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AUD COPY > NINJA MCQ > Flashcards

NINJA MCQ Flashcards

1
Q

auditor to use audit eviedence of prior years.

diff bw non-issuer and PCAOB

A

If auditor plans to use audit evidence about the operating effectiveness of controls obtained in prior audits and the controls have not changed after they were last tested, the auditor should test the operating effectiveness of such controls at least once in every three years.

However, PCAOB standards for issuers do not allow the auditors of issuers to use the results of the prior year’s test of controls in the current audit. Thus, the frequency of control testing should be every year for issuer clients.

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2
Q

prep of financial statement (SSARS)

A

Each page of the financial statements should include a statement indicating that no assurance is provided on the financial statements

or

the accountant will be required to either issue a disclaimer that makes it clear that this is the case—such a disclaimer is not considered to be a report—or perform a compilation engagement

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3
Q

A system of quality control

A

should provide the firm with reasonable assurance that its personnel comply with professional standards and applicable regulatory and legal requirements, and that the reports issued are appropriate in the circumstances

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4
Q

analytical procedure

A

Analytical procedures consist of evaluations of financial information made by a study of plausible relationships among both financial and non financial data.

NOT projections

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5
Q

The valuation assertion

A

for an investment accounted for by the equity method can generally be satisfied by referring to the audited financial statements of the investee company.

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6
Q

analytical procedure in PLANNING an audit

A

the auditor should perform analytical procedures relating to revenue with the objective of identifying unusual or unexpected relationships that may indicate a material misstatement due to fraudulent financial reporting

Comparing current year to prior year sales volumes

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7
Q

Critical Audit Matters (CAM)

A

matters communicated or required to be communicated to the audit committee and that:

Relate to accounts or disclosures that are material to Financial Statements.

Involved especially challenging, subjective, or complex auditor judgment

  • Significant management estimates and judgments made in preparing Financial Statements
  • Areas of high Financial Statements and audit risk
  • Significant unusual transactions
  • Other significant changes in Financial Statements

Even if the auditor does not identify any critical audit matter, a paragraph on critical audit matter will need to be included. Further, the inclusion of this paragraph is dependent solely on the two points stated above and does not depend on the kind of audit opinion provided or on the inclusion of an explanatory paragraph.

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8
Q

If there are CAMs, communication of the CAMs is required in the audit report:

A

Identify the CAM

Describe the principal considerations that led the auditor to determine that the matter is a CAM

Describe how the official audit matter was addressed in the audit

Refer to the relevant F/S accounts or disclosures that relate to the CAM

However, if there are no CAMs, include a statement in the auditor’s report that there are no CAMs

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9
Q

CAM

A

only applies to ISSUERS

this order:

  1. opinion paragraph
  2. basis for opinion paragraph
  3. critical audit matter paragraph (if needed)
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10
Q

PCAOB requirement of auditor tenure

A

must include in report how many years auditor has been the company’s auditor (2015-2019)

disclose the year the auditor began serving consecutively as the company’s auditor has been made mandatory to be included in the audit report.

placed below the signature line

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11
Q

which paragraph is exclusively part of a ISSUER (PCAOB) audit report?

A
  1. CAM
  2. emphasis of a matter
  3. explanatory paragraph
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12
Q

what should predecessor auditor do before reissuing prior year audit report?

A
  1. Read current year comparative financial statements and compare with the prior period financial statements issued
  2. Inquire for any information that has come to management’s attention or any subsequent events after the prior period financial statement date that would require adjustments, disclosures on prior period financial statements
  3. Obtain representation letters both from successor auditor and from the management.
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13
Q

first step in planning audit

A

The first step in planning an audit for an auditor is to gain an understanding of the design of the relevant control activities.

This helps an auditor get a basic understanding of the entity’s internal control structure with which he can identify the potential areas with misstatements that could occur.

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14
Q

emphasis of a matter paragraph

A

talks about items that appropriately presented or disclosed in the financial statements

  1. Include it immediately after the opinion paragraph.
  2. Use the heading “Emphasis of Matter” or other appropriate heading.
  3. Describe the matter being emphasized and refer to the relevant disclosures (or note#) about the matter in financial statements.
  4. Indicate that the auditor’s opinion is not modified with respect to the matter emphasized.
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15
Q

review engagement of NONISSUER, departure from GAAP

A

disclose in separate paragraph in accountant report

the accountant may modify the standard review report to disclose the departure that should be disclosed in a separate paragraph of the report under the heading “Known Departures from the (identify the applicable financial reporting framework)” including disclosure of the effects of the departure in financial statements.

