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AUD > AUD 3 > Flashcards

AUD 3 Flashcards

1
Q

Insufficient control consciousness

A

Is an example of a deficiency in the design of controls.

It is not evidence of failure in the operation of internal control.

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2
Q

An auditor would be most likely concerned with internal controls that provide reasonable assurance about

A

The entity’s ability to process and summarize financial data

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3
Q

Adverse opinion is least likely to be rendered when

A

An auditor is unable to complete a procedure. Since an adverse opinion is given when there is a departure from GAAP

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4
Q

Limitation on scope of audit sufficient to preclude an unmodified opinion includes when

A

Management is unable to obtain audited financial statements supporting the entity’s investment in a foreign subsidiary

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5
Q

Purpose of management rep letter

A

To confirm management’s oral evidence supplied during the engagement. Specific written representations obtained by the auditor might include acknowledging that all compensated balances or other restrictions on cash have been disclosed.

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6
Q

What assertion is in reviewing the renewal of a note payable shortly after the balance sheet date?

A

Understandability of presentation and classification. Classification meaning the note is either current or non current.

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7
Q

Occurrence assertion relates to

A

Whether recorded transactions have actually occurred during the given period.

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8
Q

Completeness assertion relates to

A

Whether all transactions occurring in the period have been recorded.

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9
Q

Valuation and accuracy assertion relates to

A

Fair disclosure of financial and other information at appropriate amounts

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10
Q

What is not an audit procedure that the auditor would perform concerning legal matters ?

A

Confirm directly with the lawyers if all claims etc have been disclosed in the financial statements

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11
Q

Inventory turnover increased
Sales and inventory amount unchanged
What happened?

A

Gross profit percentage decreased

Inventory turnover ratio =
Cost of goods sold / average inventory

COGS must increase or average inventory must decrease. Here, COGS increased. Sales didn’t change so gross profit decreased.

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12
Q

Reasonableness test is when

A

Data in two or more fields are checked for consistency

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13
Q

In regards to audits of employee benefit plans, Independence is impaired when

A

The auditor is also the investment advisor to the employee benefit plan

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14
Q

The auditor should not inquire prior year engagement personnel regarding their assessment of management’s honesty and integrity because this impairs

A

Professional skepticism

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15
Q

Most authoritative guidance for audit of issuer?

A

General guidelines by PCAOB Auditing Standards

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16
Q

What is the effect of increase in risk of material misstatement on detection risk and the extent of substantive procedures?

A

The acceptable level of detection risk decreases and the extent of substantive procedures increases.

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17
Q

PCAOB standards state that the relevance of audit evidence depends on

A

Timing do audit procedure
Whether the audit is designed to directly test and assertion
Whether the audit procedure is designed to test an understatement or understatement

Not the auditor’s risk assessment

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18
Q

When reporting on the same basis used for income tax purposes the auditor should include

A

A report paragraph that states

The income tax basis of accounting is a basis other than GAAP

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19
Q

Significant deficiency compared to a material weakness is

A

Less severe than material weakness

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20
Q

Auditor would ask the attorney about their client who was threatened with litigation, about what:

A

How likely it is that there will be unfavorable outcome to the litigation

An estimate of the potential loss

Management’s intended response

*Not the appropriateness of management’s financial statement disclosure

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21
Q

When compiling a financial statements

(This means when doing a complication)…

A

An accountant would be least likely to perform analytical procedures

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22
Q

Internal auditor may provide direct assistance for what?

A

Test of controls and substantive testing

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23
Q

What should a practitioner include in an agreed upon procedures report?

A

All findings from application of the agreed-upon procedures

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24
Q

Stratified sampling is used when

A

There is a lot of variation among the population. Stratification separates the population into relatively homogeneous groups and results in a lower sample size and therefore increases efficiency

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25
Q

In reviewing subsequent events the auditor would look at

A

Inquiring the client’s legal counsel concerning litigation

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26
Q

Preparation of financial statements is a non attest service. This includes

A

Not required to make a determination on whether the cpa is independent or not

Preparation doesn’t require a report but rather a statement that states “no assurance was provided”

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27
Q

Testing inventory and account balance is what assertion?

A

Completeness

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28
Q

When material weakness exists in internal control what type of opinion is issued?

A

Adverse

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29
Q

When testing subsequent events, compare the FS being audited with what?

A

Interm financial statements

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30
Q

Overall audit strategy includes what things to consider?

A

Prelim materiality
Audit risk
Internal control

31
Q

Most reliable type of data?

A

Independent outside data

32
Q

How to assess objectivity of internal auditor?

