AUD

Question 1

What is Kiting? How do you identify it?

Answer 1

Kiting is the process by which an entity attempts to use transfers between banks to inflate both balances. Identify using the receipt and disbursement dates per the bank. If the disbursement date is after year end, but the receipt date is prior, the balance is recorded in both and therefore kiting.

Question 2

Times Interest Earned

Answer 2

Earnings before Interest and Taxes / Interest Expense

Question 3

Internal Control Elements

Answer 3

CRIME - Control Environment, Risk Assessment, IT, Monitoring, and Control Activities

Question 4

Control Activities

Answer 4

SCARE - Segregation of Duties, Physical Controls, Authorization, Performance Review, EDP (IT)

Question 5

Emphasis of Matter

Answer 5

Comes after opinion, change in consistency of accounting procedure

Question 6

Other Matter

Answer 6

Restriction on Report Use

Question 7

Responsibility for Sig Deficiencies and Material Weakness

Answer 7

Report within 60 days of Report Release Date (Nonissuer)

Question 8

Assertions for Account Balances (B/S)

Answer 8

Completeness, Existence, Accuracy/Valuation, Rights and Obligations

Question 9

Assertions for Transactions (I/S)

Answer 9

Completeness, Existence, Accuracy/Valuation, Classification, Cutoff

Question 10

Assertions for Presentation and Disclosure (Notes)

Answer 10

Completeness, Accuracy/Valuation, Classification, Rights and Obligations

Question 11

Subsequent Events

Answer 11

Before B/S date, accrue. After B/S, disclose in notes, emphasis of matter (between B/S and Audit Report Date, NOT release date)

Question 12

Going Concern

Answer 12

Add emphasis of matter paragraph if adequately disclosed (substantial doubt to continue as going concern). If not appropriately disclosed, adverse opinion

Question 13

Referencing Component Auditor

Answer 13

Reference when not taking ownership of work, if taking ownership no reference

Question 14

Operating Margin Percentage

Answer 14

Operating Income / Sales

Question 15

Gross Margin Percentage

Answer 15

Gross Margin (Sales - COGS) / Sales

Question 16

Sequential Sampling - What is it and when is it used?

Answer 16

Type of attribute sampling, used when many errors are expected, each step is conditional on the previous step

Question 17

Upper Precision Limit

Answer 17

Allowance For Sampling Risk + Observed Error Rate

Question 18

Elements of Attribute Sampling - Sample Size

Answer 18

Risk of Assessing Control Risk too Low (coefficient of confidence rate), Tolerable Deviation Rate, Expected Deviation Rate -> population size does NOT effect the sample size

Question 19

Assessing Sample Results - Attribute Sampling

Answer 19

Population Deviation Rate + Sampling Risk = Upper Precision Limit -> compare this to tolerable deviation rate

Question 20

Purpose of Stratification in Population?

Answer 20

Decrease the effect of variance in the population, and therefore reduce sample size.

Question 21

Ratio Estimation - How to Calculate

Answer 21

Auditor Balance / Book Balance (in sample) = Factor x Book Balance = auditor value (in population)

Question 22

PPS Sampling - What is it and how do you evaluate results?

Answer 22

Type of variable sampling, each dollar represents a sampling unit, if observed error is less then sampling interval, then the projected misstatement is equal to observed error. If not then must apply tainting percentage, which is

Question 23

An auditor’s program to examine long-term debt most likely would include steps that require

Answer 23

Correlating interest expense recorded for the period with outstanding debt

Question 24

To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is

Answer 24

Stamped paid by the check signer

Question 25

Can separate reports be issued on separate financial statements?

Answer 25

Yes as long as they are separate reports (cannot be in conjunction with FS audit).

Question 26

Projected Misstatement

Answer 26

Projected Misstatement = Actual Misstatement * Population Size / Sample Size = 3,000 * 1000 / 50 = $60,000. For the account to be misstated, the projected misstatement should be more than the tolerable misstatement.

Question 27

Management Rep Letter should be up to?

Answer 27

The representations should be made as of the date of the auditor’s report.

Question 28

Communication of significant deficiencies and material weaknesses?

Answer 28

In writing, no later then 60 days from the audit report release date.

Question 29

Forecast

Answer 29

Based on normal circumstances, general or limited use, disclaimer that the results may not be achieved

Question 30

Agreed Upon Procedures

Answer 30

Independence, limited use,

Question 31

Projection

Answer 31

Limited use, disclaimer on limitation of scope/usefulness

Question 32

According to US GAAS, when the auditor of the group financial statements is assuming responsibility for the work of component auditors, for components that are not significant components, the group engagement team should perform

Answer 32

Analytical procedures at the group level

Question 33

According to US GAAS, in a group audit, both component materiality and component performance materiality should be ____________ the materiality and performance materiality for the group financial statements as a whole.

