AUD-Professional Standards

Question 1

Gross Margin%=
Current ratio=
Inventory turnover=
Return on Equity=

Answer 1

Gross Margin%= Sales - cogs/sales
Current ratio= current asset/current liability
Inventory turnover= cogp/average inventory
Return on Equity= net income/shareholders’ equity

Question 2

Definition of GASS?

Answer 2

Before it was the 10 specific criteria, now it is replaced by the 7 principles as the Statements on Auditing Standards issued by the Auditing Standards Board.

Question 3

What is “likely misstatement”

Answer 3

A known misstatement of management

Question 4

Procedures performed to evaluate control risk:

Answer 4

Inquiry, inspection, reperformance, and observation.

Question 5

Procedures used for substantive testing:

Answer 5

Analysis, confirmation and comparison

Question 6

Control activities include?

Answer 6

Physical controls
Information processing 
Authorization
Review of performance
Segregation of duties

Question 7

The control environment includes?

Answer 7

The control environment includes integrity and ethical values, commitment to competence, board of directors or audit committee participation, management’s philosophy an operating style, organizational structure, assignment of authority and responsibility, and human resource policies and practices.

Question 8

The auditor may use internal auditors to provide direct assistant in performing?

Answer 8

1. Substantive tests, including analytical procedures and/or tests of details
2. Tests of controls

Question 9

Def of sampling risk

Answer 9

Sampling risk arises from possibility that, when a substantive test is restricted to a sample, conclusions might be different that if the auditor had tested each item in the population.

Question 10

Statically Sampling allows an auditor to:

Answer 10

1. Design an efficient sample
2. Measure the sufficiency of the evidential matter obtained ; and
3. Evaluate the sample results

Question 11

Integrated Test Facility:

Answer 11

Uses auditor data and the client’s program.

Question 12

Parallel Simulation:

Answer 12

Parallel Simulation is a computer-assisted Auditing technique in which an auditor-written or auditor-controlled program is used to process client data.

Question 13

Hash total:

Answer 13

A hash total is a MEANINGLESS total computed to verify the accuracy and completeness of input.

Assigned department number, when totaled, would provide an example of a hash total.

Question 14

How transactions of a Batch system are processed?

Answer 14

In a Batch system, transactions are grouped together in batches and then process. So there can be time delayed.

Question 15

Test Data:

Integrated test facility:

Answer 15

Test Data:
Testing an entity’s controls by using the entity’s system (under the auditor’s supervision) to process a set of transactions containing known errors of interest to the auditor.

Integrated test facility:
creating fictitious component of an entity to process test data along with an entity’s acutual data

Question 16

Worm:

Answer 16

A computer program that replicates independently by sending itself to other systems.

Question 17

An alert to restrict the use of auditor’s report is required when:

Answer 17

1. The subject matter is based on criteria that are only suitable to a limited numbers of users.
2. When the matters are presented in a by-product report that is not the primary objective of the engagement.

Question 18

True or false:
A paragraph stating that the audit was conducted in accordance with OCBOA while preparing a F/S confirm with an other comprehensive basis of accounting.

Answer 18

False. An audit is never conducted In accordance with OCBOA now. The term OCBOA has been replaced with special purpose framework.

Question 19

Samples to test internal control structure procedures are intended to provide a basis for an auditor to conclude whether:

Answer 19

The control procedures are operating effectively.

Question 20

Can an auditor provide suggestions about or draft the F/S based on information from management’s accounting system? If yes, In what situation?

Answer 20

Yes, provided that the company is not SEC regulated.

SEC regulated companies must draft F/S themselves or use an alternative source to draft the F/S.

Question 21

“Other-matter” paragraph v.s. “Emphasis-of-matter” paragraph

Answer 21

“Other-matter” paragraph:
eg. For “Supplemental information”, no matter- required or not required, omitted or properly presented.

“Emphasis-of-matter” paragraph:
Eg. For “special purpose framework”. Reference the note to the F/S in “Emphasis-of-matter” paragraph

Question 22

An alert to restrict the use of the auditor’s report is required when?

Answer 22

1. The subject matter is based on criteria that are only suitable or available to a limited number of users.
2. When the matters are presented in a by-product report that is not the primary objective of the engagement.

Question 23

Independence violation issue:

A partner in a different office is violated under?

Answer 23

DOL(department of labor) Only.

IFRC, PCAOB, AICPA are all fine with it.

Question 24

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

Answer 24

Precision

Question 25

Documentation completion date-- differences btw AICPA and PCAOB?

Answer 25

AICPA- no later than 60 days after report released date PCAOB- no later than 45 days after report released date

Question 26

What opinion choices does an auditor have when engaged to report on whether a previously reported material weakness continues to exist under the Public Company Accounting Oversight Board's (PCAOB) Auditing Standard No. 4?

Answer 26

Unqualified or disclaimer ONLY. No Qualified Opinion.

Question 27

List the two categories of control deficiency.

Answer 27

Deficiencies in Design | Deficiencies in operation

Question 28

List the two types of engagements related to compliance attestation.

Answer 28

1. Examination 2. Agreed-Upon Procedures. 3. Note that a "review" is not permitted!

Question 29

The primary reason an auditor requests letters of inquiry be sent to a client's attorney is to provide the auditor with:

Answer 29

Corroboration of the information furnished by management about litigation, claims, and assessments.

Question 30

Which of the following is more important in determination of auditablility of an entity's F/S? The complexity of the accounting system or the adequacy of the accounting records? Why?

Answer 30

The adequacy of accounting records is more important. The complexity of accounting system would be more important for fee to be charged. But the adequacy of accounting records determine whether there is scope limitation.

Question 31

In reporting on an entity's internal control over financial reporting in an integrated audit of a nonissuer, an auditor should include a paragraph that describes the

Answer 31

Inherent limitations of internal control

Question 32

In reporting on an entity's internal control over financial reporting in an integrated audit of a nonissuer, an auditor should include a paragraph that describes the

Answer 32

Financial statement audits conducted in accordance with Government Auditing Standards include a report on the scope of the auditor's testing of internal controls. Specifically, the report indicates the scope of testing of compliance with laws and regulations and of internal controls.

Question 33

AICPA standards addressing "Communications Between Predecessor and Successor Auditors" state that an auditor should not accept an engagement until

Answer 33

the successor's required communications with the predecessor auditor have been evaluated.