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Flashcards in Evidence and Risk Deck (51)
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31

How is the Current Ratio calculated?

Current Ratio = Current Assets / Current Liabilities

32

How is the Quick Ratio calculated?

Quick Ratio = Liquid Assets / Current Liabilities

33

How is the Asset Turnover calculated?

Asset Turnover = Net Sales / Average Assets

34

How is the Inventory Turnover calculated?

Inventory Turnover = COGS / Average Inventory

35

How is Gross Margin % calculated?

Gross Margin % = Gross Margin / Sales

36

What type of testing are ratios?

Ratios are Analytical Procedures

37

What type of procedure is a Budget vs. Actual comparison?

Budget vs. Actual comparisons are Analytical Procedures.

38

List Common Types of Analytical Procedures

Ratio analysis

Budget vs. Actual comparison

Comparison of data between years

Use of non-financial data to predict expected values for financial data

39

How do management assertions affect the audit?

Management assertions help the auditor to plan the audit and select substantive tests.

40

What assertions do auditors test?

Presentation - Cutoff Classification - Is it in the right period and category?
Existence/ Occurrence - Did it happen? Does it exist?
Rights & Obligations - Does the company own them?
Completeness - Was everything recorded?
Valuation - Are they worth the amount at which they are recorded?

(PERCV)

41

What assertions are tests for transaction classes?

Occurrence

Cutoff

Classification

Completeness

Accuracy

42

For which assertions are disclosures tested?

Occurrence

Completeness

Classification

Accuracy

43

Is testing the validity of direct evidence a basic audit procedure?

No it is an extended procedure.

For example you don't have to take a loan covenant document and go search out that it's a valid loan covenant. Instead you consider the source - if it's externally prepared it's more persuasive.

44

How are Management Estimates audited?

First and foremost you need to understand management's rationale and methods for developing estimates before you can judge reasonableness.

Next Auditor should formulate their own opinion on what a good estimate should be and compare it.

Finally determine if subsequent events affect the estimate.

45

Whose property are audit documentation (audit workpapers)? In what form must they be?

Audit workpapers are the property of the auditor.

They can be paper or electronic.

They must include a WRITTEN audit program (either paper or electronic).

46

What is the Current File?

Information pertaining to the current year's audit.

47

What is the Permanent File?

Information used for this audit and future audits which is updated as needed.

48

How long must audit workpapers be maintained?

Must be kept for 5 years after the audit release date or according to regulations whichever is longer.

Must be kept for 7 years under PCAOB Audit

PCAOB audits also require an Engagement Completion Document

49

What is the primary requirement for audit workpapers besides being written?

Any experienced auditor should be able to look at your work and understand what you did.

50

How should documents added to work papers be treated?

If further documents are added to the work papers after the audit report is issued it must be documented as to who added them why they were added and any effects on the audit report.

51

How should documents removed from workpapers be treated?

After the audit report is released the firm has 60 days to subtract from the file.

You can still add to the file if you document it but you cannot delete any information after 60 days.

Note - for SEC auditors the PCAOB only allows deletions up to 45 days after issuance of the audit report.