Answer 33

Lower than

Question 34

When there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time, according to US GAAS, the auditor should

Answer 34

Obtain written representations from management about management’s related plans

Question 35

When financial statements are materially affected by a departure from GAAP, the auditor should express

Answer 35

a qualified or an adverse opinion.

Question 36

If an auditor has issued an adverse opinion on a complete set of financial statements, the auditor is precluded from expressing which of the following in an audit report on a single financial statement of the nonissuer entity?

Answer 36

An unmodified opinion.

Question 37

Critical audit matters are:

Answer 37

Specific to each entity

Question 38

How often should PCAOB inspect audits?

Answer 38

Every year for firms with more then 100 reports | Every 3 for firms that provide up to 100 reports

Question 39

Disclaimer of opinion

Answer 39

Material and pervasive scope limitation

Question 40

Qualified opinion

Answer 40

Misstatements, scope limitation or departure from GAAP that is material but not pervasive

Question 41

Adverse opinion

Answer 41

Departure from GAAP that is material and pervasive

Question 42

Auditor responsibility for RSI

Answer 42

Obtain representations from management, and compare RSI to Financials for consistency

Question 43

Is an accountant required to obtain an understanding of internal control for a review?

Answer 43

No

Question 44

An agreed upon procedures report should include what?

Answer 44

A disclaimer of responsibility for the sufficiency of the procedures

Question 45

Management representations should be obtained on

Answer 45

Uncorrected misstatements, absence of unrecorded transactions, and instances of immaterial fraud involving employees who have sig role in internal control

Question 46

What framework is used for internal control audits?

Answer 46

Committee of Sponsoring Organizations of the Treadway Commission (COSO)

Question 47

PPS sampling

Answer 47

Recorded Amount - Book Amount / Recorded Amount = tainting percentage Apply this to the sampling interval If the recorded balance selected is larger then the sample interval, the error becomes the projected error

Question 48

An Accountants compilation report on a financial forecast should include a statement that

Answer 48

There will usually be differences between the forecasted and actual results

Question 49

Similarity between GAAS and Attestation Standards?

Answer 49

Both require independence

Question 50

Accepting an engagement to compile a financial projection for a publicly held company most likely would be inappropriate if the

Answer 50

projection were to be distributed to all stockholders of record as of the report date (general use). Only a financial forecast is suitable for general use.

Question 51

Which of the following is least likely to discover noncompliance?

Answer 51

Reviewing an internal control questionnaire provides information about control policies and procedures, but does not provide information about actual transactions or events that have occurred. Therefore, it is not likely to uncover any acts of noncompliance with laws and regulations.

Question 52

An accountant performing a compilation is required to

Answer 52

have a general understanding of the client’s business. Does not need rep letter

Question 53

Control activities (not the information and communication system)

Answer 53

are the policies and procedures that help ensure that management directives are carried out.

Question 54

When an independent accountant's report based on a review of interim financial information is presented in a registration statement, the prospectus

Answer 54

should include a statement clarifying that the accountant's review report is not a "part" of the registration statement within the meaning of the Securities Act of 1933.

Question 55

An accountant asked to review financial statements on a comprehensive basis of accounting other than generally accepted accounting principles should

Answer 55

modify the review report to reflect the fact that the financial statements were presented on another comprehensive basis of accounting.

Question 56

An auditor's engagement letter most likely would include

Answer 56

managements acknowledgement of its responsibility for internal control

Question 57

Preparation engagements should be performed in accordance with

Answer 57

SSARS

Question 58

The engagement quality reviewer is required to identify the documentation reviewed (i.e., fraud workpapers), but is not

Answer 58

required to include an assessment of workpapers reviewed. The other answer choices are the three requirements specifically stated in PCAOB standards to be documented by the engagement quality reviewer.

Question 59

A disadvantage of microcomputer data files versus manually prepared files is

Answer 59

it is usually easier for unauthorized persons to access and alter the files.

Question 60

A centralized accounting function is indicative of

Answer 60

less complex operations

Question 61

Where do BOD minutes and Financial Statements go?

Answer 61

``` FS = current file Minutes = permanent file ```

Question 62

Quick ratio

Answer 62

Current assets (minus inventory) / current liabilities