A3

Question 1

Client acceptance

Answer 1

Ability to meet deadlines
Ability to staff the engagement
Independence
Integrity of client management
Group audits

Question 2

Preconditions for an audit

Answer 2

Applicable financial reporting framework

Management responsibilities

Question 3

Initial audit

Answer 3

Communication with predecessor

Opening balance

Question 4

During the planning

Answer 4

Obtain knowledge of the client
Develop audit strategy
Develop audit plan

Question 5

Factors that determine focus of the audit

Answer 5

Materiality
Audit risk
Internal control

Question 6

Substantative procedures

Answer 6

Test of details

Substantive analytical procedures

Question 7

Assertions

Answer 7

Completeness (no understatement)
OcutOff (period)
Valuation
Existence
Rights and obligation
Understandability

Question 8

Transaction assertion

Answer 8

Completeness, cutoff, valuation, existence and understandability

Question 9

Balance assertion

Answer 9

Completeness, valuation, rights and obligations, existence

Question 10

Presentation assertion

Answer 10

Completeness, understandability, rights and obligations, valuation

Question 11

Internal auditor

Answer 11

May perform specific tasks under supervision and review

Competence should be proven

Question 12

Audit risk

Answer 12

Risk that auditor may fail to appropriately modify the opinion

Question 13

Audit risk model

Answer 13

AR=RMM x DR

RMM=IR x CR

Question 14

Fraud risk factors

Answer 14

Incentives
Opportunity
Rationalization

Question 15

Fraud audit procedures

Answer 15

Discuss with personnel (brainstorm)
Obtain information (inquiry)
Assess fraud risk (improper revenue, mgmt override)
Evaluate audit evidence
Make communications (above 1 level)
Document consideration

Question 16

Fraud disclosure outside

Answer 16

Form 8K
Successor auditor
Subpoena

Question 17

Audit steps

Answer 17

Understanding of entity (including IC)
Assess RMM
Respond to risk by design of procedures
Test of IC
Perform procedures
Evaluate sufficiency

Question 18

Understanding of entity

Answer 18

Inquiry
Analytical procedures
Observation and inspection
Discussion

Question 19

Significant risk

Answer 19

Risk of fraud
Recession
Related parties
Improper revenue
Complex transactions
Estimates
Non-compliance

Question 20

Components of internal control

Answer 20

Control environment
Risk assessment
Information and communication
Monitoring
Existing control activities

Question 21

Control activities

Answer 21

Prenumbering of documents
Authorization of transactions
Independent check to maintain asset accountability
Documentation
Timely and appropriate performance review
Information processing controls
Physical control
Segregation of duties

Question 22

Segregation of duties

Answer 22

Authorization
Record keeping
Custody of related assets

Question 23

Walkthrough

Answer 23

=tracing
Inquiry
Other procedures (observe, inspect)

Question 24

Documentation of IC by auditor

Answer 24

Flowchart (system/program)
Internal control questionnaire (y/n)
Narrative (written)
Documentation from the client re procedures (manuals)

Question 25

Manual and automated

Answer 25

Manual for large, unusual, changes Used to monitor automated Automated for high volume

Question 26

Limitation of IC

Answer 26

Management override Human error Collusion

Question 27

Service reports on IC

Answer 27

Type 1 report: obtain understanding | Type 2 report: assurance

Question 28

Response risk assessed

Answer 28

Communicate a need for professional skepticism Assign more experienced staff Increase supervision Pervasive changes to NET such as no year-end

Question 29

NET

Answer 29

Nature Purpose (test of control vs substantative procedure) Type (inspection, observation) Extent Number of observation and sample size Timing Interim vs year-end

Question 30

Audit approach

Answer 30

Substantative approach (required) Test of control (optional) Combined approach

Question 31

Test of controls performed when

Answer 31

Assumption that controls are operating effectively | Substantative procedures alone insufficient (extensive use of it)

Question 32

Substantive procedure types

Answer 32

Test of details (valuation, existence) | Substantive analytical procedures (large volume)

Question 33

Documentation requirements

Answer 33

``` Response addressing risk NET of further procedures Linkage of procedures and assertions Results of procedures Conclusion regarding use of prior period test of controls ```