A-5 Integrated Audit, Attestation Engagements, Compliance, and Government Audits

Question 1

M1 Integrated Audit Procedures

What is the relevant authoritative literature for internal controls for Issuers and nonissuers?

Answer 1

1. Non Issuers GAAS
2. Issuers PCAOB

Question 2

M1 Integrated Audit Procedures

In an audit of an issuers the auditors must provide opinions on 2 audits?

Answer 2

1. Entity’s Financial Statement
2. The effectiveness on internal control

Question 3

M1 Integrated Audit Procedures

In an integrated audit regardless of the opinion render on the financial statements the auditor must provide an opinion on?

Answer 3

An audit of internal control

Question 4

M1 Integrated Audit Procedures

When auditors does not receives a written representation letter from management for establishing and maintaining effective internal control the auditor should?

Answer 4

Withdrawal from the engagement or issue a disclaimer of opinion

Question 5

M1 Integrated Audit Procedures

What are the correct order of steps an auditor must follow in an integrated audits using the Top down approach?

Answer 5

1. Evaluation of overall risks at the FS level
2. Considerations of controls at the entity level
3. Evaluation of accounts, disclosures, and assertions

Question 6

M1 Integrated Audit Procedures

In an integrated audit what are the testing methods used to test the design effectiveness of controls?

Answer 6

1. Inquiry
2. Observation
3. Inspection

Question 7

M1 Integrated Audit Procedures

In an integrated audit what are the testing methods used to test the operating effectiveness of controls?

Answer 7

1. Recalculation
2. Reperformance

Question 8

M1 Integrated Audit Procedures

How is the scope, procedures and purpose of test of controls different from and audit of internal controls and the audit of FS?

Answer 8

1. In an audit of internal control the scope, procedures and purpose is more extensive because the auditor is rendering an opinion over all relevant assertions of internal controls, whereas in the audit of FS test of controls is less extensive because the auditor is not rendering an opinion of internal controls.

Question 9

M1 Integrated Audit Procedures

In an integrated audit when must the auditor communicate significant deficiencies of internal control to management?

Answer 9

1. Non-issuers = Communication should be made 60 days after the report release date.
2. Issuers = at the report release date

Question 10

M2 Communications and reporting in an integrated Audit

In an integrated audit to whom should significant deficiencies and material weakness should be reported?

Answer 10

1. Management and audit committee.

Question 11

M2 Communications and reporting in an integrated Audit

In reporting on internal control over financial reporting the auditor should include a paragraph on the report that states?

Answer 11

The inherent limitation of any internal control, errors or fraud may occur and not be detected.

Question 12

M2 Communications and reporting in an integrated Audit

In an integrated audit when the auditor identifies one or more material weakness what type of opinion should be issued on the internal control of the company?

Answer 12

An adverse opinion. Note that even though an adverse opinion was issued on internal control that does not necessary mean that the financial statements are materially misstated and issue a qualified or adverse opinion on the FS.

Question 13

M2 Communications and reporting in an integrated Audit

If a management refuses to provide a written representation letter acknowledging its responsibility for the effectiveness of internal control what type of opinion can the auditor issue?

Answer 13

A disclaimer of opinion or withdrawal from the engagement.

Question 14

M3 Attestation Engagement and Standards (SSAE)

When will an auditor use SSAE ?

Answer 14

When its engaged to issue a report for an:
1. Examination of management assertions
2. Review of
2a. Pro forma financial statements
3a. Examine a financial forecast and projections
3. Agreed up on procedures
4. Reporting on Controls at Service Organizations

Question 15

M3 Attestation Engagement and Standards (SSAE)

When will an auditor provide negative assurance ?

Answer 15

1. When an accountant is requested to report on the results of performing a review of management assertion.
2. On review of pro forma financial statements

Question 16

M3 Attestation Engagement and Standards (SSAE)

When will an auditor use statement on standards for accounting and review services (SSARS)?

Answer 16

1. Performing a preparation or compilation on FS
2. Review of historical FS for non issuers.
3. Preparation and compilation of pro forma financial information

Question 17

M3 Attestation Engagement and Standards (SSAE)

What is the same requirement the GAAS and SSAE required from an auditor?

Answer 17

To be independent

Question 18

M3 Attestation Engagement and Standards (SSAE)

What type of services will an auditor use SSAE?

