Final Review Deck Flashcards
1
Q
relate to the conduct of the firm’s audit practice as a whole
A
Quality control standards
2
Q
relates to the conduct of individual audits
A
GAAS
3
Q
Review of assistants’ work is necessary to determine whether it was performed in a satisfactory manner and to determine whether the work supports the conclusions presented in the what?
A
auditor’s report
4
Q
require a description of the scope of the auditor’s testing of compliance and of internal control.
A
government auditing standards
5
Q
Which of the following audit techniques most likely would provide an auditor with the most assurance about the effectiveness of the operation of internal control?
A
observation of client personnel
6
Q
According to the profession’s ethical standards, a CPA would be considered independent in which of the following instances?
A
Any direct or material indirect financial interest impairs a CPA’s independence with respect to a client
7
Q
A successor auditor is required to attempt communication with the predecessor auditor prior to:
A
accepting the engagement
8
Q
As long as the CPA concludes that there is a reasonable justification for the change from a audit to a review, what happens?
A
The CPA does not have to do anything about it. A special thing about review is they say they are substantially less in scope than an audit.
9
Q
What is a key thing about the fixed asset account and repairs and maintenance account when it comes to the completeness assertion?
A
the auditor is looking for items recorded as repairs or maintenance that would more properly have been capitalized as betterment of an asset
10
Q
What type of non-audit services may be provided by a registered public accounting firm to the client contemporaneously with the audit when preapproval is granted by audit committee action?
A
Tax services
11
Q
What is the key thing when a group auditor makes reference to a component auditor’s work versus when they don’t make reference?
A
The group auditor makes reference to the compoent auditor when the group engagement partner is unable to review the component auditor’s audit documentation
When the group engagement partner decides to assume responsibility for the work of the component auditor, no reference is made to the work of the component auditor, regardless of the type of audit report expressed.
12
Q
Which of the following entity-level controls is specifically identified in the professional standards as a control of importance that should be evaluated?
A
period-end financial reporting controls and the control environment
13
Q
Any report issued on significant deficiencies in internal controls noted during the audit should contain what? 3 things
A
1) Indicate that the purpose of the audit was to report on the f/s and not to provide assurance on internal control
2) include the definition of significant deficiencies
3) include a restriction on the use of the report
14
Q
When does an auditor refer to the work of a specialist?
A
If the auditor issues a modified opinion
15
Q
When can the user auditor make reference to the work of a service auditor?
A
To explain a modification of the user auditor’s opinion
16
Q
used to draw attention to a matter that is appropriately presented or disclosed in the financial statements, but that, in the auditor’s judgment, is of such importance that it is fundamental to users’ understanding of the financial statements
A
emphasis of matter paragraph
17
Q
used to report on a matter not presented or disclosed in the financial statements
A
other matter paragraph
18
Q
What audit procedure alone is not sufficient to support a conclusion on the operating effectiveness of controls?
A
Inquiry
19
Q
When an accountant determines that a change in the scope of an engagement from an audit to a review is appropriate, what should the account do?
A
They would go ahead and issue the review report. The accountant would not refer to the original engagement.
20
Q
What kind of documentary evidence is the most reliable in an audit?
A
Original audit evidence
21
Q
the auditor’s best estimate, before performing audit procedures, of misstatements that the auditor expects to find during the audit.
A
expected misstatement
22
Q
an auditor’s best estimate of misstatements in a population extrapolated from misstatements identified in an audit sample.
A
projected misstatement
23
Q
What are the main types of audit procedures to test controls?
A
Walkthrough
Observation
Reperformance
Inspection
Inquiry
24
Q
Audit objectives should be developed based on what?
A
Financial statement assertions
25
Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments?
treasurer
26
The auditor concluded that the disclosures made in the financial statements did not adequately inform financial statement users about the company's ability to continue as a going concern. Under these circumstances, the auditor should issue a(n):
"Qualified (except for) or adverse opinion, depending on the level of materiality."
27
In summary, while _______ principles underpin auditing practices across various environments, the specific application and additional requirements can vary based on the regulatory authority overseeing the audit.
GAAS
28
Investment income from dividends is generally recalculated by comparing recorded income with what?
Records produced by investment services like "Moody's Dividend Record"
29
In an audit of a non-issuer what is the auditor required to communicate in regards to control deficiencies?
The auditor is required to communicate both significant deficiencies and material weaknesses to management and those charged with governance.
