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CPA AUD > CPA AUD > Flashcards

CPA AUD Flashcards

1
Q

What does Sampling mean?

A

Sampling refers to the examination of less than 100% of a population and using the results as a basis for drawing a general conclusion for the the entire population.

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2
Q

Evidence gathered by auditors must be both ___ and ___ to be considered appropriate.

A

Reliable and Relevant

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3
Q

Define Bearer Bonds

A

Bearer Bonds can be converted into cash by anyone possessing them, therefore they pose a significant risk of misappropriation

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4
Q

What do Analytical Procedures in the Final Review consist of?

A

Consist primarily of reading the financial statements and considering whether or not they reflect the auditor’s expectations

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5
Q

When the combined assessed level of inherent and control risk is high what does the auditor do?

A

The auditor wants to obtain more evidence resulting in more substantive testing and reliable evidence

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6
Q

If there is a high risk of material misstatement what kind of tests will be performed by the auditor?

A

The auditor would select more effective substantive testing

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7
Q

What should sufficient and appropriate documentation consist of?

A
  • It should include evidence that the audit working papers have been reviewed
  • Allow an experienced auditor without knowledge of the engagement to understand what procedures were performed, what evidence was obtained and what conclusions were drawn
  • Demonstrate work has been review in compliance with professional standards
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8
Q

Regarding sufficient and appropriate documentation is accounting estimates allowed?

A

Yes, sometimes accounting estimates are the only form of documentation

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9
Q

Are photocopies considered original documentation?

A

No, they can be altered

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10
Q

When original documents are not available to the auditor there is a risk that the documents have been altered, what would the auditor reevaluate?

A

The auditor would reevaluate the risk of fraud and design alternate tests for the related transactions

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11
Q

When applying analytical procedures to the overall review stage of an audit, what is trying to be determined?

A

Whether additional audit evidence may be needed

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12
Q

Define Test of controls

A

A Procedure to evaluate whether or not an internal control is functioning as expected

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13
Q

When evidence obtained is not efficient, the solution is generally…? When is a disclaimer of opinion appropriate in this case?

A

to obtain additional evidence
-Disclaimer of opinion is appropriate only if the auditor was certain there was not enough evidence to support an opinion

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14
Q

How does Check Kiting occur?

A

-Occurs when transfers between accounts are recognized in the receiving account prior to being recognized in the disbursing account, overstating the cash balance

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15
Q

What is an indication of Check Kiting?

A

Low average balance compared to a high level of deposits

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16
Q

What is the most efficient way of obtaining evidence of inventory that is maintained in a public warehouse?

A

To obtain evidence of it’s existence through confirmation with the warehouse

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17
Q

The hierarchy of audit evidence (4 Levels)

A
  1. Auditors direct personal knowledge (Observation, physical Examination)
  2. External Evidence
  3. Internal Evidence
  4. Oral Evidence/Inquiry
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18
Q

Are confirmations through Fax allowed?

A

Yes, but the auditor would first contact the responder to ensure that the fax is legitimate

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19
Q

Why does an auditor examine repairs and maintenance expense?

A

To find items that were expensed that should have been capitalized

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20
Q

What is the Reasonableness Test?

A

Comparing a prior period to a current period

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21
Q

What is a Range Test?

A

Comparing an amount to an already established range of values

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22
Q

What is a Detail Test?

A

Examining the details of the transactions that are included

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23
Q

What is a Category Test?

A

Used to determine if something is properly classified

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24
Q

What is a Blank Form Confirmation

A

A customer completes the form by filling in the amount owed

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25
Q

Which Confirmation has the highest nonresponse rate?

A

A Blank Form Confirmation, because customers must fill in the amount owed (extra work)

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26
Q

Transfer Agent or Registrar knowledge

A
  • Has information about the number of shares issued and oustanding
  • Doesn’t know if parties are related or not
  • Doesn’t have knowledge of stock prices and can’t confirm proceeds from stock subscriptions
  • Board of Directors authorize stock rights or warrants, not a transfer agent
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27
Q

When can Internal Controls be tested at an interim period?

A

When controls over the remaining period are effective

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28
Q

Why does an auditor review payroll tax reconciliation forms?