Answer 18

1. Review of management MD&A or
2. Any work that relates to review of any type of management assertion.

Question 19

M3 Attestation Engagement and Standards (SSAE)

What is one difference between SSAE and GAAS?

Answer 19

SSAE provides a framework for the attest functions beyond historical financial statements.

Question 20

M3 Attestation Engagement and Standards (SSAE)

When will an auditor not restrict the use of the report?

Answer 20

When the auditor reports on an assertion about the subject matter instead of reporting directly on the subject matter.

Question 21

M4 Agreed upon procedures and prospective financial statements.

What are the 2 types of financial projections?

Answer 21

1. Financial forecast (expected results)
2. Financial projections (What if assumptions)

Question 22

M4 Agreed upon procedures and prospective financial statements.

Are financial projections restricted or of general use?

Answer 22

Financial projections are restricted and of limited use.

Question 23

M4 Agreed upon procedures and prospective financial statements.

How is an agreed-upon procedures best defined?

Answer 23

An attestation engagement that a practitioner is engaged by a client to perform specific procedures on a subject matter.

Question 24

M4 Agreed upon procedures and prospective financial statements.

When auditor agrees to the reasonable justification to change an audit engagement to an agreed-upon procedures what the report of the auditor include?

Answer 24

The auditor makes no reference to original audit engagement, but may include reference to procedures that have been performed in the audit.

Question 25

M4 Agreed upon procedures and prospective financial statements. What level of assurance a review and agreed upon procedures provide?

Answer 25

1. A review provides limited assurance (Negative) 2. Agreed upon procedures does not provide assurance.

Question 26

M4 Agreed upon procedures and prospective financial statements. What type of procedure should a practitioner perform on a compilation of prospective financial statements?

Answer 26

1. Make inquiries about the accounting principles used in the preparation of the PFS..

Question 27

M4 Agreed upon procedures and prospective financial statements. An accountants compilation report on financial projections and forecast financials should include ?

Answer 27

1. Statement that the accountant has no responsibility to update the report for future events. 2. Statement that financial projections may have differences between the projected and actual results as events and circumstances frequently do not occur as expected.

Question 28

M4 Agreed upon procedures and prospective financial statements. What date should the practitioner use in the report of an agreed upon procedures?

Answer 28

The date that the practitioner completed the agreed upon procedures.

Question 29

M4 Agreed upon procedures and prospective financial statements. In the examination of projected financial statements what should the practitioner assess in the projections?

Answer 29

Only in a review the practitioner should evaluate the hypothetical assumptions used in the preparation of projections. But the account does not express an opinion that the assumptions are reasonable. Note: In a compilation of financial projections the assumptions are not assess as the nature of the work does not provide any level of assurance.

Question 30

M4 Agreed upon procedures and prospective financial statements. What are 3 things that a report on compilation, examination and agreed upon procedure share with prospective financial statements ?

Answer 30

1. Caveat that the prospective financial statements may not be achieved. 2. Account has no responsibility for updating the report 3. The report is limited in use.

Question 31

M4 Agreed upon procedures and prospective financial statements. An accounts report on a review pro forma financial information should include?

Answer 31

1. Statement of reference the financial statement were derived. 2. Statement whether the financial statements were audited or reviewed.

Question 32

M4 Agreed upon procedures and prospective financial statements. What are pro forma financial statements?

Answer 32

Pro forma financial statements show the hypothetical event that may have affected the historical financial statements if it had occurred in the historical period of the financial statements.

Question 33

M4 Agreed upon procedures and prospective financial statements. What type of assurance would an examination of pro forma financial statements provide?

Answer 33

A limited assurance.

Question 34

M5 Reporting on Controls at a Service organization How many service organization exists?

Answer 34

1. SOC 1 report (Opinion on ICFR) 2. SOC 2 Trust Service Criteria (Relevant to security, Availability, Processing integrity, Confidentiality and privacy)

Question 35

M5 Reporting on Controls at a Service organization When a service organization provides services that affects the initiation, execution, processing or reporting of a user's company's transactions these activities are considered to be?

Answer 35

Part of the the Company's information system

Question 36

M5 Reporting on Controls at a Service organization What is the difference between a SOC 1 and SOC 2 report regarding internal controls at a service organization?

