Questions: The Audit Standards Setting Process

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Chapter 2: The Audit Standards’ Setting Process

Review Questions:

1) Distinguish between auditing standards and generally accepted accounting principles
Auditing standards represent the combination of the four principles which are:
1. Purpose of an audit.
2. Responsibilities.
3. Performance.
4. Reporting.
Generally accepted accounting principles are specific rules for accounting for transactions occurring in a business enterprise.

2) List the four major types of services CPAs perform.

a) Audit and assurance services.
b) Accounting and bookkeeping services.
c) Tax services.
d) Management consulting services.

Multiple Choice Questions:

1. You have been engaged to audit the financial statements of a U.S. public company. Which of the following statements is correct?

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The auditor is not responsible for detecting fraud that does not lead to a material misstatement.
Therefore, the auditor performs auditing procedures to obtain reasonable assurance about whether the statements are presented fairly.
d) Given the CPA firm is auditing financial statements. Why would they need to understand anything about the clients' business?
A thorough understanding of the client’s business is critical to assessing the risk of material misstatements in the financial statements when planning the audit.

Each entity faces several risks unique to the nature of its business and industry: The types of operations, the extent of regulation, how the organization obtains capital to fund its business model.

e) What does the auditor do in an audit other than verify the mathematical accuracy of the numbers in the financial statements?
The auditor is responsible for obtaining sufficient appropriate audit evidence about whether the financial statements are free of material misstatements. In addition to understanding whether the amounts reported in the financial statements are mathematically

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