Answered: A trade-off between the fundamental…

A trade-off between the fundamental qualitative characteristics of relevance and faithful representation may need to be made in order to meet the objective of financial reporting. True False

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter17: Other Services Provided By Audit Firms

Section: Chapter Questions

Problem 3TFQ

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Which of the following is the best description of reliability in relation to information in financial statements? Comprehensibility to users Influence on the economic decisions Freedom from material error and bias Inclusion of degree of caution of users
Under the Conceptual Framework for Financial Reporting which of the following statements is not a feature of financial information’s “comparability” characteristics? Comparability is uniformity A comparison requires at least two items Consistency, although related to comparability, is not the same Comparability is the goal; consistency helps to achieve that goal
Which is not a Risk Assessment Procedure? a. Ratio Analysis b. Observation of Activities c. Account Receivable confirmations d. Inspection of Documents e. Inquiry of Internal Auditors
Comment on the statement that materiality is in the eye of the beholder. How does this statement relate to the discussion in this chapter of how to gauge materiality in assessing financial statement restatements? Is materiality inconsistent with the notion of representational faithfulness?
Information is immaterial if omitting it or misstating it could influence decisions that users make on the basis of the financial information of a specific reporting entity. True False
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Something is deemed to be 'material' if its omission, non-disclosure or misstatement is likely to affect economic decisions or other evaluations made by users entitled to rely on the financial statements. Select one alternative: True False
Explain the importance of analytical procedures as evidence indetermining the fair presentation of the financial statements.
The primary qualities that make accounting information useful for decision-making are :(a) Relevance and freedom from bias(b) Reliability and comparability(c) Comparability and consistency(d) None of the above
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Fair Value Accounting and Valuation in 3 Steps: Asset or Liability Identification: The first step involves identifying the specific assets or liabilities that will be measured at fair value. This could include financial instruments, tangible assets, intangible assets, or other items on the balance sheet. Market-Based Valuation Techniques: Fair value is determined using market-based valuation techniques. This may involve assessing current market prices, recent transactions, or employing valuation models such as discounted cash flows, comparable sales, or option pricing models. Consistent Application and Disclosure: Fair value accounting requires consistent application of valuation methods across reporting periods. Additionally, transparency and disclosure are crucial, with companies providing detailed information about the inputs, assumptions, and methods used in fair value measurements.
Comparability is an enhancing qualitative characteristic that results in Select one: rigid uniformity in the application of accounting principles. information that enables users to identify and understand similarities in and differences among financial statement items. greater use of judgment in the application of accounting standards. the ability of users to understand inherently complex phenomena.