AUD (Misc. 5) Flashcards
(35 cards)
An auditor most likely would express an unmodified opinion and would not add emphasis-of-matter or other-matter paragraphs to the report if the auditor:
A. Wishes to emphasize that the entity had significant transactions with related parties.
B. Concurs with the entity’s change in its method of computing depreciation.
C. The auditor uncovers material misstatements that require a change in audit opinion.
D. Believes that there is a probable likelihood of a material loss resulting from an uncertainty that is sufficiently supported and disclosed.
D. Believes that there is a probable likelihood of a material loss resulting from an uncertainty that is sufficiently supported and disclosed.
Regarding B… changes in acct principle require an EOM paragraph
Which of the following is true regarding the audit report for an issuer?
A. PCAOB standards should not be mentioned at all, although their use is implied in the auditor’s report.
B. Reference may be made to either PCAOB standards or generally accepted auditing standards.
C. The report should include references to PCAOB standards and generally accepted accounting principles.
D. Reference should be made to both PCAOB standards and generally accepted auditing standards.
Choice “C” is correct.
An auditor reporting on the audit of financial statements of an issuer should indicate in the Basis for Opinion section that the engagement was conducted in accordance with PCAOB standards, and should refer to GAAP in the Opinion on the Financial Statements section.
When a CPA reports on audited financial statements prepared on the cash receipts and disbursements basis of accounting, the report should:
A. Explain why this basis of accounting is more useful for the readers of this entity’s financial statements than GAAP.
B. Include a separate emphasis-of-matter paragraph that discusses the justification for, and the CPA’s concurrence with, the departure from GAAP.
C. State that the basis of presentation is a comprehensive basis of accounting (OCBOA) other than GAAP.
D. Refer to the note in the financial statements that describes management’s responsibility for the financial statements.
Choice “C” is correct. A report on other comprehensive basis of accounting (“OCBOA”) financial statements should include an emphasis-of-matter paragraph stating the basis, referring to the footnote that describes it, and indicating that it is a non-GAAP basis.
In which of the following sections of an auditor’s report for a nonissuer does an auditor communicate the nature of the engagement and the specific financial statements covered by the audit?
A. Opinion
B. Scope
C. Emphasis-of-matter
D. Basis for Opinion
Choice “A” is correct. The auditor’s Opinion section indicates the nature of the engagement (i.e., audit), the financial statements covered in the (audit) engagement, the name of the entity whose financial statements have been audited, and the dates covered by each financial statement.
Subsequently discovered facts that lead to a change in an audit opinion may be presented in:
Emphasis-of-Matter Paragraph and/or Other-Matter Paragraph
Both!
An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns for:
Reconciliations and tickmarks.
Which of the following internal control procedures would prevent an employee from being paid an inappropriate hourly wage?
A. Having the supervisor of the data entry clerk verify that each employee’s hours worked are correctly entered into the system.
B. Giving payroll data entry clerks the ability to change any suspicious hourly pay rates to a reasonable rate.
C. Limiting access to employee master files to authorized employees in the personnel department.
D. Using real-time posting of payroll so there can be no after-the-fact data manipulation of the payroll register.
C. Limiting access to employee master files to authorized employees in the personnel department.
Which of the following types of documentation are typically provided by the predecessor auditor for review?
I. Results of the audit procedures
II. Prior period engagement letter
III. Risk assessment procedures
IV. Client’s significant accounting policies
A. I and III
B. I, III, and IV
C. I, II, and III
D. II and IV
Choice “A” is correct.
Typically, the predecessor auditor will allow a review of audit documentation related to planning, risk assessment, audit procedures, audit results, and matters of continuing audit significance.
As part of the information and communication component of the Integrated Framework, a company must:
A. Ensure that external auditors are aware of significant internal control issues.
B. Identify and assess the effect of entity changes on internal controls.
C. Deploy policies and procedures in a timely manner.
D. Communicate internal control deficiencies to responsible parties who have the ability to correct them.
Choice “A” is correct. Communication with external auditors is a significant part of the information and communication component of the Integrated Framework.
Which of the following methods may the Federal Reserve use to reduce inflationary pressures?
A Decrease reserve requirements
B Increase margin requirements
C Increase the money supply
D Decrease the target interest rate
B.
Inflation is an increase in the general level of prices.
An increase in the money supply tends to increase inflation.
Increasing margin requirements means investors must keep more money in reserve, decreasing the money supply.
An auditor examining inventory most likely would use variables sampling rather than attributes sampling to
A Identify whether inventory items are properly priced
B Estimate whether the dollar amount of inventory is reasonable
C Discover whether misstatements exist in inventory records
D Determine whether discounts for inventory are properly recorded
B Estimate whether the dollar amount of inventory is reasonable
___ are used to verify the number of transactions processed and ensure that all transactions that should have been recorded have been included in the accounting system.
Record Counts
Which of the following procedures most likely would provide an auditor with evidence about whether an entity’s internal control activities are suitably designed to prevent or detect material misstatements?
