AUD

Question 1

Unqualified vs Unmodified

Answer 1

Issuers vs Nonissuers

Question 2

Modified Audit Opinion

Answer 2

-unable to obtain sufficient audit evidence (audit issues)
-material misstated f/s (f/s issue) (but not pervasive)

Question 3

Audit Issues
Disclaimer, Qualified, or Unqualified

Answer 3

Disclaimer:
Qualified:
Unqualified:

Question 4

Qualified is…

Answer 4

“except for”

Question 5

Comparative F/S - Unmodified Predecessor’s Report - How does current auditor address?

Answer 5

In an other-matter paragraph indicate that the predecessor auditor expressed an unmodified opinion on the prior year’s F/S

Question 6

What should an auditor do when she becomes aware of an apparent material misstatement of fact in other information included in a document containing audited financial statements?

Answer 6

The auditor should discuss the matter with management.

Question 7

What are OCBOAs?

Answer 7

Other Comprehensive Basis of Accounting
I. Basis of accounting used by an entity to file its income tax return.
II. Cash receipts and disbursements basis of accounting.
III. A Basis prescribed by a regulatory agency
IV. Contractual basis

Question 8

If there is a scope limitation issue, what types of opinions may be given?

Answer 8

An auditor would issue either a qualified opinion or a disclaimer of opinion when there is a scope limitation (GAAS issue).

Question 9

Deviation Rate

Answer 9

Error Rate in the sample

Question 10

Tolerable Deviation Rate

Answer 10

Maximum rate of error the auditor can accept

Question 11

Expected Deviation Rate

Answer 11

The Auditor’s estimated error rate (before sampling)

Question 12

Upper Deviation Rate

Answer 12

high end of range for auditor’s estimate of error rate (based on results from testing the sample)

Question 13

Allowance for Sampling Risk

Answer 13

adjusts sample rate to get to upper deviation rate: Sample deviation rate + Allowance for sampling risk = Upper deviation rate

Question 14

Affect to sample size: Risk of Assessing Control Risk too Low

Answer 14

Inverse Relationship

Question 15

Affect to sample size: Tolerable Deviation Rate

Answer 15

Inverse Relationship

Question 16

Affect to sample size: Expected Deviation Rate

Answer 16

Direct Relationship

Question 17

Risk of incorrect rejection

Answer 17

The sample indicates that the balance is not fairly states when, in fact, it is fairly stated. (Efficiency - The auditor will do more work than is necessary.)

Question 18

Risk of assessing control risk too low

Answer 18

The sample indicates that the control is working when, in fact, it is not. (Effectiveness - The auditor will erroneously rely on the control)

Question 19

Risk of assessing control risk too high

Answer 19

The sample indicates that the control is not working when, in fact, it is. (Efficiency - The auditor will erroneously extend audit work.)

Question 20

When an auditor can rely on control:

Answer 20

Upper deviation rate < (or =) Tolerable deviation rate

Question 21

When an auditor cannot rely on control:

Answer 21

Upper deviation rate > Tolerable deviation rate

Question 22

Risk of incorrect acceptance

Answer 22

The sample indicates that the balance is fairly stated when, in fact, it is not. (Effectiveness)

Question 23

Give a summary of Variable Sampling

Answer 23

Tolerable Misstatement - max monetary misstatement in an account balance or class of transactions that the auditor is willing to accept
Expected Misstatement - the auditor’s estimate of misstatement (before sampling)
Projected Misstatement - the auditor’s estimated misstatement, based on the sample.

Question 24

Variable Sampling: Summarize which factors which increase/decrease sample size

Answer 24

Expected Misstatement - direct relationship
Population Variability (standard deviation) - direct relationship
Assessed Level of Risk - direct relationship
Tolerable Misstatement - inverse relationship
Acceptable Level of Risk - inverse relationship

Question 25

A risk assessment based on the effective operation of internal control increases allowable detection risk, which reduces...

Answer 25

...the required extent of substantive testing.

Question 26

Qualified or adverse opinion - financial issues:

Answer 26

Qualified: GAAP violation, low materiality Adverse: GAAP violation, substantial materiality

Question 27

Attribute Sampling calculation

Answer 27

Sample deviation rate + Allowance for sampling risk = Upper deviation rate

Question 28

Accounts receivable turnover

Answer 28

Sales (net) / Average accounts receivable (net)

Question 29

Days sales in accounts receivable

Answer 29

Ending accounts receivable (net) / Sales (net)/365

Question 30

Current Ratio

Answer 30

Current assets / current liabilities

Question 31

Gross margin

Answer 31

Sales (net) - COGS / Sales (net)

Question 32

Profit margin

Answer 32

Net income / Sales (net)

Question 33

Inventory Turnover

Answer 33

COGS / Average Inventory

Question 34

Inherent Risk

Answer 34

The susceptibility of an assertion to material misstatement assuming there are no related controls.

Question 35

Audit risk

Answer 35

The risk that the auditor may unknowingly fail to modify appropriately the opinion on financial statements that are materially misstated.