Audit

Question 1

Advantages of statistical sampling

Answer 1

1. MEASURE THE SUFFICIENCY OF THE AUDIT EVIDENCE OBTAINED
2. PROVIDE AN OBJECTIVE BASIS FOR QUANTITATIVELY EVALUATING SAMPLE RESULTS
3. DESIGN AN EFFICIENT SAMPLE
4. QUANTIFY SAMPLING RISK TO LIMIT RISK TO AN ACCEPTABLE LEVEL

Question 2

Sample risk calculation

Answer 2

SAMPLE DEVIATION RATE + ALLOWANCE FOR SAMPLING RISK= UPPER DEVIATION RATE

Question 3

When to use positive confirmations
Positive confirmations are: blank and respond please

Answer 3

1. THERE ARE LG INDIVIDUAL ACCOUNTS
2. THERE ARE EXPECTED ERRORS OR ITEMS IN DISPUTE
3. INTERNAL CONTROL IS WEAK

Question 4

describe a negative confirmation request/ advantages

Answer 4

DO NOT REQUIRE A RESPONSE
1. LG NUMBER OF SMALL BALANCE ACCOUNTS
2. LOW INHERENT AND CONTROL RISK

Question 5

Most reliable evidence:

Answer 5

AUDITORS DIRECT PERSONAL KNOWLEDGE BY
1. OBSERVATION
2. EXAMINATION
3. INSPECTION
3. RECALCULATION

Question 6

Interim Reviews (PCAOB)

Answer 6

REQUIRED BY SEC FOR ISSUERS

Question 7

Inefficient Audit

Answer 7

TEST OF CONTROLS:
1. RISK OF ASSESSMENT TOO HIGH (CR/RMM)
2. POP IS FINE BUT SAMPLE ISNT
3. INCREASE NET OF AUDIT

TEST OF DETAILS:
1. RISK OF INCORRECT REJECTION
2. POP IS FINE SAMPLE ISN’T
3. ADD’TL TESTING

Question 8

Ineffective audit

Answer 8

TEST OF CONTROLS:
1. RISK OF ASSESMENT TOO LOW (CR/RMM)
2. POP IS NOT FINE SAMPLE IS
3. DEC THE NET OF THE AUDIT

TEST OF DETAILS:
1. RISK OF INCORRECT ACCEPTANCE
2. POP IS NOT FINE SAMPLE IS
3. NO ADD’TL TESTING

Question 9

$ubstantive Approach with no test of control

Answer 9

OCCURS WHEN CONTROL RISK IS ASSESSED AT MAX:
1. THERE ARE NO EFFECTIVE CONTROLS RELETIVE TO THE SPECIFIC ASSERTION
2. THE IMPLEMENTED CONTROLS ARE ASSESSED AS INEFFECTIVE
3. IT WOULD NOT BE EFFICIENT TO TEST THE OPERATING EFFECTIVENESS OF CONTROL

Question 10

doubt about going concert

Answer 10

F inancial difficulties
I nternal matters (LITIGATION)
N egative trends
E xternal matters

Question 11

What is ALWAYS REQ’D in f/s audit

Answer 11

1. ANALYTICAL PROCEDURES
2. RISK ASSESSMENT PROCEDURES

• test of controls on when applicable

Question 12

who should send inquiry to clients lawyer

Answer 12

MGMT BUT SHOULD INCLUDE THAT THEY NEED TO RESPOND DIRECTLY TO AUDITOR

Question 13

attribute sample

determine sample size

Answer 13

1. RISK OF ASSESSING CONTROL RISK TOO LOW
2. TOLERABLE DEVIATION RATE
3. EXPECTED DEVIATION RATE
4. POPULATION SIZE

Question 14

nonsampling risk

Answer 14

• ALL ASPECTS OF AUDIT THAT ARE NOT DUE TO SAMPLING
• SELECTING AUDIT PROCEDURES TAHT ARE NOT APPROPRIATE

*FAILURE OF AUDITOR TO RECOGNIZE MISSTATEMENTS IN DOCUMENTS EXAMINED

Question 15

Variable Sampling

Answer 15

• $UBSTANTIVE TESTS

A statistical sampling method used to estimate the numerical measurement of a population, such as a dollar value (e.g., accounts receivable balance).

