Audit

Question 1

Substantive procedures

Answer 1

are tests of transaction details, account balances, and analytical procedures performed to detect material misstatements in the account balances, transaction class, and disclosure components of the financial statements. These tests are used to test financial statement assertions.

Question 2

Assertions

Answer 2

Are representations by management that are embodied in the account balance, transaction class, and disclosure components of the financial statements.

Question 3

Assertions about classes of transactions

Answer 3

Occurrence
Completeness
Accuracy
Cutoff
Classification

Question 4

Assertions about account balances at the period end

Answer 4

Existence
Rights and obligations
Completeness
Valuation and allocation

Question 5

Assertions about presentation and disclosure

Answer 5

Occurrence and rights and obligations
Completeness
Classification and understandability
Accuracy and valuation

Question 6

Incorrect rejection

Answer 6

is the chance that the statistical evidence might fail to support fair statement of a correct book value.

Question 7

Professional Skepticisim

Answer 7

An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of audit evidence.

Question 8

Direct finance interest

Answer 8

ownership in the entity/client, i.e., common stock, preferred stock, or convertible debt. Any direct finance interest automatically impairs the CPA, Materiality is irrelevant.

Question 9

Indirect finance interest

Answer 9

is involvement, other than direct ownership, that exceeds 5% of the member’s net worth. Independence is deemed to be impaired. Materiality is relevant.

Question 10

Integrity

Answer 10

is an unimpaired condition or firm adherence to a code of ethics or moral values.

Question 11

Independence

Answer 11

To be independent is to be free from conflicts of interest and bias, self-governing, impartial, not subject to control by others, not requiring or relying on something else, not contingent, and acting with integrity and objectivity

Question 12

Objectivity

Answer 12

is remaining impartial in judgments in order to get more quality information. To be objective is to be intellectually honest and free of conflicts of interest. Objectivity is the ability to maintain an impartial attitude in both fact and appearance based on one’s actions and relationships.

Question 13

Pro forma

Answer 13

is a financial statement or report prepared using assumptions regarding future events. It may also represent the drafting of forms or statements without values for possible presentation or future use.