Answer 36

SOC 1 report is a report on the ICFR, while SOC 2 report is a report on internal controls related to trusted services (Security, processing)

Question 37

M5 Reporting on Controls at a Service organization What do "type 2" SOC 1 and SOC 2 report test?

Answer 37

1. Report includes the test of operating effectiveness of controls.

Question 38

M5 Reporting on Controls at a Service organization What do "type 1" SOC 1 and SOC 2 report test?

Answer 38

1. Report testing on only the design and implementation of controls and does not include testing on the operating effectiveness.

Question 39

M5 Reporting on Controls at a Service organization What are the types of Type 1 reports available and what do they tests?

Answer 39

Type 1 report test design and implementation of controls. They are not useful to reduce risk of material misstatement. 1. SOC 1 - Provides assurance about the design and implementation of controls at a service organization (Does not test operating effectiveness of controls). Not useful to lower the auditor's risk of material misstatement. 2. SOC 2 - Provides assurance over the design and implementation of controls related to security and processing of data. Not useful to lower the auditor's risk of material misstatement.

Question 40

M5 Reporting on Controls at a Service organization What are the types of Type 2 reports available and what do they tests?

Answer 40

Type 2 report test design, implementation of controls and OPERATING EFFECTIVENESS OF CONTROLS. Type 2 SOC 1 is the only one useful to reduce the material misstatement. 1. SOC 1 - Provides assurance about the design, implementation and operating effectiveness of controls at a service organization. Useful to lower the auditor's risk of material misstatement. 2. SOC 2 - Provides assurance over the design, implementation, and operating effectiveness of controls related to security and processing of data. Not Useful to lower the auditor's risk of material misstatement as it is not specifically related to the internal control over financial reporting.

Question 41

M5 Reporting on Controls at a Service organization When the auditor plans to use a SOC 1 Type 2 on its audit this will serve the purpose for?

Answer 41

1. Reduce the assess control risk below maximum for controls related to accounting areas impacted by the service organization. 2. Aid the auditor in obtain an understanding of controls related to the accounting areas impacted by the service organization. 3. Provide assurance of the operating effectiveness of controls. SUBSTANTIVE TESTING WILL STILL NEED TO BE PERFORMED REGARDLESS OF THE SOC 1 TYPE 2 REPORT. This report in conjunction with other audit documentation will only assist in reducing control risk.

Question 42

M6 Reporting on Compliance What are the 3 type of compliance engagements?

Answer 42

1. Compliance report in connection with the audit (Negative assurance) 2. Agreed upon procedures (No assurance) 3. Examination (Reasonable assurance

Question 43

M6 Reporting on Compliance When reporting on compliance in connection with an audit the auditor must consider the audit opinion to issue in a opinion on the compliance why?

Answer 43

An auditor may express a negative assurance only when the auditor has expressed an unmodified or qualified opinion on the audited financial statements.

Question 44

M6 Reporting on Compliance When will negative assurance be expressed in a compliance report?

Answer 44

When the compliance report issued is in connection with audited financial statements.

Question 45

M6 Reporting on Compliance What is the purpose of the examination report?

Answer 45

To issue an opinion regarding compliance matters.

Question 46

M7 Government Audits What is a standard statement applicable to FS audits in accordance with GAGAS?

Answer 46

The Auditor reports on the scope of the auditor's testing of internal controls.

Question 47

M7 Government Audits GAGAS published by the government accountability office only apply to ?

Answer 47

Primarily apply to audits of federal financial assistance and government organizations.

Question 48

M7 Government Audits What is the term used in GAGAS to describe a professional requirement to comply with a standard?

Answer 48

Presumptively mandatory requirement

Question 49

M7 Government Audits What is the level of responsibility of an auditor when performing an audit in accordance with GAGAS (Yellow Book)?

Answer 49

Accepts greater reporting responsibilities than accept under a GAAS audit because it reports on: 1. Compliance with law and regulations that may affect FS amounts and 2. Reports on internal control over financial reporting.

Question 50

M7 Government Audits What are the 3 types of engagements defined by GAGAS published by the Government Accountability?

Answer 50

1. Financial audit 2. Attest engagements and 3. Performance audits.

Question 51

M7 Government Audits What is the auditors objective in a compliance audit under GAGAS?

Answer 51

Form and opinion on whether the government complied in al material respects with applicable compliance.

