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Flashcards in Adaptive Drill 4 Deck (79):

In assessing control risk, an auditor ordinarily selects from a variety of techniques, including...

Reperformance and observation


When unaudited financial statements are presented in comparative form with audited financial statements in the subsequent year, the unaudited financial statements should be clearly marked to indicate their status and either...

1 the report on unaudited financial statements should be reissued
2 report on audited financial statements should include a separate paragraph describing the responsibility assumed for the unaudited FS


In assessing control risk, the auditor may perform tests directed toward the...

Effectiveness of the design or operation of an internal control
Structure policy or procedure


In assessing control risk, the auditor may perform tests of controls directed toward the effectiveness of the design or operation of an internal control structure policy or procedure. These tests include...4

1 inquiries
2 inspection of documents and reports
3 observation
4 reperformance of application of policy or procedure by the auditor


When third party use of prospective financial statements is expected, an accountant may not accept an engagement to...

Perform a review


Statements on Standards for Accountant's Reports on Prospective Financial Information do not permit...

The CPA performing reviews of such information


An auditor suspects that a client's cashier is misappropriating cash receipts for personal use by lapping customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditor would most likely compare the...

Dates checks are deposited per bank statements with the dates remittance credits are recorded


Lapping can occur when cash/check that is received from a customer is...

Misappropriated and subsequent cash receipt is credited to that customer's account


If the auditor suspects lapping of cash receipts, the auditor should compare the...

Dates checks are listed on bank statements to the dates customer credits are recorded in customer accounts receivable accounts


Checking Dates checks are listed on bank statements to the dates customer credits are recorded in customer accounts receivable accounts would help find...

Credits given to customers on dates that differ from the date the deposit was made


Blue, CPA, had been asked to render an opinion on the application of accounting principles to a specific transaction by an entity that is audited by another CPA. Blue may accept this engagement, but should...

Consult with the continuing CPA to obtain information relevant to
The transaction


The third standard of fieldwork states that sufficient competent evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit. The substantive evidential matter required by this standard may be obtained in part, through...

Analytical procedures


Substantive audit procedures include...2

1 test of balances and

2 analytical procedures


The 2 objectives of analytical procedures is to...

1 gather evidence concerning the completeness of items included
In financial statements

2 indicate unusual fluctuations in account balances that may require
More detailed substantive audit procedures


After assessing control risk below the maximum level, an auditor desires to seek a further reduction in the assessed level of control risk. At this time, the auditor would consider whether...

Additional audit evidence sufficient to support a further reduction
Is likely to be available


Which of the following would be a consideration in planning a sample for a test of subsequent cash receipts?

Preliminary judgments about materiality levels


When planning a particularly sample for a substantive test of details, the auditor should consider the...

Preliminary estimates of materiality levels


If an accountant is engaged to submit unaudited financial statements that are reasonably expected to be used by a third party...

A compilation report must be issued


The only time a compilation report is not required is when...

Financial statements are not expected to be used by a third party


There is no prohibition that an entity's financial statements can't be prepared on an OCBOA or omit substantially all disclosures when...

Used by a third party


The average check written by ABC Company for inventory purchases is over $5,000. Therefore the management of ABC Company has decided to require two signatures on their checks for inventory purchases only if the check is in excess of $10,000. This is an example of a reasonable limitation on internal control based on...

Cost-benefit considerations in implementing controls


The cost of two reviewers and signers for checks in payment of inventory purchases under $10,000 is probably...

Significantly greater than internal control benefit


Which of the following statements best describes an auditor's responsibility to detect errors and fraud.

An auditor should plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.


The auditor should...

Always be alert to possible existence of material error or fraud


The failure of analytical procedures or tests of transactions to identify conditions which would cause a reasonably prudent auditor to suspect that financial statements are materially misstated...

Nullify that responsibility


In parallel simulation, actual client data is reprocessed using an auditor software program. An advantage of using parallel simulation, instead of performing tests of controls without a computer is that...

The size of the sample can be greatly expanded at relatively little additional cost


Auditing with the computer uses...

A computer program to access client data and perform audit tests


Parallel simulation is considered...

Auditing with the computer


In parallel simulation the audit software processes actual client data to...2

1 obtain audit information

2 duplicate client programs to test client program controls


The audit software processes actual client data to obtain audit information. What are 3 examples of audit information processing audit info!

1 select samples

2 foot files

3 perform computations


The parallel simulation, audit program is...3

1 flexible
2 efficient and
3 large sample size can be chosen if needed


When an auditor uses parallel simulation the client's computer personnel are...

Aware that data is being tested


After identifying related party transactions, an auditor most likely would...

Determine whether transactions were approved by those charged
With governance


Who determines the manner, form, and extent with which to document risk identified and related controls evaluated?