A

Determine the org level to which they report

33
Q

Management is not required to do what?

A

Provide written assessment about the effectiveness of the entity’s internal controls that is dated as of the date of the issuance of the assessment

34
Q

True or false; Computer processing virtually eliminates the occurrence of computational error normally associated with manual processing.

A

True

35
Q

What’s an example of using computer data? When would it be used?

A

Ex: to test all data in AP file

36
Q

Disclaimer of opinion is inappropriate for what?

A

Ex: management does not provide reasonable justification for a change in accounting principles

37
Q

Management needs to include a written statement saying whether they believe effects of uncorrected misstatements are…

A

Immaterial, individually and in the aggregate to the FS as a whole

38
Q

Auditor would least likely examine AJE booked to what account ?

A

AJE to record recurring periodic accounting estimates when addressing the risk of mgmt overuse of controls

39
Q

Embezzlement could happen when?

A

When blank checks and signature plates are restricted to the cash disbursement bookkeeper who personally reconciled the account.

40
Q

Auditor should design the audit to provide…

A

Reasonable assurance of detecting errors and fraud that are material to the FS

41
Q

In order to consider the service auditors report is satisfactory the auditor should inquire ..

A

Of the service auditors competence

42
Q

To gain assurance all inventory items in the inventory listing are valid…

A

Trace/vouch items listed in the inventory listing to inventory tags and auditors recorded count sheets

43
Q

Analytical procedures enhance auditor’s understanding of

A

The clients business

44
Q

Count the inventory on the ..

A

Last day of the year

45
Q

Material risk of noncompliance is inversely related to what?

A

Detection risk

46
Q

Material weakness is a control deficiency that the likelihood of misstatements is …

A

Likelihood is reasonable

Magnitude is material

47
Q

If it’s impractical to observe the client’s physical count of inventory…

A

Alternative procedures may be used

48
Q

When an accountant is preparing financial statements…

A

The accountant should verify the completeness of information provided by management for the FS

49
Q

When the group auditor decided not to refer to a component auditors who audited a subsidiary of the group auditors client, the group auditor most likely would ..

A

Determine the type of work to be performed by the group auditor on the financial information of the component.

50
Q

Determine repairs and maintenance and assertion for ..

A

PPE not charged to expense

51
Q

Compilation is limited to presenting

A

Info in the form of FS that is the representation of management

52
Q

Long term investments in stock need to have the shares owned confirmed by

A

Independent custodian

53
Q

Need to assess performance materiality for group audit and

A

Assess materiality for group as a whole.

54
Q

If taking responsibility for another firm’s audit work …

A

Review the other firm’s audit work papers and repertory a subset of audit testing to validate the firm’s conclusions

55
Q

Presence of material weakness means what type of report to be issued?

A

Adverse

56
Q

Include in management rep letter that

A

Management has the responsibility for the design of controls to detect fraud

57
Q

Inventory turnover assertion tested is

A

Valuation and allocation since some might be old and obsolete

58
Q

To reduce risk of errors in billing dept the auditor would not

A

Reconcile control total for sales invoices with AR sub ledger

59
Q

Remittance advices are considered what?

A

Customer payments

60
Q

SOC 1 report includes

A

Managements description of the service organizations system

61
Q

Someone who approves purchase orders would also do what?

A

Negotiations with vendors

62
Q

Who is responsible for contacting the old auditor

A

The successor auditor

63
Q

Audit test for attribute sampling

A

Inspecting purchase orders for proper approval by supervisors

64
Q

Management should address written representations about a firms annual audit to the

A

Auditor

65
Q

Identify contingent liability through

A

Standard bank confirm

66
Q

In a compilation or review an auditor should

A

Be able to justify departure from SSARS

67
Q

Proper authorization of write offs would be in what dept?

A

Treasurer

68
Q

An accountant’s standard on a compilation of a projection should not include a …

A

Statement that the accountant expresses only limited assurance that the results may be achieved

69
Q

PPE assertion so that lives are disclosed properly is what assertion

A

Completeness

70
Q

Comparing transactions to vouchers recorded is what assertion

A

Cut off

71
Q

When confirming AR balances rather than individual invoices it is most beneficial to include with the confirmations …

A

Client prepared statements of account that show the details of the account balances

72
Q

In determining whether all sales have been authorized an auditor should consider the tolerable rate of deviations from the control activity and the ..

A

Likely rate of deviations

73
Q

In guiding auditors what is not an ethical principal

A

Materiality

*integrity, public interest and proper use of government info is

74
Q

Weakness in control with investments includes

A

Holding securities on site instead of a third party custodian

AUD (3 decks)

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