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Flashcards in Exam 1 Wrong Answers Deck (31):
0

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

1

Documented the expected results of nonaudit services for the audit committee is...

Not required

2

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

3

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

4

Environment of the entity, including its diversity and size, can affect...

The risk of material misstatement

5

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

6

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

7

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

8

Misstatements arising from cash account misstatements are...

Not a type of misstatement that is relevant to the auditor's consideration of fraud

9

The auditor should prepare audit documentation that enables an experienced auditor to understand that...

Accounting records agree or reconcile with audited values

10

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

11

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

12

Tolerable error is a planning concept and is related to...

Auditor's preliminary estimates of materiality

13

The higher the auditor sets the tolerable error...

The smaller the sample size the auditor will require

14

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

15

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

16

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

17

An accountant is required to obtain a management representation letter...

When performing a review of FS of a nonissuer

18

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

19

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

20

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

21

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

22

Auditor reports on...(compared to management)

Material weaknesses in internal control (not management)

23

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

24

A CPA may respond to potential clients regarding...

Application of accounting principles

25

CPAs should recommend how a transaction be handled, but they should also state that...

While they recommend a certain type of treatment, the responsibility
For the proper accounting treatment rests with preparers of FS

26

Compilation documentation documentation at a minimum should include what 3 items?

1 engagement letter

2 any significant findings or issues and

3 communications regarding illegal acts and fraud that come to accountant's attention

27

Under the Statements on Auditing Standards (SASs), the auditor should complete the assembly of the final audit file on a timely basis, but within how many days following the report release date?

Within 60 days

28

If the auditor identifies significant risk related to fraud involving improper revenue recognition the auditor may perform...

2) May not perform

Confirm contract terms with customers

2) may not observe inventory at year end as agreed upon in
Planning stages of audit

29

A member of a group engagement team will not be subject to discipline if a foreign component auditor departed from the ethics requirements as long as the foreign component auditor is...

in accord with ethics and independence requirements set
forth in IESBA's ethics for professional accountants

30

The written communication regarding significant deficiencies and material weaknesses identified during the audit should not include...

Paragraph describing management's assertion concerning effectiveness of internal control