30
In testing plant and equipment balances, an auditor EXAMINES new additions listed on an analysis of plant and equipment. This procedure most likely obtains evidence concerning management's assertion of:
existence
31
The statement concerning disclosure of non-compliance with laws and regulations would appear in what?
The management representation letter
32
The management representation letter must include a statement about what in regards to uncorrected misstatements?
The effects of uncorrected misstatements are immaterial to the financial statements as a whole and a summary of the uncorrected misstatements should be included.
33
When does the auditor not have to take active responsibility for subsequent events?
The auditor's active responsibility stops on the date of the auditor's report.
34
How should differences of opinion between the engagement partner and the quality control reviewer be resolved?
By following the firm's policies and procedures
35
What is an auditor's responsibility for supplementary information required by the GASB that is placed outside the basic financial statements?
The auditor should apply limited procedures to the information (to determine that it is consistent with the basic audited financial statements) and add an other-matter paragraph to the financial statement audit report.
36
An understanding of internal control is not required in _____________ engagements
SSARS
37
A management representation letter is required for the limited assurance provided by a review engagement; it is not required for ______________ engagements because it is merely the presentation of information that is the representation of management, and it does not contemplate expression of any assurance.
compilation
38
Inquiry regarding subsequent events is required for _____________ engagements as part of the basis for the limited assurance expressed.
review
39
Involves examining records or documents
inspection
40
when an auditor independently performs procedures or controls that were originally performed as part of an entity's internal control.
reperformance
41
occurs when an auditor looks at a process or procedure performed by others.
observation
42
outlines the nature, extent, and timing of the audit procedures that will be performed by the auditors on an engagement.
audit plan
43
provided by a Statement on Auditing Standards is the most authoritative of level of auditing guidance for audits of non-issuers. Auditors are required to comply with SASs, and should be prepared to justify any departures therefrom.
General guidance
44
What can cause an organization to have a control deficiency?
deficiency in design: example is no segregation of duties
deficiency in operation: the person carrying out control is not trained well enough or is not competent enough
45
Who do you report a material weakness to when it is probable?
In 10-k for a public company
To audit committee
To management
46
Who do you report a control deficiency to if it is probable, not material, but significant?
This is a significant deficiency
audit committee
management
47
Who do you report a control deficiency to if it is not material nor significant?
to management
48
Which of the following statements correctly defines the term reasonable assurance?
A high, but not absolute, level of assurance to allow an audit to detect a material misstatement
49
Under U.S. auditing standards, the auditor ______________ states in the Basis for Opinion section of the auditor's report: "We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion." Consistency is implied in the auditor's report.
explicitly
50
An opinion qualified due to a material departure from generally accepted accounting principles would indicate that, ______________________________________________________________, the financial statements are presented fairly.
except for the problem noted
51
An auditor’s report should include a restricted use paragraph and an alert to readers about the preparation of the financial statements in accordance with a special purpose framework when the financial statements are prepared on the:
contractual basis of accounting
This kind of makes sense because a contract is usually with a limited number of parties
52
What are the two opinions for financial statements that are prepared in accordance with the regulatory basis?
Fair on regulatory basis
Fair on GAAP basis
53
What are the difference between internal control component and internal control principle?
A componnent is one of the five following: control environment, risk assessment, control activities, monitoring, and information/communicaiton
A principle is under one of the five components
54
When is an emphasis of matter paragraph required for a non-issuer(private company?
SMC acronym
SPECIAL PURPOSE FRAMEWORK
MATERIAL JUSTIFIED CHANGE IN ACCOUNTING PRINCIPLE
CHANGE IN AUDIT OPINION (could you emphasis of matter or other matter paragraph)
55
When is an other matter paragraph required for a non-issuer?
These will deal with things about the audit and is the underlying concept
Change in Audit opinion
Prior f/s are audit by predcesor and not included
Comparative f/s where prior period is not audited
Restrict the use of the report
Report on compliance in auditor's report
56
Where is going concern when substantial doubt is not alleviated reported?
Report in separate section of auditor's report
57
Where are the component auditors named in an Auditor's report if the group auditor does not assume responsibility for them?
They should not be named
58
What are things an auditor considers before an accepting an engagement?
