment. An example of a financial statement a$"it wo$l" be the ann$al a$"it of 5 2 #orporation4 in which the external a$"itors examine 5 2As financial statements to "etermine the "egree of correspon"ence between those financial statements an" generally accepte" acco$nting principles. An example of an operational a$"it wo$l" be an internal a$"itorAs eval$ation of whether the companyAs comp$teri?e" payroll -processing system is operating efficiently an" effectively. An example of a compliance a$"it wo$l" be an 5+S a$"itorAs examination of an entityAs fe"eral tax ret$rn to "etermine the "egree of compliance with the 5nternal +even$e #o"e.
Terms) :inancial statement a$"its4 operational a$"its an" compliance a$"its %iff) #hallenging Objective) LO 1-; AA#S ) Analytic s,ills

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<) To "o an a$"it4 it is necessary for information to be in a verifiable form an" some criteria by which the a$"itor can eval$ate the information. %etail the information an" criteria that wo$l" be $se" for) 9A) an in"epen"ent #!A firm a$"its a companyAs historical financial statements. 9 ) an 5nternal +even$e Service a$"itor who a$"its that same companyAs tax ret$rn. 9#) an internal a$"itor $se when performing an operational a$"it to eval$ate whether the companyAs comp$teri?e" payroll processing system is operating efficiently an" effectively. Answer) 9A) The information $se" by a #!A firm in a financial statement a$"it is the financial information in the companyAs financial statements. The most commonly $se" criteria are applicable B.S. generally accepte" acco$nting stan"ar"s or 5nternational :inancial +eporting Stan"ar"s 95:+S). 9 ) The information $se" by an 5+S a$"itor is the financial information in the companyAs fe"eral tax ret$rn. The criteria are the internal reven$e co"e an" interpretations. 9#) The information $se" by an internal a$"itor when performing an operational a$"it of the payroll system co$l" incl$"e vario$s items s$ch as the n$mber of errors ma"e4 costs inc$rre" by the payroll "epartment4 an" n$mber of payroll recor"s processe" each month. The criteria wo$l" consist of company stan"ar"s for "epartmental efficiency an" effectiveness.
Terms) 5nformation an" criteria $se" by #!A firm4 5nternal +even$e Service a$"itor4 an" internal a$"itor %iff) *asy Objective) LO 1-1 an" LO 1-; AA#S ) +eflective thin,ing s,ills

=) The primary p$rpose of a compliance a$"it is to "etermine whether the financial statements are prepare" in compliance with generally accepte" acco$nting principles. A) Tr$e ) :alse Answer)
Terms) #ompliance a$"it %iff) 2o"erate Objective) LO 1-; AA#S ) +eflective thin,ing s,ills

H) +es$lts of compliance a$"its are typically reporte" to someone within the organi?ational $nit being a$"ite" rather than to a broa" spectr$m of o$tsi"e $sers. A) Tr$e ) :alse Answer) A
Terms) #ompliance a$"it %iff) 2o"erate Objective) LO 1-; AA#S ) +eflective thin,ing s,ills

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Learning Objective 1-<

1) 2atch the engagement "escribe" to the 9A) type of a$"it an" 9 ) a$"itor that wo$l" perform the engagement. *ach engagement will have an answer from List-A an" List- . An answer can be $se" once4 more than once4 or not at all. List A - Type of Audit: a. :inancial Statement b. #ompliance c. Operational List B - Type of Auditor: ". 5nternal e. *xternal f. Fovernment g. 5+S

*ngagement) 1. *val$ate a companyAs payroll processing for economy. .. *val$ateI"etermine if ban, covenants are being met. 7. *val$ate financial statements that are to be s$bmitte" to a ban,. 8. *val$ate the promptness of materials inspection in a man$fact$rerAs receiving "epartment. '. %etermine if 2e"icare reimb$rsements are in accor"ance with the 6ealthcare :inancing A"ministration 96#:A). ;. %etermine if the tax ret$rn of a m$ltinational corporation is in accor"ance with the tax co"e. <. %etermine if a p$blic school is properly applying their reimb$rsement for the payment -in-,in" program. =. %etermine the effectiveness of the "epartment of "efense starwars project. Answer) 1. c4 " .. b4 " 7. a4 e 8. c4 " '. b4 f ;. b4 g <. b4 e =. c4 f
Terms) :inancial statement a$"itG #ompliance a$"itG Operational a$"itG Types of a$"itors %iff) #hallenging Objective) LO 1-; an" LO 1-< AA#S ) Analytic s,ills

.) %isc$ss the similarities an" "ifferences between the roles of in"epen"ent a$"itors4 FAO a$"itors4 internal reven$e agents4 an" internal a$"itors. Answer) The roles of all fo$r types of a$"itors are similar in that they involve the acc$m$lation an" eval$ation of evi"ence abo$t information to ascertain an" report on the "egree of correspon"ence between the information an" establishe" criteria. The "ifferences in their roles center aro$n" the information a$"ite" an" the criteria $se" to eval$ate that information. 5n"epen"ent a$"itors primarily a$"it companiesA financial statements. FAO a$"itorsA primary responsibility is to perform the a$"it f$nction for #ongress. 5+S a$"itors are responsible for the enforcement of fe"eral tax laws. 5nternal a$"itors primarily perform operational an" compliance a$"its for their employing company.
Terms) +oles of in"epen"ent a$"itors4 FAO a$"itors4 internal reven$e agents an" internal a$"itors %iff) 2o"erate Objective) LO 1-< AA#S ) +eflective thin,ing s,ills

7) The primary role of the Bnite" States Feneral Acco$nting Office is the enforcement of the fe"eral tax laws as "efine" by #ongress an" interprete" by the co$rts. A) Tr$e ) :alse Answer)
Terms) !rimary role of Bnite" States Feneral Acco$nting Office %iff) 2o"erate Objective) LO 1-< AA#S ) +eflective thin,ing s,ills

18 #opyright 3 .(1. !earson *"$cation4 5nc. p$blishing as !rentice 6all

Learning Objective 1-=

1) The three re>$irements for becoming a #!A incl$"e all b$t which of the following? A) Bniform #!A examination re>$irement. ) *"$cational re>$irements. #) #haracter re>$irements. %) *xperience re>$irement. Answer) #
Terms) +e>$irements for becoming a #!A %iff) 2o"erate Objective) LO 1-= AA#S ) +eflective thin,ing s,ills

.) List an" "isc$ss the three primary re>$irements to become a #!A. Answer) The three primary re>$irements for becoming a #!A are) E Educational requirement. An $n"ergra"$ate "egree or a gra"$ate "egree with a major in acco$nting is re>$ire". 2ost states now re>$ire 1'( semester ho$rs for licens$re an" some states re>$ire 1'( semester ho$rs before ta,ing the #!A exam. E Uniform CPA examination requirement. This is a fo$r-part4 comp$ter-base" examination with components on a$"iting an" attestation4 financial acco$nting an" reporting4 reg$lation4 an" b$siness environment an" concepts. E Experience requirement. The experience re>$irement varies from state to state with some states re>$iring no experience4 while other states re>$ire $p to two years of a$"it experience.
Terms) !rimary re>$irements to become #!A %iff) *asy Objective) LO 1-= AA#S ) +eflective thin,ing s,ills

1' #opyright 3 .(1. !earson *"$cation4 5nc. p$blishing as !rentice 6all