A

Identify potential liabilities for unpaid payroll taxes and payroll taxes owed

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29
Q

What is a Positive Confirmation?

A

They must verify the information

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30
Q

Which Assertion does slow moving and obsolete inventory effect?

A

The Valuation Assertion

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31
Q

What if a client’s attorney refuses to provide information requested by the auditor?

A

It represents a scope limitation and the auditor must determine if sufficient appropriate audit evidence can be obtained through other means

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32
Q

Presentation and Disclosure Assertions relate to…?

A

The FS

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33
Q

What is the auditor’s primary source of evidence about litigation, claims, and assessments?

A

Is the response letter of Audit Inquiry sent to the client’s attorney

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34
Q

What is the primary purpose of a letter of inquiry sent to a client’s attorney?

A

It is to corroborate information about the litigation, claims, and assessments provided to the auditor by management

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35
Q

What can the auditor determine about related party transactions occurring on terms equivalent to an arm’s length transaction?

A

It is not possible to determine

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36
Q

Is an attorney qualified to evaluate an entity’s ability to continue as a going concern?

A

NO

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37
Q

What could an Attorney’s response to a letter of inquiry contain?

A
  • Potential Litigation
  • Case Progress and Strategy
  • probability of an unfavorable outcome and an estimate of the loss
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38
Q

What is the first step in evaluating estimates?

A

Obtain an understanding at how the estimates are developed by management; which is done when the auditor performs risk assessment procedures in obtaining an understanding of the entity and it’s environment

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39
Q

What are the procedures relating to litigation (Contingent Liabilities)

A

Discuss with management its policies for identifying and evaluting litigation

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40
Q

What is the primary concern in regard to related party transactions?

A

That they be adequately disclosed

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41
Q

Who is an attorney’s letter requested by? Why?

A

An attorney’s letter is requested by management so that the attorney knows that response is AUTHORIZED and will not violate the attorney client priviledge

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42
Q

What is the primary purpose of a standard bank reconciliation?

A

To verify that the amounts reported as cash (deposits) and loans are fairly stated on the FS

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43
Q

What is the auditor’s primary concern regarding estimates?

A

That they are reasonable under the circumstances

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44
Q

What will the auditor do when they do not receive any positive requests for year end AR confirmations?

A

The auditor will encourage the debtor to return, which mat require contact by the client

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45
Q

Negative Confirmations

A

-Do not require the debtor to return them unless there is a discrepancy and would only be appropriate when the auditor believes that risk is low as there is likely few discrepancies

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46
Q

What is the first step in identifying related parties?

A

Inquire about their existence (Ask Management)

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47
Q

What does it mean when analytical procedures produce no unexpected or unusual results?

A

That there is a reduced likelihood that the item tested is materially misstated

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48
Q

For interim testing to be acceptable what risk should the auditor be confident in controlling?

A

Incremental Risk

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49
Q

Does a specialist client relationship have to be disclosed?

A

No, but the relationship could impair the specialist’s objectivity causing the evaluation or finding to not be relied upon

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50
Q

What happens when an auditor becomes aware of an omitted necessary audit procedure?

A

The first response would be to determine if the audit evidence obtained supports the report issued. If not the auditor will apply the procedure

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51
Q

Are stock options at favorable prices a related party transaction?

A

No, but they must be disclosed

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52
Q

How can a client’s internal auditor’s competence be evaluated?

A

on the basis of how professionally they perform their duties

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53
Q

What is compensating balance arrangements and indicator of?

A

Related Party Transactions

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54
Q

What knowledge can the auditor gain when comparing interim financial statements with those reported on?

A

The auditor can identify any significant changes in financial position that would not be explained by normal operations, which indicates the possibility of subsequent events

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55
Q

Related Party Transactions

A
  • Auditor’s primary concern is proper disclosure and presentation
  • No practical way to determine of transactions would have taken place in the absence of the relationship
  • Or if the terms would have been made the same in an arm’s length transaction
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56
Q

Unmodified Report - Specialist, Opinion sharing

A

Auditor can never report to a specialist as it can cause confusion in the division of responsibility
-Cannot divide the opinion with someone who is not an auditor

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57
Q

What does an inquiry about a specialist’s relationship enable the auditor to do?