• MAY BE IMPRACTICAL AND UNECONOMICAL

Question 16

Attribute Sampling

Answer 16

• TEST OF CONTROLS
  A statistical sampling method used to estimate the rate of occurrence of a specific characteristic or attribute in a population.
• CAN BE ANSWERED YES/NO

Question 17

Can’t Verify opening inventory

Answer 17

BS - can verify cogs at yr end - unmodified

IS - disclaimer

Question 18

Other matter VS emphasis of matter paragraph

Answer 18

Other matter paragraph- to address manner is not presented or disclose in the financial statements

Emphasis of matter paragraph -to highlight matter that is already presented or disclosed in financial statements

Question 19

Auditors responsibility for subsequent events(PRIME)

Answer 19

P post balance sheet transactions
R representation letter(mgmt)
I inquiry of legal counsel
M minutes
E examine most recent interim f/s

Question 20

Elements of quality control

Answer 20

H uman resources
E ngagement / client acceptance
L eadership responsibilities
P erformance of the engagement

M onitoring
E thical rqmts

Question 21

AUDIT STRATEGY

Answer 21

• The audit strategy is a high-level overview of the audit.
• It outlines the scope of the audit engagement, the reporting objectives, the timing of the audit, and the required communications.
• includes a preliminary assessment of materiality and tolerable misstatement.
• The audit strategy sets the overall direction and focus of the audit but does not specify detailed procedures.
• “big picture” or roadmap for the audit.

Question 22

AUDIT PLAN

Answer 22

• more detailed and specific.
• outlines the nature, extent, and timing of the audit procedures that will be performed.
• translates the audit strategy into actionable steps and procedures.
• It serves as a work plan for the audit team to follow during the engagement.

Question 23

DATA SECURITY CONTROLS

Answer 23

keep information safe by making sure only authorized people can get to it or change it.

Question 24

Information-processing controls

Answer 24

accuracy, completeness, and authorization of individual transactions or data processing steps. They are more about the day-to-day handling of data rather than the foundational software environment.

Question 25

Physical controls

Answer 25

protecting tangible assets, such as securing data centers or restricting physical access to servers, but they don't govern software acquisition processes.

Question 26

systems software acquisition

Answer 26

involves obtaining, installing, and maintaining software that supports the entire IT environment (like operating systems, database management systems, or network software)

Question 27

PRECISION

Answer 27

classical variables sampling, refers to the auditor's evaluation of sampling results by calculating the possible error in either direction around an estimate.

Question 28

WHEN TO USE ANALYTICAL PROCEDURES

Answer 28

PLANNING STAGE: To identify risk areas and focus audit efforts. $UBSTANTIVE TESTING: When used to gather evidence about account balances (called substantive analytical procedures). FINAL REVIEW: To ensure overall reasonableness of financial statements before issuing the audit opinion.

Question 29

ANALYTICAL PROCEDURE: TREND ANALYSIS

Answer 29

Comparing financial statement items or account balances over multiple periods (e.g., current year vs. prior year). Helps identify unusual fluctuations or patterns.

Question 30

ANALYTICAL PROCEDURE: RATIO ANALYSIS

Answer 30

Calculating and comparing financial ratios (e.g., gross margin, accounts receivable turnover, days sales outstanding). Used to assess relationships between accounts or compare to industry benchmarks.

Question 31

ANALYTICAL PROCEDURE: REASONABLENESS TEST

Answer 31

Comparing data in two or more fields to check for consistency (e.g., comparing current payroll expense to prior year adjusted for known changes). Helps identify amounts that don’t make sense given the circumstances.

Question 32

ANALYTICAL PROCEDURE: NONSTATISTICAL PREDICTIVE MODELING

Answer 32

Using simple predictive models based on known variables to estimate expected amounts (e.g., estimating interest expense based on outstanding debt and interest rates). Useful when relationships are predictable

Question 33

ANALYTICAL PROCEDURE: REGRESSION ANALYSIS

Answer 33

Advanced statistical technique using multiple variables to predict expected amounts. Provides a precise expectation and can be used as a principal substantive procedure.

Question 34

ANALYTICAL PROCEDURE: COMPARISONS TO BUGETS OR FORECASTS

Answer 34

Comparing actual results to budgets or forecasts prepared by management. Helps identify variances that may require further investigation.

Question 35

ANALYTICAL PROCEDURE: DISAGGREGATED DATA ANALYSIS

Answer 35

Breaking down data by segments such as product lines, locations, or customers to identify unusual trends or outliers. Useful for more detailed insight beyond overall totals.