Communicating with predecessor auditor about the following:
Integrity of Management
Management following GAAP with preparing financial statements
Reason for the change of auditor
Predecessor auditor's communication to MGMT, audit committee, and those charge with governance about fraud, noncompliance with laws and regulations, and matters relating to internal control
59
The overall audit strategy outlines what?
scope of audit
reporting objectives
timing of audit
required communications
factors that determine focus
preliminary assessment of materiality and tolerable misstatement
60
What's the difference between the audit strategy and audit plan
In essence, the audit strategy provides the framework and vision, while the audit plan provides the specifics on how to achieve that vision through actionable steps. Understanding this distinction can help in effectively organizing and executing audit activities.
61
When can an auditor refer to the specialist in their report?
The report is being modified due to the specialist's findings
The auditor may need the permission of the specialist before making reference to the specialist.
62
Materiality should be based on what?
Based on the smallest level of misstatement that could be material to any one of the financial statements.
63
What are the fraud risk factors?
pressure
opportunity
rationalization
64
In every audit, there is a presumption that there is risk of both?
improper revenue recognition and management override of controls
65
What are examples of inherent limitations in internal control?
human error
collusion
management override of controls
66
Who should prepare an attorney letter and who should mail it?
The client should prepare it
The independent auditor should mail it
67
How does an increase in profit for an entity affect inherent risk?
It decreases RMM because there is less pressure on management
68
How does change in basis of accounting affect RMM?
Increases it because it is hard to do
Lots of changes
69
How does an IPO affect RMM?
Increases RMM because of the complexity of going from non-issuer to an issuer
70
Which financial statement assertion does examining consignment agreements test?
Rights and obligations
Rights to the inventory
71
Which f/s assertion does reviewing bond indenture to see if the client complied with restrictive covenants?
Completeness (presentation and disclosure)
72
What f/s assertion does tracing beginning balance for inventory to prior year's audit documentation test?
allocation and valuation
73
An auditor who uses statistical sampling for attributes in testing controls should reduce the planned reliance on a prescribed control when the:
Sample rate of deviation + allowance for sampling risk > tolerable rate
74
Inclusion of negative balances requires special design considerations with ________ sampling, but it does not require special design considerations with ___________ ___________ sampling.
PPS
classical variables
75
What are the four departments involved in the expenditure cycle and what is their duties?
Purchasing: Authorization of purchase
Receiving: Customody of item
Accounts payable: Record keeping. three way match of purchase order, receiving report, and vendor invoice
Treasurer: Custody of cash
76
What are different direction of test and what financial statement assertion do they test?
Usually tracing means going from source documents to record completeness
Usually vouching means going from records to source documents and test existence
77
In auditing a manufacturing entity, which of the following procedures would an auditor most likely perform to determine whether slow-moving, defective, and obsolete items included in inventory are properly identified?
During a tour of the manufacturing plant or production facility, the auditor should be alert for items that appear to be old, obsolete, or defective.
78
Who is responsible for counting the inventory?
Management
79
Which of the following provides the best evidence supporting the existence of marketable securities included in the client's financial statements?
"A custodial statement provides valid and relevant external evidence regarding the existence of securities."
80
According to U.S. GAAS, the date of the management representation letter should be:
"U.S. GAAS require the date of the written representations to be the date of the auditor’s report."
81
Which of the following best describes the primary purpose of a management representation letter obtained during an audit?
The purpose of the management representation letter is for management to acknowledge their responsibility with respect to the fair presentation of the financial statements and to document management's responses and representations related to various audit inquiries.
82
Which of the following would be a result of management refusing to provide a representation letter to the auditor at the conclusion of the audit?
The management representation letter is mandatory and must be received to render an unmodified opinion. Failure to furnish the letter represents a scope limitation and generally results in a disclaimer or opinion or in withdrawal from the engagement.
83
A control deficiency exists in a client's internal control environment when:
The design or operation of a control does not allow employees to prevent or detect a material misstatement on a timely basis
84
Significant deficiencies and material weaknesses for a non-issuer must be communicated how, to who, and what does the auditor do?
In writing
management and those charged with governance
define both significant deficiencies and material weakness
85
What has virtually no effect on sample size?
the # of items in the population, unless the population size is very small
86
What are the procedures that the auditor does on other information presented in an annual report?
The auditor is required to read the other information
87
What are the procedures that the auditor does with required supplementary information in an annual report?
Apply limited procedures
88
What is the title for an AUP report?
Independent Accountant's Report on Applying Agreed-Upon Procedures
89
Who is responsible for the sufficiency of the procedures in an AUP?
The engaging party so this would be the client, not the CPA firm.