A

Evaluate the objectivity of the auditor (A relationship with the client may exist)

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58
Q

What can of evidence do confirmations provide the auditor with?

A

Rights and Obligations
Allocation and Evaluation
Existence

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59
Q

Which relationships are more predictable? Those involving Income Statement accounts or those involving Balance Sheet accounts?

A

Income statement accounts

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60
Q

When are Analytical Procedures required to be used? (Audit Steps)

A

The planning of an audit and in the evaluation of audit results

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61
Q

What is a Concurring Partner?

A

A Concurring Partner is not involved in the engagement, performs very high level review which focuses on the fair presentation of the Financial Statements in conformity with GAAP

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62
Q

When would an auditor evaluate 2 accounts on the same work paper?

A

When the accounts had a meaningful relationship with each other

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63
Q

What are some of the purposes of the audit work papers?

A
  • Aid in supervision
  • Provide support for the audit report
  • Support that a GAAS audit was performed
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64
Q

Detection Risk is inversely related to….

A

Substantive Testing

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65
Q

If the substantive testing goes up and the detection risk goes down, what is the auditor less likely to overlook?

A

A misstatement

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66
Q

What is the primary objective of test of details?

A

To detect material misstatements in the financial statements

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67
Q

Define Incremental Audit Risk

A

The risk that for items tested at an interim date, misstatement may exist at the BS date that will not be detected by the auditor

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68
Q

Define Test of Details

A

Substantive tests applied to account balances for BS accounts or to events and transactions for income statement accounts to determine if the items are fairly stated without material misstatements

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69
Q

Is the client’s accounting data alone sufficient evidence to support the FS? Why?

A

No, the auditor is required to obtain corroborative evidence

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70
Q

What is Competence of Evidential Matter?

A

When internal controls are effective, the clients data is more competent
-Auditor’s direct personal knowledge = most competent form of evidence

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71
Q

What is Sufficiency of Evidential Matter?

A

The Amount of evidence

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72
Q

Persuasiveness of Audit Evidence

A
  1. Evidence obtained directly by the auditor
  2. Evidence obtained directly through outside sources
  3. Evidence obtained from outside sources through the client
  4. Evidence generated by the client
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73
Q

What kind of record system may interim testing be used? Perpetual or Periodic?

A

A perpetual system

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74
Q

What does an Auditor’s Permanent File contain?

A

Documents and information that is useful to current and future audits.

  • Contractual agreements (debt or lease agreements)
  • Articles of incorporation
  • Documentation of the auditor’s understanding of IC
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75
Q

Define Lead Schedules

A

Working papers that reflects the major components of an amount reported in the FS

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76
Q

The auditor’s working paper’s vary depending on:

A
  • The nature of the engagement
  • The type of the report being issued
  • The condition of the entity’s records
  • Assessed level of control risk (If high = more substantive procedures = more evidence)
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77
Q

At a minimum what should the working papers document?

A
  • That the financial statements agree to the records
  • The audit work was supervised
  • The work is sufficient to support the opinion
  • Provide support that a GAAS audit was performed
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78
Q

How is a cut off assertion performed?

A

Testing transactions just prior to and after the year end provides the auditor with evidence at to whether transactions have been recognized in the appropriate period

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79
Q

Define Corroborative Evidence

A

Supports information derived from the accounting records

  • Minutes
  • Confirmations
  • Data about the competitors
  • Information obtained by the auditor through inquiry, observation, and inspection of documents
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80
Q

What are the assertions related to events and transactions?

A
  • Completeness
  • Cutoff
  • Accuracy
  • Classification
  • Observation
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81
Q

What are the type of procedures that an auditor uses to obtain evidence in an audit of the Financial Statements

A
  • Test of Controls
  • Risk Assessment procedures
  • Substantive Testing
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82
Q

When can a search for unrecorded liabilities be performed?

A

Once the auditor is aware of what liabilities have been recorded, which is not known until the end of the client’s fiscal year

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83
Q

How are authorizations of major transactions verified?

