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MGMT 138 Study Guide - Quiz Guide: Engagement Letter, Assurance Services, Financial Statement


Department
Management
Course Code
MGMT 138
Professor
Patricia Wellmeyer
Study Guide
Quiz

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MGMT 138 QUIZ#1 REVIEW
Decision makers need more than just information; they need reliable and credible
information that they can rely upon.
Internet buyers rely on website information when purchasing online. investors
use financial reports to help make investment decisions. Suppliers and creditors use
financial reports to decide whether to give trade credit and bank loans. Labor
organizations use financial reports to help determine a opa’s ailit to pa ages.
Government agencies and Congress use financial information in preparing analyses of
the economy and in making laws concerning taxes, subsidies.
But because of the Asymmetry of information, such as the adverse selection
situation when sellers have information that buyers do not about the products, the
information risk exists. Toda’s audito plas a uial ole i usiess ad soiet. Users
rely on independent information assurors such as CPAs to reduce information risk.
Auditors assume the role of certifying published financial information, thereby offering
users the valuable service of providing assurance that information risk is low
Agent cost; conflict of interest; independent in fact and independent in appearance;
no financial or managerial relationships
Assurance services are independent professional services that improve the quality of
information, or its context, for decision makers.
An attestation engagement - a patitioe is assesses ad epots o subject
matter or an assertion about the subject matter that is the responsibility of another
party.
Auditing: Attests that management assertions as to economic events presented in
financial reports are presented in accordance with the applicable financial reporting
framework (U.S. GAAP or IFRS) or other given standard
AICBA’s A“B’s+ PCAOB’s auditig stadads= GAA“
Influence and oversee: SEC, FASB, IASB, AICPA
Involved establishing: ASB of AICBA; PCAOB; IAASB of IFAC
Reuies audit of iteal otols AND fiaial stateets Itegated Audit
Internal control may be defined as the policies and procedures implemented by an
entity to prevent or detect material accounting frauds or errors and provide for their
correction on a timely basis.
Engagement Risk: Litigation; Regulatory penalties; Loss of reputation and
profitability
The Engagement Letter: outlines objectives, scope, responsibilities, limitations and
fees.
Audit Responsibilities: evaluate whether financial statement assertions are in
accordance with GAAP; whether the internal controls over financial reporting are
operating effectively; evaluate the possibility of fraud occurring within the
evaluate the possibility of fraud occurring within the organization; evaluate the
likelihood that the organization will continue as a going concern.
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