Gross Margin%=
Current ratio=
Inventory turnover=
Return on Equity=
Gross Margin%= Sales - cogs/sales
Current ratio= current asset/current liability
Inventory turnover= cogp/average inventory
Return on Equity= net income/shareholders’ equity
Definition of GASS?
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.
What is “likely misstatement”
A known misstatement of management
Procedures performed to evaluate control risk:
Inquiry, inspection, reperformance, and observation.
Procedures used for substantive testing:
Analysis, confirmation and comparison
Control activities include?
Physical controls Information processing Authorization Review of performance Segregation of duties
The control environment includes?
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.
The auditor may use internal auditors to provide direct assistant in performing?
- Substantive tests, including analytical procedures and/or tests of details
- Tests of controls
Def of sampling risk
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.
Statically Sampling allows an auditor to:
- Design an efficient sample
- Measure the sufficiency of the evidential matter obtained ; and
- Evaluate the sample results
Integrated Test Facility:
Uses auditor data and the client’s program.
Parallel Simulation:
Parallel Simulation is a computer-assisted Auditing technique in which an auditor-written or auditor-controlled program is used to process client data.
Hash total:
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.
How transactions of a Batch system are processed?
In a Batch system, transactions are grouped together in batches and then process. So there can be time delayed.
Test Data:
Integrated test facility:
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
Worm:
A computer program that replicates independently by sending itself to other systems.
An alert to restrict the use of auditor’s report is required when:
- The subject matter is based on criteria that are only suitable to a limited numbers of users.
- When the matters are presented in a by-product report that is not the primary objective of the engagement.
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.
False. An audit is never conducted In accordance with OCBOA now. The term OCBOA has been replaced with special purpose framework.
Samples to test internal control structure procedures are intended to provide a basis for an auditor to conclude whether:
The control procedures are operating effectively.
Can an auditor provide suggestions about or draft the F/S based on information from management’s accounting system? If yes, In what situation?
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.
“Other-matter” paragraph v.s. “Emphasis-of-matter” paragraph
“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
An alert to restrict the use of the auditor’s report is required when?
- The subject matter is based on criteria that are only suitable or available to a limited number of users.
- When the matters are presented in a by-product report that is not the primary objective of the engagement.
Independence violation issue:
A partner in a different office is violated under?
DOL(department of labor) Only.
IFRC, PCAOB, AICPA are all fine with it.
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
Precision
Documentation completion date– differences btw AICPA and PCAOB?
AICPA- no later than 60 days after report released date
PCAOB- no later than 45 days after report released date
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?
Unqualified or disclaimer ONLY. No Qualified Opinion.
List the two categories of control deficiency.
Deficiencies in Design
Deficiencies in operation
List the two types of engagements related to compliance attestation.
- Examination
- Agreed-Upon Procedures.
- Note that a “review” is not permitted!
The primary reason an auditor requests letters of inquiry be sent to a client’s attorney is to provide the auditor with:
Corroboration of the information furnished by management about litigation, claims, and assessments.
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?
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.
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
Inherent limitations of internal control
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
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.
AICPA standards addressing “Communications Between Predecessor and Successor Auditors” state that an auditor should not accept an engagement until
the successor’s required communications with the predecessor auditor have been evaluated.