A

through a review of the minutes of Board of Directors

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84
Q

Define Attribute Sampling

A

Used to determine whether a population has a particular attribute

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85
Q

Define Variable Estimation Sampling

A

the auditor tries to evlaute the appropriateness of an amount

  • Amount of an expense
  • Valuation of an account
  • Account balances
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86
Q

Risk of Incorrect Acceptance

A

Risk that an item will be accepted despite the fact that it is materially mistated

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87
Q

The risk of Assessing Risk of Material Misstatement (RMM) too low

A

Is the risk the auditor will rely on controls that are not effective, affecting the nature, timing, and extent of further audit procedures - as a result of which material misstatement may not be found

88
Q

Void Transaction (properly Voided)

A

Cannot provide evidence as to whether or not the control is effective and the item would be replaced with another

89
Q

Define Incorrect Acceptance

A

When an auditor concludes that an error or deviation rate in a population is acceptable based on a sample even though is is not true of a population, represents a sampling error

90
Q

Is there any correlation between the population size and the sample size?

A

No, there is little effect on the sample size

91
Q

What is the primary objective of Probability Proportional to Size Sampling (PPS)

A

Identify overstatement of errors

-used in substantive testing

92
Q

Variables Sampling

A

-Method used to estimate and amount ($ Value)

93
Q

Stop-or-go Sampling

A
  • Is a technique of attribute sampling that is used when the error rate is expected to be low
  • It allows the auditor to conclude a test and draw conclusions before all items in the sample have been tested if the error rate in items tested is at an acceptably lowlevel
94
Q

Random Number Sampling

A

A method for selecting item to be included in sample

95
Q

Advantages of PPS Sampling

A
  • Sampling can begin before the population is available
  • Fewer expected errors will result in a smaller sample size
  • Disadvantages: PPS requires special handling for 0 and negative balances
  • BOTH PPS and Variable Sampling require preliminary judgment about Materiality
96
Q

Nonsampling Risk

A

Is the risk that an auditor will draw an incorrect conclusion from an audit procedure due to a flaw in the procedure or the auditor’s interpretation of the results, which would include selecting an inappropriate audit procedure

97
Q

What are the 4 sections of Segregation of Duties? ARCC

A
  • Authorization of Transactions
  • Recording of Transactions
  • Custody of Assets
  • Comparisons
98
Q

When is a disclaimer of opinion appropriate?

A

When the auditor is unable to obtain sufficient appropriate audit evidence to be able to form an opinion on the Financial Statements

99
Q

What kind of opinion does an unjustified departure from GAAP result in?

A

A Qualified Opinion

100
Q

Some examples of Scope Limitations?

A
  • Circumstances beyond the control of the auditor or client
  • Nature and timing of auditor’s procedure
  • Management imposed limitations
101
Q

What kind of opinion results from a scope limitation in which the auditor does not obtain enough evidence to support an opinion?

A

A disclaimer of opinion

102
Q

What kind of opinion does a material departure from GAAP result in?

A

Adverse Opinion

103
Q

Adverse Opinion

A

Is rare and results from a departure from GAAP that is both material and pervasive

104
Q

Some examples where an Adverse Opinion is justified?

A
  • Application of accounting principles the auditor does not agree with
  • Inadequate disclosures
  • Unreasonable accounting estimates
105
Q

A very material and pervasive scope limitation or a very material and pervasive uncertainty would result in what kind of opinion?

A

Disclaimer of opinion

106
Q

Define Pervasive

A

Auditor’s judgment the effects are not confined to a specific element, account or item of the Financial Statements

107
Q

If illegal bribes are found to be immaterial to the Financial Statements. Would the FS require an explanatory paragraph or qualified opinion?

A

Neither

108
Q

When an uncertainty exists relating to a going concern doubt, where and how is it disclosed?

A
  • An emphasis of a matter paragraph is added following the opinion paragraph
  • Specifically uses “going concern” and “Substantial Doubt”
109
Q

Examples of Scope Limitations: Circumstances and Client Imposed

A

Circumstances:
-Cannot confirm AR
-Auditor did not observe ending Inventory
-Circumstances beyond control of the entity
Client imposed (disclaimer or withdraw)
-Inadequate Client records
-Refuses permission to contact attorney
-Management will not sign management representation letter

110
Q

How is a remote possibility of a contingency resulting in a loss disclosed? Opinion?