Question 52

M7 Government Audits When an entity that receives federal funding can not prove adequate documentation to support xx amount of expenses how should the auditor report this?

Answer 52

These are considered questioning cost and will be reported on the schedule of findings and questioned cost for federal awards.

Question 53

M7 Government Audits What is the steps that need to be taken when an auditor identifies a potential fraud in GAGAS audit?

Answer 53

1. Extend the audit procedures as necessary to determine whether fraud has occurred and once detected fraud. 2. Communicate the fraud to the party that has oversight.

Question 54

M7 Government Audits In an audit of FS under GAGAS what is an auditor required to report on?

Answer 54

1. Scope on testing of internal controls. 2. Scope on compliance with laws and regulations

Question 55

M7 Government Audits What are the reporting requirements for a performance audit under GAGAS?

Answer 55

1. A statement that includes the audit objective and the description of the audit. 2. indications or instances of illegal acts. 3. The pertinent views of the entity's responsible officials concerning the auditors findings.

Question 56

M7 Government Audits What is the requirement of internal controls in a audit under government auditing standards?

Answer 56

A written report in internal control is required in every audit.

Question 57

M7 Government Audits In an audit of FS what is the main difference in reporting between GAAS and GAGAS?

Answer 57

In a report using GAGAS the auditors reports on: 1. Compliance with laws and regulation 2. Internal control over financial reporting and 3. Presents the result of the test of controls

Question 58

M7 Government Audits In a report under GAGAS how is the effectiveness of internal control reported

Answer 58

The auditor does not provide an opinion of the operating effectiveness of controls.

Question 59

M7 Government Audits What are the additional standards that GAGAS includes for financial statement audit?

Answer 59

1. Direct reporting of illegal acts 2. Reporting on internal controls

Question 60

M7 Government Audits When an auditor has determined a fraud and the audit committee does not take action of the fraud who should the auditor report the fraud to?

Answer 60

The auditor should report the fraud to the party that is hiring the auditor (counterparty to the contract).

Question 61

M7 Government Audits An auditor should obtain management representation acknowledging what?

Answer 61

That Management is responsible for understanding and complying with compliance requirements.

Question 62

M7 Government Audits How should significant deficiencies and material weakness on internal controls over internal financial reporting for a governmental entity be reported?

Answer 62

Significant deficiencies and material weakness both need to be reported.

Question 63

M8 Single Audits In regards to the auditor's responsibility a singe audit in accordance with 2 CFR 200 extend the auditors responsibility to include?

Answer 63

Reperformance of additional procedures to TEST and REPORT on compliance with laws and regulations that have a direct material effect on major federal award programs.

Question 64

M8 Single Audits What should an auditor obtain in an understanding of when performing a single audit for a federal assistance entity?

Answer 64

The auditor must obtain an understanding and document internal controls pertaining to compliance.

Question 65

M8 Single Audits How would an auditor determine what are major programs to be audited?

Answer 65

1. By applying a risk based approach to determined major grants or 2. Selecting programs that are over $1m would be consider major programs

Question 66

M8 Single Audits What is the purpose of the auditor in using a risk based approach?

Answer 66

1. To Focus the audit on high risk programs. Segregation of programs into Type A and Type B, provided basis for determining coverage. Type A (Large) are programs that are > than $750k Type B (Small) are programs that are < than $750k

Question 67

M8 Single Audits How is materiality determined in a single act audit?

Answer 67

Materiality is calculated separately for each major federal financial assistance program.

Question 68

M8 Single Audits What is the purpose of a single audit?

Answer 68

To express an opinion on: 1. Audit the entity's financial statements and 2) and report on compliance of of federal awards expended during the year.

Question 69

M8 Single Audits Under title 2 of the CFR single audit act how is a subrecipient defined?

Answer 69

A nonfederal entity that expends federal awards received from another entity to carry out a federal program (i.e a state provide federal funding to NFP (subrecipient) to accomplish an objective like providing shelter for the homeless).

Question 70

M8 Single Audits How should noncompliance be reported in a single audit?

Answer 70

The Auditor should express either a qualified or adverse opinion on compliance.

Question 71

M8 Single Audits How cognizant (Federal) agencies are assigned to an auditee?

Answer 71

Based on the most direct funding to the auditee.