Deck 5 Flashcards
The auditor most likely would add an other matter paragraph when
current period F/S are audited and presented in comparative form with reviewed/compiled F/S from prior period or comparative form with F/S that were not audited/reviewed/compiled.
What would the auditor required to obtain when engaged to report on supplementary information
Obtain written representation from management regarding supplementary information in relation to the F/S as a whole.
Inquire management about any significant assumptions underlying the presentation of the information.
compare and reconcile supplementary information to the audited F/S and accounting records.
Auditor is not required to obtain additional understanding of entity’s I/C related to identifying and reporting on supplementary information.
How to test if Equity in Investee income is fairly stated?
Obtain and read F/S and audit reports of the Investee. Apply appropriate calculations.
To test valuation assertion of auditing investment accounted for Equity method - auditor would examine audited F/S of the investee company.
Auditor would obtain market quotations from periodicals/financial newspapers for valuation of investments under cost methods.
AUDIT RISK
DETECTION RISK
CONTROL RISK
Audit risk is the risk that the auditor unknowingly fail to appropriately modify the opinion on F/S that are materially misstated.
Detection risk is the risk that the auditor will not detect a material misstatement that exists.
Control Risk is the risk that a material misstatement would not be prevented or detected on a timely basis by entity’s I/C.
What tests the auditor would perform regardless of the assessed level of Control Risk?
Auditor would perform some level of substantive tests to restrict detection risk for significant transaction classes.
Which is the auditor’s responsibility for integrated audit of a nonissuer?
Testing of controls over specified risks at business units that are material to the company’s consolidated F/S.
Auditor should test certain specific risks, not all risks.
Review of pro forma financial information include -
report on review of pro forma financial information should include a reference to the F/S from which historical information is derived and a statement as to if such F/S were audited or reviewed.
For governmental audits F/S, auditor should obtain management representation regarding laws & regulations that -
Management has responsibility for understanding and complying with compliance requirements.
Scope, procedure and purpose of an audit of I/C of nonissuers vs obtaining an understanding of I/C and assessing risk as part of a F/S audit of a nonissuer-
all are different.
audit of I/C - scope and procedures more extensive , purpose is directed towards I/C report. Testing is more extensive.
In order to obtain an initial understanding of I/C sufficient to assess the risk of material misstatement of the F/S, an auditor would most likely perform which of the following procedures?
Auditor would most likely perform risk assessment procedures to evaluate the design of relevant controls when obtaining an initial understanding of I/C sufficient to assess RMM of F/S.
Analytical procedures typically do not help determine the need for specific controls. These procedures includes inquiry, observation of application controls, inspection of documents and reports, observation of entity’s premises, plant , walkthroughs.
When a CPA examines client’s projected F/S what would it include?
It includes a statement that …“included such procedures as we considered necessary to evaluate both the assumptions used by management and the preparation and presentation of the projection”. (state that the CPA performed procedures to evaluate management’s assumptions)
How should the auditor of a nonissuer communicate control deficiencies in current year audit (not significant deficiencies/material weakness that were communicated during prior audit and management decided not to correct due to cost constraints)?
no communication is required. no need to repeat the communication in current period.
What is the auditor’s purpose of sending standard confirmation request to all banks ?
Seek information about contingent liabilities and security agreements in addition to information related to deposit account balances.
Bank reconciliation/ bank statements provide data necessary to prepare proof of cash.
Auditor most likely to identify contingent liability from a standard bank confirmation.
Which of the matter the auditor is not required to communicate to those charged with governance?
The degree of reliance the auditor placed on the management representation letter is not required to be communicated.
The auditor should communicate the level of responsibility assumed by the auditor under GAAS, basis for auditor’s conclusions about the reasonableness of management’s accounting estimates.
What would the Auditor’s plan to examine long term debt includes?
Most likely would include steps that require correlating interest expense recorded for the period with outstanding debt.This is an analytical procedure that would provide evidence regarding reasonableness of interest expense balance.