A

Neither accrued or disclosed and an unmodified opinion would be appopriate

111
Q

When a qualified, adverse or disclaimer of opinion report is issued what must be given?

A

-The reasons for the report is issued in a basis for paragraph, immediately proceeding the opinion paragraph

112
Q

What is included in an “Optional Emphasis of Matter Paragraph” - Following an Opinion

A
  • Significant related party transactions
  • Material uncertainties (unresolved lawsuits)
  • Important subsequent events
  • Lack of consistency in the application of accounting principles
113
Q

What is included in a “Mandatory Emphasis of Matter Paragraph”

A
  • Auditors opinion on revised FS differs from previous expressed opinion
  • Substantial doubt of continuing as a going concern
  • Justified change in accounting principles affecting consistency
    • Change in reporting entity, adjustments to correct misstatements in previously issue FS, change in accounting principle by an investee accounted using the equity method
114
Q

What is included in an “Other Matter Paragraph” - Follows any matter of emphasis paragraph

A

Communicate matters that are appropriately reported or disclosed in the FS, but in the Auditor’s Judgment, enhances a users ability to understand the audit

115
Q

What is included in an “Introductory paragraph” of the audit report

A

Identifies the Financial Statements that were audited and indicates that they were audited

116
Q

What is included in the “Auditor’s Responsibility” paragprah

A

Indicates that the auditor is required to comply with GAAS and indicates what that entails

117
Q

What is the purpose of an “emphasis of matter paragraph”

A

Draw attention to something properly accounted for and disclosed in the FS

118
Q

Modified Report

A

The auditor will provide an explanatory paragraph to indicate the basis for the modification, which may be a conflict between the findings of a specialist and the client

119
Q

Condensed Financial Statements - Conformity? Kind of filing?

A
  • Do not conform to GAAP, but also are not prepared in accordance with an OCBOA
  • Are a supplementary filing and are not compared to themselves for determining if they are fairly stated
120
Q

Which paragraphs are adjusted in a Group Financial Statement?

A
  • Auditor responsibility Paragraph

- Opinion Paragraph

121
Q

Who’s responsibility is it for adopting sound accounting policies?

A

Management’s, NOT the auditors

122
Q

Can an auditor draft an entity’s FS based on information from it’s accounting system without impairing independence?

A

NO

123
Q

What are an auditor’s responsibilities for audited FS confined to?

A

the expression of the auditor’s opinion

124
Q

Adverse Opinion - what does the opinion paragraph indicate?

A

That the FS are not fairly presented and refers to the preceding paragraph, the basis for the adverse opinion

125
Q

Is it inappropriate to have a disclaimer of opinion, but claim that a piece of the FS is correctly stated,

A

Yes this is considered piecemeal and is not allowed

126
Q

What parts of the standard report does a disclaimer of opinion have?

A

All the parts of the standard report

127
Q

What is required of an accountant performing a compilation?

A
  • Obtain an understanding of the client and its business

- Read the financial statements

128
Q

Inquiries are made in which: compilations, Reviews, Audits

A

Audits and Reviews, not compilations

129
Q

What is the objective of a compilation engagement?

A
  • Apply accounting and financial expertise to assist in the presentation of FS
  • Does not have to assure there are not material modifications that need to be made
130
Q

What does the Compilation Report - Introductory Paragraph state?

A

Explicitly states that the auditor has compiled the FS and that they were neither audited nor reviewed

131
Q

Does a compilation state that it is less in scope than an audit?

A

No it does not, even though it is substantially less in scope than an audit

132
Q

SSARS - To compile a FS, what must an accountant obtain?

A

An accountant should obtain a general understanding of the client’s business transactions

133
Q

What are some Review Engagement requirements?

A
  • Have or obtain an understanding of the client and its business
  • Make inquiries of management and perform analytical procedures
  • Develop expectations based on relationships among FS elements that have predictable patterns and compare actual results to expectations (Budgets and Forecasts)
  • NOT REQUIRED to obtain an understanding of IC
  • Obtain a client representation letter from management
134
Q

Can an accountant accept an engagement without knowing the industry?

A

Yest, as long as they can gain knowledge of it in a timely basis

135
Q

Can an accountant accept and engagement that omits substantially all disclosures?

