🎯Professional Skepticism and Professional Judgment: 12 MCQs

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Deleted User 2 March 2024

Hello Emma,

We are sorry for the inconvenience encountered.

The error is now resolved.

Farhat Lectures Support Team

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YIWEN HOU 4 March 2024

for question#2, what is main difference between assurance, attestation and auditing, thank you

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1. Maroun, CPA 6 March 2024
  
  Hi Yiwen,
  
  – Assurance is a broad term that refers to the provision of confidence by a professional (such as a CPA) to users regarding the reliability or quality of information. It encompasses various services, including attestation and auditing, as well as other non-audit services that aim to improve the quality of information for decision-makers.
  – Attestation is a subset of assurance services. It involves the CPA providing a report on a subject matter or an assertion about the subject matter that is the responsibility of another party.
  – Auditing is a specific type of attestation service, primarily focused on the examination of financial statements. The main purpose of an audit is to provide an independent opinion on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework (e.g., GAAP).
  
  Hope this helps!
  
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Navneet Rangra 22 November 2024

Hi, In the United States, audits are required for publicly traded companies.
Could you tell me why this is a correct statement? Private and Non-Profit organizations have audits, too. I work for a non-profit organization, and they have audits every year, so could you explain why they are required only for publicly traded companies?

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1. Maroun, CPA 23 November 2024
  
  Hello Navneet,
  
  The key here is understanding what “required” means in the context of the statement. When we say that audits are required for publicly traded companies, it means they are mandated by federal law, specifically under the Securities Exchange Act of 1934 and regulations set forth by the SEC (Securities and Exchange Commission). Publicly traded companies “must” have their financial statements audited as part of their obligation to disclose accurate and reliable financial information to protect investors and maintain trust in the financial markets.
  
  For private companies and non-profit organizations, audits “may” still be conducted, but they are not required by federal securities law. Instead, audits for these organizations are typically driven by external or internal requirements, such as:
  
  – Loan covenants from lenders.
  – Grant provisions for non-profits receiving government or private funding.
  – Bylaws or governing board policies that specify audits for financial accountability.
  – State or local laws, which might require audits for non-profits of a certain size or funding threshold.
  
  In summary, “required” in this context refers to a legal obligation enforced by federal law for publicly traded companies, whereas audits for private companies or non-profits are usually driven by stakeholder or state-specific requirements.
  
  I hope this clears up any confusion! Let me know if you have further questions.
  
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Ryo 31 March 2025

Q22;
I selected “Gathering facts and information and identifying the relevant literature.”, which I believe, comes before “Analyzing the situation and its potential effect on the audit.”
Why is the latter correct in this case?
I re-read the question but still quite confused.

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1. Maroun, CPA 3 April 2025
  
  Hello Ryo,
  
  Did you read the explanation?
  
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  1. Ryo 3 April 2025
    
    The question claims to ask to pick the right answer but the explanation explains the incorrect choice…
    Did I miss anything?
    
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    1. Maroun, CPA 3 April 2025
      
      Hello Ryo,
      
      Your confusion comes from the fact that the first and the third step contain the word “analyze”. However, the first step is to identify and define the issue by carefully analyzing the situation and its potential effect on the audit.
      
      I hope this helps!
      
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🎯Professional Skepticism and Professional Judgment: 12 MCQs

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