A Reperforming the activities for a sample of transactions
B Performing analytical procedures using data aggregated at a high level
C Vouching a sample of transactions directly related to the activities
D Observing the entity’s personnel applying the activities
D Observing the entity’s personnel applying the activities
because we can see how they are designed by how the personnel apply them.
Which of the following computer-assisted auditing techniques processes client input data on a controlled program under the auditor’s control to test controls in the computer system?
A Test data
B Review of program logic
C Integrated test facility
D Parallel simulation
Parallel Simulation
Test data is fictitious data run through the client’s programs under the auditor’s control; the purpose is to test controls in the computer system. A review of program logic does not test any data. Integrated test facilities are programs run with the client’s programs. Parallel simulation processes actual client data through an auditor-controlled program.
Which of the following is the earliest determination to be made by an auditor for a group audit performed in accordance with US GAAS?
A The materiality for the group financial statements as a whole
B Whether to act as the auditor of the group financial statements
C Which components are significant components
D Whether to reference a component auditor in the audit report on the group financial statements
B. whether to act as the auditor of the group financial statements
After obtaining an understanding of the entity and its environment, including its system of internal control, an auditor decided to perform tests of controls. This is likely because:
A. An increase in the assessed level of control risk is justified for certain financial statement assertions.
B. Evidence to support a reduction in control risk is not available.
C. There were many internal control weaknesses that could allow errors to enter the accounting system.
D. The auditor’s risk assessment is based on the effective operation of controls.
D. The auditor’s risk assessment is based on the effective operation of controls.
An auditor becomes aware that a client has been threatened with litigation. The auditor would likely send an audit inquiry letter to the client’s attorney regarding all of the following, except:
A. An estimate of the potential loss that may be incurred due to the litigation.
B. How likely it is that there will be an unfavorable outcome to the litigation.
C. Management’s intended response and the progress of the case to date.
D. The appropriateness of management’s financial statement disclosure.
D. The appropriateness of management’s financial statement disclosure.
Which of the following situations represents a limitation, rather than a failure, of internal control?
A. A bank teller embezzles several hundred dollars from the cash drawer.
B. A purchasing employee and an outside vendor participate in a kickback scheme.
C. A movie theater cashier sells reduced-price tickets to full-paying customers and pockets the difference.
D. A jewelry store employee steals a small necklace from a display cabinet.
Choice “B” is correct. Even a well-designed internal control system has its limitations. One example of a limitation of internal control includes deliberate circumvention of controls by collusion of two or more people, such as when a purchasing employee and an outside vendor participate in a kickback scheme. Other limitations of controls include human error and management override of control.
An auditor’s tests of controls for completeness for the revenue cycle usually include determining whether:
A. Each receivable is collected subsequent to the year end.
B. Each credit memo is properly approved.
C. Each invoice is supported by a customer purchase order.
D. An invoice is prepared for each shipping document.
D. An invoice is prepared for each shipping document.
An auditor is planning the test of details for a client’s debt transactions. In order to test the existence and occurrence assertion, the auditor would most likely perform which of the following tests?
A. Review the board minutes to obtain evidence of new agreements and then follow up by inspecting the new agreements.
B. Review the interest expense account for possible payments to debt holders not included in the debt listing.
C. Select a sample of debt payments and compare the interest expense to the reported debt balance for reasonableness.
D. Examine the client’s bonds’ maturity dates to determine whether the debt should be reflected as short-term or long-term liability.
Choice “A” is correct. By reviewing the board minutes to obtain evidence of new agreements and then inspecting these documents, the auditor is testing the existence and occurrence assertion as well as the completion assertion.
Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments?
A. Treasurer.
B. Billing.
C. Accounts Receivable.
D. Sales Order.
Choice “A” is correct. The treasurer has no billing responsibility, resulting in a better segregation of duties.
Choice “B” is incorrect. The billing department has recordkeeping responsibility, so they should not also be allowed to authorize transactions.
Choice “C” is incorrect. The accounts receivable department has recordkeeping responsibility, so they should not also be allowed to authorize transactions.
Which of the following internal controls most likely would assure that all billed sales are correctly posted to the accounts receivable ledger?
A. Each sales invoice is supported by a prenumbered shipping document.
B. Each shipment on credit is supported by a prenumbered sales invoice.
C. The accounts receivable ledger is reconciled daily to the control account in the general ledger.
D. Daily sales summaries are compared to daily postings to the accounts receivable ledger.
D.
Comparison of daily sales summaries to daily postings to the accounts receivable ledger would ensure the completeness of the accounts receivable ledger.
The objective of auditing procedures applied to segment information is to provide the auditor with a reasonable basis for concluding whether:
A. The information is presented in conformity with the GAAP rules on segment information.
B. The information is useful for comparing a segment of one enterprise with a similar segment of another enterprise.
C. Sufficient audit evidence has been obtained to allow the auditor to be associated with the segment information.
D. A separate opinion on the segment information is necessary due to inconsistent application of accounting principles.
A. The information is presented in conformity with the GAAP rules on segment information.
An auditor tests an entity’s control of obtaining credit approval before shipping goods to customers in support of management’s financial statement assertion of:
A. Valuation and allocation.
B. Completeness.
C. Existence.
D. Rights and obligations.
A. Valuation and allocation.