A

Yes, as long as the omissions were not for the purpose of misleading investors

136
Q

Can an accountant accept a compilation report if they are are not independent?

A

Yes, but they must state they are not independent - they do not have to disclose why they are not independent, this is optional

137
Q

Reissuing a Compilation or Review report

A

A predecessor will consider if the report is still appropriate and will read the current periods FS and related Report, compare the prior years FS with those of the current year and obtain a letter from the successor indicating whether or not the successor is aware of matters that would affect the FS

138
Q

When an accountant is downgraded from a review to compilation what do they issue?

A

The accountant will issue a compilation report that will be unmodified unless there are circumstances (no reference to the original engagement)

139
Q

What is the objective of a standard compilation report?

A

Assist management in the preparation of the FS

140
Q

How is a Compilation Report Dated?

A

As of the date on which the accountant completes the compilation

141
Q

When is it reasonable to downgrade an engagement from an audit to a review/compilation?

A

When the users of the FS determine that an audit is no longer required

142
Q

Consists of performing analytical procedure and making inquiries of management?

A

A Review

143
Q

Does the accountant assess Internal Controls in a review?

A

No

144
Q

Review Representation Letter: The Client doesn’t have to…

A

The client doesn’t have to represent that they understand what a review consists of

145
Q

When reviewed financial statements are presented in comparative form with the prior year’s audited FS, the review report will indicate:

A
  • that the firm audited the prior year FS
  • The date of the report
  • The type of the report issued
  • The substantive reasons for any report modifications
146
Q

What does SSARS have standards over?

A

Standards for FS preparation engagements, Compilations, and reviews

147
Q

Can a review be performed on a single FS or all the FS

A

A single FS

148
Q

When must an accountant assess the risk of fraud (compilation, review, audit)

A

Audit only

149
Q

Does an accountant express an opinion in a review?

A

No, an accountant provides limited assurance in a review report, but does not express an opinion

150
Q

Compilation of prospective FS requires:

A
  • Establish an understanding with the client
  • inquire about the principles used in preparing the prospective FS
  • Obtain information about key assumptions and consider the appearance of obvious inconsistencies
  • Read the FS and determine if they are fairly objective and free from errors
151
Q

Things performed in an audit, but nor a review?

A
  • Assessing control risk
  • Confirming Account balances
  • Performing a physical inventory observation
152
Q

Does a Review have a “final review” stage?

A

No

153
Q

Analytical procedures in a review consist of what kind of data?

A

Both financial and non-financial data

154
Q

Projected Financial Statement Disclosures

A
  • identify the statements
  • Indicate they were compiled in accordance with attestation standards
  • Indicate a compilation is limited in scope
  • The prospective results may not be acheived
155
Q

The Introductory paragraph of a review includes?

A
  • identifies the FS reviewed
  • Indicates that they were reviewed
  • Specify that a review consists of inquiries and analytical procedures
  • It is substantially less in scope than an audit
  • No opinion is expressed
156
Q

What must the auditor have before issuing a review report?

A

a letter of representation from the client, an auditor would release a compilation report instead with the clients consent

157
Q

When can a CPA accept an engagement to compile pro forma Financial Information?

A

It must be in a document that also contains or refers to the historical information on which the proforma information is based, which was compiled, reviewed, or audited

158
Q

What would the auditor discuss with a predecessor auditor before engaging in an review or compilation?

A
  • Whether or not to accept the engagement
  • Information related to the integrity of management
  • Any disagreements with management regarding accounting principles
159
Q

Can you give an example when Financial Statements are not comparative?

A

When one years compilation includes disclosures and another year does not. They are not comparative FS, therefore a CPA may not report on them.

160
Q

What is the one implicit factor in a compilation report?

A

Independence

161
Q

If the FS omit substantially all disclosures can the CPA still perform the engagement? in accordance with what? Any disclosures?

A

Yes, in accordance with SSARS, but include an explanatory paragraph stating that the FS are not designed for those uniformed about the omitted disclosures

162
Q

A compilation report includes that the accountant compiled the FS in accordance with _____?

A

SSARS

163
Q

Does the accountant have to manually sign a compilation report? Does the compilation report have to be on the accountant’s letterhead?

