Managerial Accounting by Kieso and WeygandtFull description
Chapter Two
The solution of all exercise and review the question of chapter 7 from the book of Data Communications and Networking By Behrouz A.Forouzan. Actually, I solved those problems for assignment during...
5) Auditing can have a significant effect on both information ris* and business ris*. Anser& 6AL$% 'erms& Business ris* and information ris* #iff& (oderate Objective& LO 1-5 AA!$B& eflective thin*ing 1.9 Learning Objective 1-9 1) A correct relationship among the auditor4 the client4 and the e=ternal users is A) management of a public company hires the independent auditor. B) the audit committee of a private company hires the independent auditor. !) the client provides capital to the e=ternal users. #) the e=ternal users can rely upon the auditor"s report to reduce information ris*. Anser& # 'erms& elationships among auditor4 client4 and e=ternal users #iff& (oderate Objective& LO 1-9 AA!$B& eflective thin*ing +) 'he most common ay for users to obtain reliable information is to A) have an internal audit. B) have an independent audit. !) verify all information individually. #) verify the information ith management. Anser& B 'erms& Obtain reliable information #iff& (oderate Objective& LO 1-9 AA!$B& eflective thin*ing 5) %=ternal users of the financial statements A) value the auditor"s report because of the auditor"s independence from the client. B) loo* to the auditor"s report as an indication of the statements" reliability. !) use the audited information on the assumption that it is reasonably complete4 accurate4 and unbiased. #) all of the above. Anser& # 'erms& elationships among auditor4 client4 and e=ternal users #iff& %asy Objective& LO 1-9 AA!$B& eflective thin*ing
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9) %=plain hat is meant by information ris*4 and list the four causes of this ris*. Anser& Information ris* reflects the possibility that the information upon hich the business ris* decision as made as inaccurate. 6our causes of information ris* are C remoteness of information4 C biases and motives of the provider4 C voluminous data4 and C comple= e=change transactions. 'erms& Information ris* definition and causes #iff& %asy Objective& LO 1-9 AA!$B& eflective thin*ing :) As society becomes more comple=4 decision ma*ers are more li*ely to receive reliable information. Anser& 6AL$% 'erms& educing information ris* #iff& %asy Objective& LO 1-9 AA!$B& eflective thin*ing <) (anagement is reuired by 8AA3 to reduce information ris*4 even if the costs outeigh the benefits. Anser& 6AL$% 'erms& educing information ris* #iff& (oderate Objective& LO 1-9 AA!$B& eflective thin*ing 1.: Learning Objective 1-: 1) In the audit of historical financial statements4 management asserts that the financial statements are fairly stated in accordance ith hat standards A) regulatory accounting principles B) applicable international accounting standards !) applicable ;.$. accounting standards #) B and ! Anser& # 'erms& Audit of historical financial statements #iff& %asy Objective& LO 1-: AA!$B& eflective thin*ing
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+) Any service that reuires a !3A firm to issue a report about the reliability of an assertion that is made by another party is a7n) A) accounting and boo**eeping service. B) attestation service. !) assurance service. #) ta= service. Anser& B 'erms& Assurance services #iff& %asy Objective& LO 1-: AA!$B& eflective thin*ing 5) 'hree common types of attestation services are A) audits of historical financial statements4 revies of historical financial statements4 and audits of internal control over financial reporting. B) audits of historical financial information4 verifications of historical financial information4 and attestations regarding internal controls. !) revies of historical financial information4 verifications of future financial information4 and attestations regarding internal controls. #) audits of historical financial information4 revies of controls related to investments4 and verifications of historical financial information. Anser& A 'erms& 'ypes of attestation services #iff& %asy Objective& LO 1-: AA!$B& eflective thin*ing 9) ,hich of the folloing services provides the loest level of assurance on a financial statement A) revie B) audit !) /either service provides assurance on financial statements. #) %ach service provides the same level of assurance on financial statements. Anser& A 'erms& $ervice provides loest level of assurance on a financial statement #iff& (oderate Objective& LO 1-: AA!$B& eflective thin*ing
