Extra Help

Question 1

Potential Bias in managements judgement

Answer 1

• Selective correction of misstatements brought to managements attention during audit
• The identification by management of additional adjusting entries that offset misstatements accumulated by the auditor
• Bias in selection and application of accounting principles
• Bias in accounting estimates

If the auditor identifies bias in managements judgments, the auditor should evaluate whether this bias, together with the effect of uncorrected misstatements, results in material misstatement in the financial statements

Question 2

What is the Cutoff assertion closely related to?

Answer 2

• Completeness assertion

- Occurrence assertion

Question 3

What is included in a voucher package?

Answer 3

• Approved Voucher
• Invoice
• Receiving Report
• Purchase Order
• Requisition
• Voucher

Question 4

Sampling: Affect due to higher (lower) in the risk of incorrect acceptance

Answer 4

Decrease (Increase) in required sample size

Inverse relationship

Question 5

Sampling: Affect of an increase (decrease) in population variability

Answer 5

Increase (decrease) in required sample size

Direct relationship

Question 6

Sampling: Affect of a smaller (larger) tolerable misstatement

Answer 6

Increase (decrease) in required sample size

Inverse relationship

Question 7

General Standards

Answer 7

T-Training and proficiency

I-Independence

P-Professional Care

Question 8

Standards of Fieldwork

Answer 8

P-Planning & Supervision

I-Internal Control

E-Evidence

Question 9

Standards of Reporting

Answer 9

C-Consistency

D-Disclosures

O-Opinion

G-GAAP

Question 10

Three Objectives of Internal Control

Answer 10

Reliability of Financial Reporting (F/S Fraud)

Operational Efficiency/Effectiveness (Asset Misappropriation)

Compliance With Law & Regulations (Corruption)

Question 11

Five Components of Internal Control

Answer 11

C-Control Environment

R-Risk Assessment

I-Information & Communication

M-Monitoring

E-Existing Controls

Question 12

Testing Internal Controls

Answer 12

I-Inquiry

R-Re-performance

O-Observation

N-Inspection

Question 13

Auditors Responsibility for Subsequent Events

Answer 13

P-Post balance sheet transactions

R-Representation Letter should be obtained from management

I- Inquiry

M-Minutes of stockholders

E-Examine latest available interim financial statements;c compare them with the financial statements under audit

Question 14

Existing Controls Mnienmic

Answer 14

P- Pre-numbering of documents

A-Authorization of Transactions

I-Independent Checks to maintain asset accountability

D-Documentation

T-Timely and Appropriate Performance Reviews

I-Information processing controls

P-Physical Controls of safeguarding assets

S-Segregation of Duties

Question 15

Fraud Occurs due to

Answer 15

Rationalization

Incentive/Pressure

Opportunity

Question 16

Documentation may include any Item the auditor can FIND

Answer 16

F-Flowcharts

I-Internal Control Questionnaire or Checklists

N-Narrative

D-Documentation from the client, including copies of the entity’s procedures manuals and organizational charts

Question 17

Audit Evidence Hierachy

Answer 17

A-Auditor Knowledge
E-External Evidence
I-Internal Evidence
O-Oral evidence
U-Know it

Question 18

Auditors Consideration of an entity’s ability to continue as a going concern

Answer 18

PROCEDURES:

A-Analytical procedures
D-Debt Compliance
M-Minutes
I-Inquiry of clients legal counsel
T-Third Parties-confirm information
S-Subsequent events review

CONDITIONS & EVENTS:

F-Financial difficulties
I-Internal matters
N-Negative trends
E-External matters

Question 19

The six interrelated elements of quality control are

Answer 19

H-Human resources
E-Engagement/client acceptance and continuance
L-Leadership responsibilities
P-Performance of the engagement

M-Monitoring
E-Ethical requirements

Question 20

Sampling Interval and Sample Size are determined PPS

Answer 20

Sampling Interval = Tolerable Misstatement/ Reliability Factor

Sample Size = Recorded amount of the population/sampling Interval

Question 21

Examples of positions that are audit-sensitive

Answer 21

• Cashier
• Internal Auditor
• Accounting Supervisor
• Purchasing Agent
• Inventory Warehouse Supervisor

Question 22

The ethical principles that guide the work of auditors in the conduct of audits under government auditing standards include

Answer 22

• Serving Public Interest
• Integrity
• Objectivity
• Proper Use of Government Information, Resources, and Positions
• Professional Behavior

Question 23

Inherent Limitations of Internal Control

Answer 23

• Management override of internal control
• Human error, which may include errors in the design or use of automated controls
• Deliberate circumvention of controls by collusion of two or more people

Question 24

Control Environment factors include

Answer 24

• Communication and enforcement of integrity and ethical values.
• Commitment to competence.
• Participation of those charged with governance.
• Management’s philosophy and operating style.
• Organizational structure.
• Assignment of authority, responsibility, and accountability.
• Human resource policies and practices.

Question 25

Understanding of Client's Business for Compilations

Answer 25

``` S-Staff qualifications T-Transaction types and frequency A-Accounting basis used to prepare the financial statements F-Form of the accounting records F-Financial statements form and content ```

Question 26

Review Requirements

Answer 26

U-Understanding with client should be established L-Learn and/or obtain sufficient knowledge of the entity's business I-Inquires should be addressed to appropriate individuals A-Analytical procedures should be performed R-Review--other procedures should be performed C-Client represtation letter should be obtained from management P-Professional judgement should be obtained from management P-Professional judgement should be used to evaluate results A-Accountant (CPA) should communicate results

Question 27

Agreed Upon Procedures Engagements Conditions

Answer 27

I-Independence of the practitioner A-Agreement of the parties M-Measurability and consistency S-Sufficiency of the procedures U-Use of the report is restricted to the specified parties R-Responsibility for the subject matter E-Engagements to perform agreed upon procedures on prospective financial statements

Question 28

Assessing risk of material misstatements

Answer 28

1. Obtain an understanding of the entity and its environment, including its internal control 2. Assess the risks of material misstatement 3. Respond to the assessed level of risk by designing further audit procedures based on this assessment 4. Test internal control to evaluate their operating effectiveness 5. Perform substantive procedures 6. Evaluate the sufficiency and appropriateness of audit evidence obtained

Question 29

Referring to Probability Proportional to size sample: What is done when the recorded amount is larger than the sample interval?

Answer 29

The actual difference is used as the projected error between Recorded Amount Minus Audit Amount