456 final

Question 1

what is the nature, timing and extent of substantive procedures determined by?

Answer 1

risk of material misstatement
timing considerations
level of assurance necessary
type of evidence required
complexity of data systems
combination of substantive tests
auditing standards

Question 2

what are two types of tests of details

Answer 2

vouching

tracing

Question 3

what is vouching

Answer 3

taking a balance or transaction from underlying accounting records and verifying it by agreeing details to supporting evidence outside accounting records of the company
tracing - tracking a source document back to underlying accounting records

Question 4

how do you decided how much of a balance to test?

Answer 4

key item testing

representative sampling

Question 5

what are the three levels of evidence

Answer 5

persuasive
corroborative
limited

Question 6

what is persuasive evidence

Answer 6

procedures generate amount auditor believes is a reasonable estimate of what balance should be

Question 7

what is corroborative evidence

Answer 7

it either confirms audit findings from other procedures or supports management representation or decreases scepticism

Question 8

what is minimal evidence

Answer 8

contribute minimal support for the conclusion

Question 9

what are the key issues with sales and receivables

Answer 9

1. receivables actually exist and are collectable and adequate allowances have been made for receivables –> existence, valuation and allocation
2. sales are genuine and are neither overstated nor understated –> occurrence. completeness, accuracy, cut-off

Question 10

what are some inherent risks associated with credit sales transactions

Answer 10

high volume of transactions
contentious revenue recognition issues
cash susceptible to misappropriation
sales adjustments used to conceal theft

Question 11

what are the key issues of auditing purchases, payables and payroll

Answer 11

purchases are all recorded and not understated –> completeness, accuracy, cut-off
payables that are derived from purchases are fully recorded as a liability –> completeness, valuation and allocation
payroll expenses and associated deductions and related liabilities are properly recorded as liability –> completeness, occurence, existence, valuation and allocation

Question 12

what are the relevant functions for payroll?

Answer 12

hiring employees
authorizing payroll changes
preparing attendance and timekeeping data
preparing the payroll
recording the payroll
paying the payroll and protecting unclaimed wages

Question 13

what is the audit objective for inventory?

Answer 13

ensure inventory actually exists, is owned and is properly valued –> existence, valuation, rights and obligations

Question 14

what are two key functions of inventory

Answer 14

an inventory count

comparison of actual items on hand to inventory records

Question 15

what are common inventory count procedures

Answer 15

assigning and communicating responsibly 
preparing
identifying
counting
checking
recording
clearing
cut-off

Question 16

what are three strategies to verify existence of inventory

Answer 16

1. determine inventory quantities using perpetual records if inventory is not to be counted at or close to end of reporting period
   - requires low CR
2. determine inventory quantities by a physical count near end of reporting period and adjust balance sheet quantities using count references
   - less than high CR
3. determine inv quanitites by a physical count at or within a few days of end of reporting period
   - high CR

Question 17

what are key issues with PPE?

Answer 17

ensuring PPE actually exists, is owned and is properly valued with adequate provision for depreciation –> existence, valuation, rights and obligations

Question 18

what three types of transactions does the tests of details of transactions cover related to PPE

Answer 18

additions
disposals
repairs of maintenance

Question 19

what is cash comprised of?

Answer 19

cash balances at bank/similar institutions
cash on hand
cash equivalents (highly liquid, convertible to cash within 3 months)

Question 20

what are the key issues for cash and investments

Answer 20

cash exists and is owned by the clients and all cash transactions at the end of the reporting period are completely and properly disclosed
investments exist, are owned and properly recorded and disclosed and are properly valued –> existence, valuation, rights and obligations

Question 21

what are the main control procedures for cash

Answer 21

independently performed bank reconciliations

use of imprest accounts

Question 22

what are the main substantive procedures for cash

Answer 22

audit bank reconciliation

reconcile the balance to the confirmation from the bank

Question 23

what are five commonly used substantive tests for cash balances

Answer 23

confirming bank balances
confirming other arrangements with banks
verifying bank reconciliations
obtaining and using the subsequent period's bank statement
counting cash on hand

Question 24

what is lapping

Answer 24

deliberate irregularity, concealing the misappropriation of cash by using subsequent cash receipts to conceal the original misappropriation

Question 25

three common procedures to detect lapping

Answer 25

confirm AR on a surprise basis at an interim date make a surprise cash count compare the details of cash receipts journal entries with the details of corresponding daily deposit slips

Question 26

what are two reasons investments in other entities are held?

Answer 26

to hold surplus funds or funds earmarked for a future purpose to secure a long term relationship with the other party

Question 27

what steps are in the engagement wrap-up

Answer 27

1. review planned procedures for proper and complete execution 2. determine all necessary matters are appropriately considered 3. clear all outstanding review notes, to-do items and incomplete procedures 4. remove all unnecessary documents, drafts, and cleared review notes from file 5. for multi-location engagements, ensure all requested documents have been obtained and reviewed 6. consider materiality level used in audit 7. reconsider assessments of internal control 8. revisit planning documentation to ensure all significant issues identified in planning have been addressed 9. review planned procedures for proper and perform analytical procedures on adjusted financial statements 10. perform review for contingent liabiltiies and commitments 11. perform subsequent events procedures 12. read other info in the entity's annual report for material inconsistencies between audited financial statements and other info provided 13. ensure audit is completed on a timely basis

Question 28

when should entity record or disclose contingent liabilties

Answer 28

record: measurable and likely and material disclose: likely and material but not measurable if it's not likely, don't need to disclosed it

Question 29

what are subsequent events?

Answer 29

events that occur between year end and date of auditor's report

Question 30

what are the two types of subsequent events?

Answer 30

type 1 - events that provide additional evidence with respect to conditions that existed at year end (need to adjust) type 2 - events that provide evidence with respect to conditions that developed after year end (have to disclose)

Question 31

what are the components of an audit report

Answer 31

1. title 2. addressee 3. opinion paragraph 4. basis for opinion 5. emphasis of matter 6. key audit matters 7. management's responsibility for statements 8. auditor's responsibility for statements 9. other reporting responsibilities 10. name of engagement partner 11. date of audit report 12. auditor's address

Question 32

what are the modifications to an audit report

Answer 32

emphasis of matter | modified opinion - qualified, adverse, disclaimer of opinion