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:) ,hich of the folloing is an accurate statement regarding assurance services A) Assurance services must be performed by a !3A. B) An attestation service is not a type of assurance service. !) Assurance services improve the uality of information for decision ma*ers. #) Assurance services can only be performed on financial data. Anser& ! 'erms& Assurance services #iff& (oderate Objective& LO 1-: AA!$B& eflective thin*ing <) Audits A) are an assurance service4 but not an attestation service. B) are designed to provide absolute assurance that the financial statements are free of material misstatement. !) are reuired for publicly traded companies in the ;nited $tates. #) do not reuire the auditor to e=press their opinion in a ritten report. Anser& ! 'erms& Audit assurance #iff& (oderate Objective& LO 1-: AA!$B& eflective thin*ing 2) A high4 but not absolute4 level of assurance is called A) probable assurance. B) reasonable assurance. !) limited assurance. #) incomplete assurance. Anser& B 'erms& easonable assurance #iff& %asy Objective& LO 1-: AA!$B& eflective thin*ing >) ,hich of the folloing is an accurate statement regarding the various types of other assurance services A) Assurance services must be about the reliability of another party"s assertion about compliance ith specified criteria. B) Other assurance services must meet the definition of an attestation service. !) 'he primary purpose of a management consulting engagement is to improve the uality of information. #) 'he mar*et for other forms of assurance services is open to non-!3A competitors. Anser& # 'erms& Assurance services #iff& (oderate Objective& LO 1-: AA!$B& eflective thin*ing ? !opyright 0 +12 3earson %ducation4 Inc.
?) 'o types of attestation services provided by !3A firms are audits and revies. #iscuss the similarities and differences beteen these to types of attestation services. ,hich type provides the least assurance Anser& In both the revie and audit of the historical financial statements4 management asserts that the statements are fairly stated in accordance ith accounting standards. 'he !3A provides a loer level of assurance for revies of financial statements compared to the high level for audits4 therefore less evidence is needed. A revie is often adeuate to meet financial statement users" needs. It can be provided by a !3A firm at a much loer fee than an audit because less evidence is needed. An audit is the most common assurance service provided by !3A firms. 3ublicly traded companies in the ;.$. are reuired to have audits under the federal securities acts. (any nonpublic companies have a revie to limit audit fees. 'erms& Attestation servicesD Audits and revies of historical financial statements #iff& (oderate Objective& LO 1-: AA!$B& eflective thin*ing 1) ,hat is an audit of internal control over financial reporting Anser& 6or an audit of internal control over financial reporting4 management asserts that internal controls have been developed and implemented folloing ell established criteria. $ection 99 of the $arbanes-O=ley Act reuires public companies to report management"s assessment of the effectiveness of internal control. 'he Act also reuires auditors for larger public companies to attest to the effectiveness of internal control over financial reporting. 'his evaluation4 hich is integrated ith the audit of financial statements4 increases user confidence about future financial reporting4 because effective internal controls reduce the li*elihood of future misstatements in the financial statements. 'erms& %ngagement to attest on internal control over financial reporting #iff& (oderate Objective& LO 1-: AA!$B& eflective thin*ing 'opic& $OE 11) ,hat are the four categories of attestation services Anser& 'he four categories of attestation services include C Audit of historical financial statements C Audit of internal control over financial reporting C evie of historical financial statements C Other attestation services that may be applied to a broad range of subject matter. 'erms& !ategories of attestation services #iff& (oderate Objective& LO 1-: AA!$B& eflective thin*ing