Who does not?2

The auditor (not management or those charged with governance)


The manner in which items related to risks identified and controls are documented is for the auditor to determine using...

Professional judgement


The form and extent with which to document risks identified and related controls evaluated depends on...5

1 nature, size, complexity of entity
2 entity's environment
3 entity's controls
4 availability of info from entity
5 specific audit methodology and technology used


When using classical variables sampling for estimation, an auditor normally evaluates the sampling results by calculating the possible error in either direction. This statistical concept is known as...



In statistical sampling the precision is...

The allowance for sampling risk or sampling error


Precision is usually measured using...2

A table or software


Precision cannot be measured in...

Nonstatistical sampling


Precision is based on...2

Sample size and sample results


Precision is based on sample size and sample results at the...

Auditor's specified risk of assessing control risks too low


"The hypothetical assumptions used in the projection are reasonable in the circumstances." This statement should...

Not be included in accountant's standard report on a
compilation of a projection


"The hypothetical assumptions used in the projection are reasonable in the circumstances." What would this statement imply?

Some type of assurance on the assumptions


A compilation report of a projection should:

Identify the...

Prospective financial statements


A compilation report of a projection should:

State that the compilation was performed in accordance with...

Attestation standards established by the AICPA


A compilation report of a projection should:

State that the compilation is...2

1 limited in scope and

2 CPA doesn't issue an opinion or any assurance on the FS


A compilation report of a projection should:

Contain the statement that forecasted results...

May not be achieved


A compilation report of a projection should:

Explain that the CPA assumes...

No responsibility to update the report


A compilation report of a projection should:

Be dated and signed by...

The practitioner's firm


New hire training material does...

Not meet the definition of reports prepared by management


Under PCAOB standards, audit documentation should be retained no fewer than how long following the report release date?

7 years


A CPA's report expressing an opinion on management's description of service organization's system and suitability of design of controls should contain...

A description of the scope and nature of the CPA's procedures


The entity's accounting policies and procedures is not included in...

Knowledge of the client's industry, regulatory and other factors


The auditor's understanding of the entity and its environment consists of an understanding of:


Regulatory and other factors


The auditor's understanding of the entity and its environment consists of an understanding of:

Nature of...

The entity


The auditor's understanding of the entity and its environment consists of an understanding of:

Objectives and strategies and the related...

Business risks that may result in material misstatement of FS


The auditor's understanding of the entity and its environment consists of an understanding of:

Measurement and review of...

Entity's financial performance


The auditor's understanding of the entity and its environment consists of an understanding of:

Internal control, which includes the...

Selection and application of accounting policies


SOX requires that the financial statements reflect...3

1 all material correcting adjustments
2 material off balance sheet transactions
3 arrangements, obligations and other relationships


SOX requires pro forma information does not include...

Untrue statements or omissions of material facts


When an auditor tests the internal controls of a computerized accounting system, test data is processed with the client's computer and the results are compared with...

The auditor's predetermined results


Test data approach (AKA test deck approach) is a way to...

Audit through the computer


Test data is introduced into the client's computer system using the...

Same program to operate the application being tested


The output of test data is compared to...

The auditor's predetermined results


When communicating to those charged with governance, the objectives of an auditor do not include...

To provide pay rate and audit estimations to those charged with governance


While timing is important, providing pay rate and estimation information is part of...

Establishing understanding of client through engagement letter or
Other written communications


What is an activity that the AICPA allows auditors to perform, but the SEC prohibits?

Preparing financial statements


Preparing source documents and recording transactions are both...

Prohibited by the SEC and AICPA


Which of the following controls would a company most likely use to safeguard marketable securities when an independent trust agent is not employed?

2 company officials have joint control of marketable securities,
which are kept in a bank safe deposit box


Strong internal controls over investment securities dictate that...

The board of directors should be authorizing the purchases and


If the chairman of the board is involved in investment decisions, he should...

Not have physical access to securities in the safe deposit box


The internal auditor should perform surprise reconciliations of the actual securities with...

The ledgers


The physical custody of the securities should be safeguarded by a bank safe deposit box requiring...

2 officers present when opened


Obtain knowledge of the client's industry is required of an accountant in...

Reviewing a company's financial statements under SSARS


While it is recommended, an accountant is not required to obtain a...

Signed engagement letter for reviewing FS under SSARS


For a review, obtaining the knowledge of a client's industry, accounting principles and practices is used to help...

Determine nature, timing and extent of review procedures to be performed


There is no requirements for an auditor performing an audit under the provisions of OMB Circular No. A-133 to...2

1 Correspond with individuals or entities that have received/used
Federal award funds

2 and determine appropriateness of such distributions


Segregation of function responsibilities is...

2) What is it not?

A basic concept of internal control

Not a primary objective of internal control