A

A compilation report is not required to be printed on the accountant’s letterhead nor does the accountant manually have to sign the report

164
Q

When must an accountant understand controls : Compilation, Review, Audit.

A

Audit only

165
Q

Inquiry and analytical procedures are primarily used in this engagement.

A

Review Engagement

166
Q

Analytical Procedures (Reviews)

A

Include comparing ratios developed from recorded amounts to the accountants expectations

167
Q

If the accountant has a direct financial interest in an entity, but it is immaterial can they still engage in an audit?

A

No, a direct financial interest in a client, regardless of materiality, impairs independence. The accountant may still be associated withe the Financial Statements through and Audit

168
Q

Are non-pervasive MATERIAL departures from GAAP a reason to reject a restricted review engagement?

A

No, it is not a reason to reject an engagement

169
Q

Each age of the entity’s reviewed FS should include…

A

a reference to the accountant’s review report

170
Q

Who issues the SSARS?

A

The AICPA

171
Q

A management representation letter must be obtained for these engagements.

A

Reviews and Audits (Assurance Engagements)

172
Q

What is included ins a SSARS Engagement: An Engagement letter documenting the understanding with management?

A

Indicate Management’s acknowledgement of it’s responsibilities:

  • Responsibilities for IC
  • Identify the Financial Reporting Framework
  • Limitations of the Engagement
173
Q

Compilations and reviews are (engagement type)

A

Attest Engagements, Reviews are also assurance engagements

174
Q

If management will not/cannot include a statement on every page of the FS indicating no assurance was provided, what does the accountant do?

A

The accountant will provide a disclaimer that makes it clear no assurance was provided

175
Q

When is a report required for a compilation?

A

All the time, regardless if the accountant was independent or not

176
Q

Do preparation engagements require a report?

A

No, even when presented to 3rd parties a report is not necessary.

177
Q

What is a preparation engagement?

A

The accountant assists management with significant judgments used to prepare the FS, the accountant should discuss the judgments with management so that management understands their significance and accepts responsibility for them.

178
Q

Preparation of Financial Statements in a SSARS Engagement

A
  • The accountant is NOT required to verify the completeness or correctness of information provided by management
  • The accountant is required to communicate any incomplete or incorrect information with management
  • The accountant must understand the client’s significant accounting polices
  • If the FS use a framework other than GAAP, a description of the framework with differences from GAAP is disclosed
179
Q

What is a Financial Projection

A
  • Assumptions are based on the judgment of management and the accountant would not be qualified to evaluate them.
  • May be included in a document with audited historical FS
  • An accountant would only accept this engagement if distribution was limited to those who would be knowledgeable enough to understand it
180
Q

Who is a Financial Projection OK for and not OK for?

A 
OK for:
-Entity's principal stockholder
-Financial Institution
-A state or Federal Regulatory agency
Not OK for:
-The general public (offering statement)
181
Q

Can an accountant provide assurance in a compilation?

A

No, it is not appropriate

182
Q

What is an “Agreed upon procedures engagement?”

A

The procedures to be performed must be agreed upon, before the engagement

183
Q

What kind of opinion would the CPA issue if they are engaged to examine a Financial Forecast and believes that there are several significant assumptions that do not support the forecast?

A

The CPA would issue an adverse opinon

184
Q

What is a Financial Statement Implication (how is it used)

A

To detect misstatements in the FS, the auditor will look for violations that have a financial statement implication

185
Q

What is a Comfort Letter?

A

The CPA provides Negative assurance to the information being in conformity with GAAP

186
Q

Statements on Standards for Attestation Engagements (SSAE) Examples

A
  • Agreed upon procedures
  • Financial Forecasts and projections
  • Pro forma financial information
  • Examination of internal control over financial reporting
  • compliance attestation
  • MD&A
  • Reporting on controls at a service organization
187
Q

Who’s responsibility is it to comply with laws and regulations?

A

Management’s, and the auditor’s report indicates this

188
Q

Who would the auditor limit communication about fraud to?

A

those within the entity

189
Q

Pro forma adjustments to audited historical FS, what must the auditor do?