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1+) !3A firms perform numerous services that generally fall outside the scope of assurance services. 8ive three e=amples of such services. Anser& 'hree specific e=amples of services performed by !3As that generally fall outside the scope of assurance services are C accounting and boo**eeping services C ta= services C management and consulting services. 'erms& /onassurance services provided by !3As #iff& %asy Objective& LO 1-: AA!$B& eflective thin*ing 15) !3A firms are never alloed to provide boo**eeping services for clients. Anser& 6AL$% 'erms& !3A services provided to clients #iff& (oderate Objective& LO 1-: AA!$B& eflective thin*ing 19) $ection 99 of the $arbanes-O=ley Act reuires public companies to have an e=ternal auditor attest to their internal control over financial reporting. Anser& ';% 'erms& $ection 99 of the $arbanes-O=ley Act #iff& (oderate Objective& LO 1-: AA!$B& eflective thin*ing 'opic& $OE 1:) (ost public companies" audited financial statements are available on the $%!"s %#8A database. Anser& ';% 'erms& 3ublic companies" audited financial statements& $%!"s %#8A database #iff& (oderate Objective& LO 1-: AA!$B& eflective thin*ing 1<) 'he primary purpose of a management consulting engagement is to generate a recommendation to management. Anser& ';% 'erms& /onassurance services provided by !3AsD management consulting #iff& %asy Objective& LO 1-: AA!$B& eflective thin*ing
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1.< Learning Objective 1-< 1) One objective of an operational audit is to A) determine hether the financial statements fairly present the entity"s operations. B) determine if the auditee is in compliance ith 8AA3. !) ma*e recommendations for improving performance. #) report on the entity"s relative success in attaining profit ma=imi@ation. Anser& ! 'erms& Objective of operational audit #iff& (oderate Objective& LO 1-< AA!$B& eflective thin*ing +) An e=amination of part of an organi@ation"s procedures and methods for the pu rpose of evaluating efficiency and effectiveness is hat type of audit A) operational audit B) compliance audit !) financial statement audit #) production audit Anser& A 'erms& %=amination of part of an organi@ation"s procedures and method to evaluate efficiency and effectiveness #iff& (oderate Objective& LO 1-< AA!$B& eflective thin*ing 5) An audit to determine hether an entity is folloing specific procedures or rules set don by some higher authority is classified as a7n) A) audit of financial statements. B) compliance audit. !) operational audit. #) production audit. Anser& B 'erms& Audit to determine hether entity folloed specific procedures or rules #iff& (oderate Objective& LO 1-< AA!$B& eflective thin*ing
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9) ,hich one of the folloing is more difficult to evaluate objectively A) presentation of financial statements in accordance ith generally acc epted accounting principles B) compliance ith government regulations !) efficiency and effectiveness of operations #) All three of the above are eually difficult. Anser& ! 'erms& (ost difficult to evaluate objectively #iff& !hallenging Objective& LO 1-< AA!$B& eflective thin*ing :) ,hich of the folloing audits can be regarded as generally being a compliance audit A) I$ agents" e=aminations of ta=payer returns B) 8AO auditor"s evaluation of the computer operations o f governmental units !) an internal auditor"s revie of a company"s payroll authori@ation procedures #) a !3A firm"s audit of a public company Anser& A 'erms& !ompliance audit #iff& !hallenging Objective& LO 1-< AA!$B& eflective thin*ing
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<) ,hich of the folloing are reuired to have a ritten report regarding the assertion of another party A) 6inancial $tatement Operational !ompliance Attestation Assurance Audit Audit Audit %ngagement %ngagement B) 6inancial $tatement Audit
Anser& B 'erms& euired to have a ritten report #iff& !hallenging Objective& LO 1-< AA!$B& eflective thin*ing 2) In a financial statement audit4 the auditor A) gathers evidence to determine hether the statements contain material errors or other misstatements. B) must have a thorough understanding of the entity and its environment. !) determines hether the financial statements are stated in accordance ith specified criteria. #) all of the above. Anser& # 'erms& Audit of historical financial statements #iff& (oderate Objective& LO 1-< AA!$B& eflective thin*ing
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>) #iscuss the similarities and differences beteen financial statement audits4 operational audits4 and compliance audits. 8ive an e=ample of each type. Anser& 6inancial statement audits4 operational audits4 and compliance audits are similar in that each type of audit involves accumulating and evaluating evidence about information to ascertain and report on the degree of correspondence beteen the information and established criteria andFor procedures4 rules4 or regulations. 'he differences beteen each type of audit are the information being e=amined and the criteria used to evaluate the information. A financial statement audit is conducted to determine hether financial statements are stated in accordance ith specified criteria4 normally the ;.