Exam 1 Wrong Answers Flashcards
Documented the expected results of nonaudit services for the audit committee is…
Not required
Prior to seeking approval of nonaudit services related to internal control from the audit committee, a registered public accounting firm must do all 3 of the following
1 Describe in writing the scope of the nonaudit services
2 discuss potential effects on independence
3 document substance of discussion with audit committee
Significant deficiencies are deficiencies in the design or operation of internal control. The level of deficiency can be affected by…2
1 diversity of entity’s business and
2 size of entity’s operations
Severity of deficiency depends on the…2
1 Magnitude of potential misstatement resulting from the deficiency
2 whether there is a reasonable possibility that the entity’s controls
Will fail to prevent, or detect and correct misstatement
Environment of the entity, including its diversity and size, can affect…
The risk of material misstatement
Environment of the entity, including its diversity and size, can affect the risk of material misstatement and therefore…
The possibility that a deficiency could be a significant deficiency
Which of the following types of audit evidence generally is most appropriate, analytical procedures or confirmation of account info?
Why?
Confirmation of account info, evidence obtained from outside the
Entity
2 types of misstatements that are relevant to the auditor’s consideration of fraud
1 misstatements arising from fraudulent financial reporting
2 misstatements arising from missappropriation of assets
Misstatements arising from cash account misstatements are…
Not a type of misstatement that is relevant to the auditor’s consideration of fraud
The auditor should prepare audit documentation that enables an experienced auditor to understand that…
Accounting records agree or reconcile with audited values
Audit documentation should enable an experienced auditor, having no previous connection to the audit to understand all of the following except…
Changes in the audit plan from the prior year
How would increases in tolerable misstatement and assessed level of control risk affect the sample size in substantive test of details?
Increase in tolerable misstatement would decrease sample size
Increase in assessed level of control risk would increase sample
Size
Tolerable error is a planning concept and is related to…
Auditor’s preliminary estimates of materiality
The higher the auditor sets the tolerable error…
The smaller the sample size the auditor will require
Tolerable error or tolerable misstatement is the…
Maximum error in related account balance or class of transactions That may exist without causing FS to be materially misstated
Assessing control risk is the process of evaluating the…
The effectiveness of entity’s internal controls in preventing or
Detecting material misstatements in financial statements
The less an auditor can depend on internal control in preventing or detecting material misstatements in the financial statements, what is its affect on sample size?
The larger the sample size the auditor will require
An accountant is required to obtain a management representation letter…
When performing a review of FS of a nonissuer
If an accounts receivable confirmation response is not received after the second request,mother best procedure for the auditor would be to…
Inspect shipping records documenting merchandise sold to debtors
Inspect shipping records documenting merchandise sold to debtors. What does this audit procedure accomplish?2
1 Provides evidence that merchandise from a recorded sale was
Sent to customer
2 substantiating amount owed
Reviewing the cash receipts journal for the month prior to year end, would not be a procedure an auditor would most likely perform for year end accounts receivable confirmations when auditor hasn’t received a second reply because…
Review of cash receipts journal would need to be done for month
Following year end
Which of the following statements ordinarily is included among written management representations obtained by the auditor?
Management has made available to you all financial records and
Related data
Auditor reports on…(compared to management)
Material weaknesses in internal control (not management)
When reporting on financial statements of a regulatory entity that are prepared in accordance with the requirements of financial reporting provisions of a government regulatory agency to whose jurisdiction the entity is subject, the auditor may report on the financial statements as being prepared in accordance with a comprehensive basis other than GAAP. However reports of this nature should only be issued if…
The financial statements are intended solely for filing with one
Or more regulatory agencies