90
What are the key things about materiality, opinion, and assurance for AUP?
materiality is not relevant, practioner reports on whether exceptions were present or not
No opinion or assurance is provided
91
. Auditors are not required to search for control deficiencies that are less severe than what?
a material weakness
92
if found to be operating effectively, may limit the severity of an identified deficiency and prevent it from being a material weakness.
compensating controls
93
In an audit of internal control for a non-issuer, communication of significant deficiencies and material weaknesses must be made by when?
The report release date
94
Examination engagements provide what type of assurance?
positive assurance in the form of an opinion
95
No assurance is provided in what type of engagements?
Preparation
Compilation
AUP
96
What are the types of prospective financial statements and which one is for general use and which one is restricted use?
Financial forecast: general use
Financial projection: restricted use
97
are financial statements that show the effect of a hypothetical event on historical financial statements if it had occurred during the period covered by the financial statements.
pro forma financial statements
98
reflect the expected financial results of a future period based on expected conditions and expected courses of action.
financial forecasts
99
reflect the financial results of a future period based on hypothetical situations.
financial projection
100
An engagement for agreed-upon procedures provides no assurance, which means what?
a disclaimer of opinion is rendered on the subject matter.
101
reports on controls placed in operation"
soc 1 type 1 report
disclaim opinion on operating effectiveness
102
"reports on controls placed in operation and tests of operating effectiveness
soc 1 type 2 report
103
The requirement is to determine the proper scope of a government audit. The Government Accountability Office Yellow Book suggests that in addition to financial statements, such an audit may include consideration of what 3 things?
Program results
compliance with laws and regulations
economy and efficiency
104
What is a difference GAGAS and GAAS?
Audits performed in accordance with government auditing standards require a written communication regarding the auditor’s work on internal control. Generally accepted auditing standards only require written communication about internal control when significant deficiencies are noted.
105
The requirements to perform a Single Audit under the provisions of 2 CFR 200 apply to entities that:
Receive and expend $750,000 in federal financial assistance in the fiscal year
106
What type of engagements require a management representation letter?
Audit
Review
107
The accountant may compile financial statements that omit substantially all disclosures provided that:
The accountant’s report clearly indicates the omission by including a fourth paragraph disclosing such omissions; and
To the accountant’s knowledge, the omission is not intended to mislead any person who might be expected to use the financial statements.
108
is to provide the accountant, through inquiries and analytical procedures, with a basis for reporting whether material modifications should be made to such information to conform with generally accepted accounting principles.
the objective of a review of interim financial information
109
What impairs independence under the Independence Rule of the Code of Conduct?
Direct financial interest in the client
Indirect material financial interest
110
Which of the following will not impair independence under the U.S. Department of Labor's independence rules for audits of employee benefit plans?
An actuary employed by the audit firm performs services for the employee benefit plan.
110
Any individual who alters, destroys, or conceals a document with the intent to modify the document and its integrity or the availability of the document in an official proceeding shall be what?
Fine and/or subject tot not more than a 20-year prison term
111
According to the SEC, other audit partners should rotate off the audit engagement after no more than how many years?
7 years
112
According to the SEC, lead partners and concurring partners are subject to a ____ year "time-out" period before returning to an engagement.
5
113
For the following current assets, would the auditor test the full population or sample: Cash, A/R, AFDA, and Inventory
Cash: full
A/R: Sample
AFDA: full
Inventory: sample
114
actions that help ensure that management's directives are carried out
control activities
115
A compilation can omit disclosures if there is not intent by the client for what?
To mislead users and the omissions are disclosed
116
What is the key word that comes from the undue influence threat?
The practioner is feeling PRESSURE from the client
117
A period during which real GDP is falling for at least two consecutive quarters is called:
a recession
118
relates to differences arising from the judgments of management concerning accounting estimates that the auditor considers unreasonable or the selection or application of accounting policies that the auditor considers inappropriate.
judgmental misstatement
119
Reports on compliance with contractual agreements or regulatory requirements related to audited financial statements include what type of assurance?
negative assurance
120
What does the voucher package consist of and who checks this?
Usually A/P department
Purchase requisition ------> Purchase Order
Receiving Report
Vendor Invoice
121
In designing an audit plan, an auditor should design specific audit procedures that relate to the what?
Financial statement assertions
122
How to calculate the projected error for PPS sampling?