$. or international standards. Auditors not only focus on accounting transactions4 but also focus on an integrated approach in hich both the ris* of misstatements and the operating controls are considered. 'he auditor must have a thorough understanding of the entity and its environment. An operational audit evaluates the efficiency and effectiveness of any part of an organi@ation"s operating procedures and methods. At completion of an operational audit4 management normally e=pects recommendations for improving operations. In operational auditing4 the revies are not limited to accounting. It is more difficult to objectively evaluate hether the efficiency and effectiveness of operations meets established criteria than it is for compliance and financial statement audits. Also4 establishing criteria for evaluating the information in an operational audit is e=tremely subjective. 'hus4 operational auditing is more li*e management consulting than hat is usually considered auditing. A compliance audit is conducted to determine hether the auditee is folloing specific procedures4 rules4 or regulations set by some higher authority. esults of compliance audits are typically reported to management4 li*e in the operational audits4 rather than to outside users as is done ith financial statement audits. An e=ample of a financial statement audit ould be the annual audit of IB( !orporation4 in hich the e=ternal auditors e=amine IB("s financial statements to determine the degree of correspondence beteen those financial statements and generally accepted accounting principles. An e=ample of an operational audit ould be an internal auditor"s evaluation of hether the company"s computeri@ed payroll-processing system is operating efficiently and effectively. An e=ample of a compliance audit ould be an I$ auditor"s e=amination of an entity"s federal ta= return to determine the degree of compliance ith the Internal evenue !ode. 'erms& 6inancial statement audits4 operational audits and compliance audits #iff& !hallenging Objective& LO 1-< AA!$B& Analytic thin*ing
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?) 'o perform an audit4 it is necessary for the information to b e in a verifiable form and there must be some criteria by hich the auditor can evaluate the information. #etail the information and criteria that ould be used hen 7A) an independent !3A firm audits a company"s historical financial statements. 7B) an Internal evenue $ervice auditor audits that same company"s ta= return. 7!) an internal auditor performs an operational audit to evaluate hether the company"s computeri@ed payroll processing system is operating efficiently and effectively. Anser& 7A) 'he information used by a !3A firm in a financial statement audit is the financial information in the company"s financial statements. 'he most commonly used criteria are applicable ;.$. or international accounting standards. 7B) 'he information used by an I$ auditor is the financial information in the company"s federal ta= return. 'he criteria used are the internal revenue code and interpretations. 7!) 'he information used by an internal auditor hen performing an operational audit of the payroll system could include various items such as the number of errors made4 costs incurred by the payroll department4 and number of payroll records processed each month. 'he criteria ould consist of company standards for departmental efficiency and effectiveness. 'erms& Information and criteria used by !3A firm4 Internal evenue $ervice auditor4 and internal auditor #iff& (oderate Objective& LO 1-< AA!$B& eflective thin*ing 1) 'he primary purpose of a compliance audit is to determine hether the financial statements are prepared in compliance ith generally accepted accounting principles. Anser& 6AL$% 'erms& !ompliance audit #iff& (oderate Objective& LO 1-< AA!$B& eflective thin*ing 11) esults of compliance audits are typically reported to the company"s management rather than to a broad spectrum of outside users. Anser& ';% 'erms& !ompliance audit #iff& (oderate Objective& LO 1-< AA!$B& eflective thin*ing 1+) An integrated approach to auditing considers both the ris* of misstatements and operating controls intended to prevent misstatements. Anser& ';% 'erms& Audit of historical financial statementsD integrated approach #iff& (oderate Objective& LO 1-< AA!$B& eflective thin*ing
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1.2 Learning Objective 1-2 1) Internal auditors A) must be independent of the entity that employs them. B) generally report to the accounting department. !) are employed by all types of organi@ations. #) must be !3As. Anser& ! 'erms& Internal audit #iff& (oderate Objective& LO 1-2 AA!$B& eflective thin*ing +) ,hich type of auditor audits the financial information prepared by various federal government agencies before it is submitted to !ongress A) internal auditor B) revenue agent !) independent auditor #) 8AO auditor Anser& # 'erms& 'ypes of auditors #iff& %asy Objective& LO 1-2 AA!$B& eflective thin*ing