A
  • The auditor is not required to reevaluate internal controls
  • The auditor must bread the pre forma information and make certain it does not contain any errors
190
Q

Government Auditing Standards are also known as this

A

The Yellow Book - GAGAS

191
Q

Does an auditor report on the accomplishments of a government program?

A

No, an auditor is not qualified to evaluate accomplishments

192
Q

Yellow Book Audit Report - What is required of the auditor?

A
  • The auditor is required to indicate the scope of testing of internal controls
  • An auditor may, but is not required to provide recommendations to improve operations
  • Auditor is required to report on the tests performed to determine compliance with laws and regulations
193
Q

Testifying as an expert witness is a form of ___ and covered by ____.

A

Consultant, and is subject to “Standards for Consulting Services”

194
Q

Office of Management and Budget Circular (OMB) purpose?

A

Defines a sub-receipient as a non-federal entity that expends federal awards from another entity to carry out a federal program

195
Q

What is a Financial Forecast?

A

Is a projected Financial statement that is based on the past performance of the entity and is appropriate for general use

196
Q

SSAE - Prospective Financial Statements Require…

A

All significant assumptions used to prepare the Financial Statements

197
Q

Unlike GAAS, GAS Reports requires…

A

The auditor to report on the results of tests of controls

198
Q

When an accountant is associated with prospective FS, the accountant will want to…

A

Warn users that actual results may be different from those being forecasted

199
Q

Does an auditor have to report on an entity’s Internal Control in a “Yellow Book audit?” If yes, where is it disclosed?

A

Yes, the report may be included in the audit report ot in a separate report

200
Q

When the Financial Statements use a comprehensive framework other than GAAP, where does the auditor disclose this?

A

The auditor’s report will state the basis of accounting is described in a footnote of the Financial Statements

201
Q

What kind of framework is a regulatory basis of accounting considered?

A

A special purpose framework

202
Q

What does GAGAS stand for?

A

Generally Accepted Government Auditing Standards

203
Q

Who is the Comfort Letter provided to? who signs the letter?

A
  • Usually provided to underwriters
  • Letter form the auditor signed by the independent auditor
  • Audited information = negative information on capsule information
204
Q

Who issues the “Statements on Auditing Standards” (SAS)?

A

The AICPA

205
Q

Who is responsible for all financial information?

A

The Client is responsible for all financial information that an independent CPA is associcated with

206
Q

An accountant’s compilation report on Financial Forecast will refer to ___.

A

the forecast, but not refer to the other Financial Statements

207
Q

Does the accountant have to be independent when performing an attestation engagement?

A

Yes

208
Q

Letter of Transmittal

A

When it contains information that is NOT considered with FS it will be difficult for users to determine which should be relied upon
-If the FS are correct, the auditor will request that the accompanying information (letter of transmittal) be corrected

209
Q

What is a Presumptively Mandatory Requirement?

A

Is one which the auditor is required to comply with or provide an explanation for doing so

210
Q

OMB Audit Requirements - Free Rent

A

Free rent received as part of an award to carry out a federal program is considered Federal Funds Expended
-Free rent alone is not enough, it must carry out federal programs

211
Q

If the prescribed audit report form of a government agency on behalf of the client differs significantly from GAAS, the auditor may…

A
  • the auditor may reward the prescribed form and sign it
  • Attach a separate audit report to the form
  • Choose not to accept the audit engagement
  • The many NOT replace the form
212
Q

An engagement to apply agreed upon procedures related to the financial statements will include (report)

A
  • The accountant’s findings
  • Disclaimer indicating the procedures applied may not be sufficient for the purpose intended
  • A statement restricting the distribution of the report to parties knowledgeable about the agreed upon procedures
  • NO assurance is provided
213
Q

What are three different attestation engagements in connection with prospective FS?

A
  • Agreed upon procedures
  • Examinations
  • Compilations
  • A REVIEW IS NOT ALLOWED
214
Q

What are the 2 forms of Prospective Financial Statements?

A

Forecasts and Projections

215
Q

What are Financial Projections?

A

They are “What-if” Scenarios

216
Q

What are the ethical principles under Government Auditing Standards

A
  • Integrity
  • Public Interest
  • Proper use of Government Information

CPA AUD (4 decks)

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