1) Determine what the sampling interval is
2) If the error is greater than the sampling interval then the projected error is equal to the error
3) If the error is less than the sampling interval, then it is (Error/Recorded Amount) * Sampling interval = Projected error
123
What are the three principles of the information and communication component of the COSO framework to help differentiating between information and communication/monitoring
Obtaining and using information
Communicating internally
Communicating externally
124
If it is impractical to observe the physical count of inventory, what can the auditor do?
Alternative procedures may be applied
125
Which of the following procedures would an auditor normally use to identify an unusual year-end balance?
Scanning the trial balance
126
To exercise due professional care a CPA must be/do what?
posses the same degree of skill commonly possessed by others in the field and must critically review the work done by others assisting in the engagement
127
findings of internal control deficiencies should be reported to who?
Business process owner
To at least one level of management above the BPO
128
misstatements about which there is no doubt
factual misstatements
129
refers to misstatements that are the auditor's best estimate of misstatements in the population
projected misstatement
130
When can the client depart from GAAP?
NEW legislation
evolution of a NEW form of business transaction
key word is NEW
131
A misstatement in a balance that is what most likely would result in the auditor concluding that the financial statements are free of material misstatement.
CLEARLY TRIVIAL
132
How to calculate the sample size when you are given the sampling interval and you are not stratifying the population?
Total Population Amount/Sampling Interval = # of items in sample
133
How to stratify a population? Recall the TBS with Mike Brown doing the skill builder
1) identify the sampling interval
2) seperate the population into things that are greater than the sampling interval and things that are less than the sampling interval
3) for the things that are less add them up and divide by the sampling interval
134
Independence is generally not impaired by relationships with a family member being an employee at an audit client unless that family member is in what kind of position?
key position
135
2 CFR 200 single audit allows auditor to use what type of approach to determine major grants?
risk-based approach
136
Reporting standards for financial audits under Government Auditing Standards differ from reporting standards under generally accepted auditing standards (GAAS) in that Government Auditing Standards require the auditor to do what?
Describe the scope of the auditor's tests of compliance with laws and regulations
137
Under the Single Audit Act, materiality is determined how?
Seperately for each major federal financial assistance program that expends more than $750,000
138
What is a key difference of reporting on internal control for GAAS versus GAGAS very simply?
GAAS: only required written communication about internal control when there are significant deficiencies
Governmental audits ALWAYS required a written communication regarding the auditor's work on internal control
139
When do you reference a service auditor if you are auditing a client that outsources for their payroll process?
If the auditor issues a unmodified opinion then they don't reference the service auditor but can reference them if they issue a modified opinion
140
GAGAS is more similar to what type of audit?
Integrated audit
141
The auditor will not express an opinion regarding the effectiveness of internal control over what in a audit under GAGAS?
over compliance, but will over financial statements under GAGAS
142
How to project the auditor's value of the population using mean per unit estimation?
(Audited value of sample/# of items in sample) * # of items in the population
143
How to project the auditor's value of the population using ratio estimation?
(Audited Value of Sample/Book Value of Sample) * Total book value of population
144
How to project the auditor's value of the population using point estimate?
1) (Book Value of Sample - Audited Value of Sample)/# of items in sample
2) Multiple the value in step 1 by the # of items in the population = projected error
3) Total book value of population - projected error
145
Which file do the BOD meeting minutes go in?
Permanent File
146
What is a material weakness?
when the potential misstatement may cause a material misstatement in the financial statements (i.e., potential misstatement is equal to or greater than materiality)
147
What is a significant deficiency?
when the deficiency is less severe than a material weakness but important enough to merit attention by those charged with governance (i.e., potential misstatement is less than materiality but more than inconsequential).
148
What is a control deficiency?
when the design or operation of a control does not allow management or employees to prevent, detect, or correct misstatements on a timely basis and is not considered a significant deficiency or material weakness (i.e., potential misstatement is inconsequential).
149
In a financial statement audit for a non-issuer, the auditor must communicate material weaknesses to whom and by what date?
To mgmt and those charged with governance
Within 60 days following the audit report release date
150
In a financial statement audit for a non-issuer, the auditor must communicate a significant deficiency to whom and by what date?
To mgmt and those charged with governance
Within 60 days following the audit report release date
151
What is the communication requirement for general control deficiencies for non-issuers?
No formal communication is necessary
152
What type of procedures are performed on required supplementary information?
Limited procedures
153
involves the independent execution of procedures that were originally performed as part of the entity's internal control
reperformance