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5) (atch the engagement described to the 7A) type of audit and 7B) auditor that ould most li*ely perform the engagement. %ach engagement ill have an anser from List-A and List-B. An anser can be used once4 more than once4 or not at all. ist A ! Type of Audit" a. 6inancial $tatement b. !ompliance c. Operational
ist B ! Type of Auditor" d. Internal e. %=ternal f. 8overnment g. I$
%ngagement& 1. %valuate a company"s payroll processing for economy. +. %valuateFdetermine if ban* covenants are being met. 5. %valuate financial statements that are to be submitted to a ban*. 9. %valuate the promptness of materials inspection in a manufacturer"s receiving department. :. #etermine if (edicare reimbursements are in accordance ith the Gealthcare 6inancing Administration 7G!6A). <. #etermine if the ta= return of a multinational corporation is in accordance ith the ta= code. 2. #etermine if a public school is properly applying their reimbursement for the payment-in-*ind program. >. #etermine the effectiveness of a #epartment of #efense project. Anser& 1. c4 d +. b4 d 5. a4 e 9. c4 d :. b4 f <. b4 g 2. b4 e >. c4 f 'erms& 6inancial statement auditD !ompliance auditD Operational auditD 'ypes of auditors #iff& !hallenging Objective& LO 1-2 AA!$B& Analytic thin*ing
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9) #iscuss the similarities and differences beteen the roles of independent auditors4 8AO auditors4 internal revenue agents4 and internal auditors. Anser& 'he roles of all four types of auditors are similar in that they involve the accumulation and evaluation of evidence about information to ascertain and report on the degree of correspondence beteen the information and e stablished criteria. 'he differences in their roles center around the information audited and the criteria used to evaluate that information. Independent auditors primarily audit companies" financial statements. 8AO auditors" primary responsibility is to perform the audit function for !ongress. I$ auditors are responsible for the enforcement of federal ta= las. Internal auditors primarily perform operational and compliance audits for their employing company. 'erms& oles of independent auditors4 8AO auditors4 internal revenue agents and internal auditors #iff& (oderate Objective& LO 1-2 AA!$B& eflective thin*ing :) 'he primary role of the ;nited $tates 8eneral Accounting Office is the enforcement of the federal ta= las as defined by !ongress and interpreted by the courts. Anser& 6AL$% 'erms& 3rimary role of ;nited $tates 8eneral Accounting Office #iff& (oderate Objective& LO 1-2 AA!$B& eflective thin*ing 1.> Learning Objective 1-> 1) 'he three reuirements for becoming a !3A include all but hich of the folloing A) uniform !3A e=amination reuirement B) education reuirements !) character reuirements #) e=perience reuirement Anser& ! 'erms& euirements for becoming a !3A #iff& (oderate Objective& LO 1-> AA!$B& eflective thin*ing
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+) 'he use of the !ertified 3ublic Accountant title is regulated by A) the federal government. B) state la through the licensing departments of each state. !) the American Institute of !ertified 3ublic Accountants through the licensing departments of the ta= and auditing committees. #) the $ecurities and %=change !ommission. Anser& B 'erms& !ertified 3ublic Accountant title #iff& (oderate Objective& LO 1-> AA!$B& eflective thin*ing 5) List and discuss the three primary reuirements to become a !3A. Anser& 'he three primary reuirements for becoming a !3A are& C Educational requirement . /ormally4 an undergraduate degree or a graduate degree ith a major in accounting4 including a minimum number of accounting credits is reuired. (ost states no reuire 1: semester hours for licensure. $ome states reuire feer credits before ta*ing the e=amination4 but reuire 1: semester credits before receiving the !3A certificate. C Uniform CPA examination requirement . 'his is a four-part4 computer-based e=amination ith components on auditing and attestation4 financial accounting and reporting4 regulation4 and business environment and concepts. $ome states also reuire a separate ethics reuirement. C Experience requirement . 'he e=perience reuirement varies from state to state ith some states reuiring no e=perience4 hile other states reuire up to to years of audit e=perience. 'erms& 3rimary reuirements to become !3A #iff& %asy Objective& LO 1-> AA!$B& eflective thin*ing