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16
Q

Specific requirements for compilation engagements:

A
  1. Engagement letter required and must be signed by the accountant and management (or TCWG).
  2. Obtain an understanding of the financial reporting framework and the significant accounting policies intended to be used in the preparation of the financial statements.
  3. Read financial statements in light of the accountant’s understanding of the applicable financial reporting framework and significant accounting policies adopted by the management and consider whether the financial statements appear to be appropriate in form and free from obvious material misstatements.
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17
Q

which paragraph always required to be included in the audit report of an ISSUER client

A
  1. opinion paragraph
  2. basis of opinion
  3. critical audit matters (CAM), even if there is none
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18
Q

Subsequent events, for which conditions existed at the balance sheet date,

after calendar year end but before audit report date

A

require adjustment to the financial statements.

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19
Q

Subsequent events, for which conditions DID NOT exist at the balance sheet date,

after calendar year end but before audit report date

A

should be disclosed

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20
Q

Computer-assisted Audit Techniques (CAATs)

A

CAATs enable more extensive testing of electronic transactions and large account files

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21
Q

The Single Audit Act

A

The Single Audit Act requires government organizations receiving federal financial assistance of more than $500,000 within a single fiscal year to engage an auditor to perform a single coordinated audit of the entity and of applicable federal financial assistance program requirements.

has to follow GAS and GAAS

the federal agency that provides the most direct funding to the auditee is most likely to be assigned to an auditee as a cognizant agency to carry out the audit

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22
Q

accounts payable turnover ratio

A

=purchase/avg accounts payable

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23
Q

after discovering $4000 overstatement in sample or 60 out of 1200 (population), what should auditor do next?

A

project the detected error to the entire population.

(Misstatements in the sample x Total number of items in the population) / Sample size.

=(4000*1200)/60
=80,000

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24
Q

how to change nature, timing, and extent of auditing procedures

A
  1. The nature of auditing procedures performed may be changed to provide more reliable audit evidence.
  2. The timing of substantive tests may need to be modified and should be performed at or near the end of the reporting period.
  3. The extent of the procedures applied should be increased by increasing the sample size.
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25
Q

cognizant agency

A

a federal agency designated to carry out the audit

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26
Q

emphasis of a matter paragraph

A
  1. Financial statements are prepared in accordance with the special purpose framework.
  2. Existence of a going concern doubt.
  3. Uncertainty related to the outcome of unusually important litigation or regulatory action,
  4. subsequent and events and
  5. related party transactions.
  6. Changing prior period opinion.
  7. Justified lack of inconsistency.
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27
Q

what should be the title for statement of revenue and expenses prepared using an other comprehensive basis of accounting

A

Statement of income – regulatory basis

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28
Q

when to restrict use of auditor’s report?

A

when fs are prepared under:

  • regulatory basis (specific use)
  • contractual basis

should include ‘other matter’ paragraph to restrict use.

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29
Q

Rankings of test effectiveness (most to least effective)

test of control

A
  1. re-performance
  2. inspection
  3. observation
  4. inquiry
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30
Q

steps in risk assessment procedure

A
  1. perform risk assessment procedure
  2. preliminary assessment of risk of material misstatement
  3. gain understanding of internal control structure
  4. if final assessment of RMM is different from the preliminary assessment, audit plan is modified to increase or decrease the amount of substantive testing to be performed
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31
Q

substantive test

A
  1. analytical procedure

2. test of detail

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32
Q

analytical procedure

A

comparison of data from different sources to determine if reported information is correct

The nature of the mgmt assertions will help determine the efficiency and effectiveness of analytical procedures.

The application of analytical procedures is based on the expectation that relationships among data exist and continue in the absence of known conditions to the contrary.

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33
Q

test of detail

A

Tests of details include tracing figures to supporting documentation to determine if transactions are valid, properly classified, accurate and complete

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34
Q

management assertions

A

Management assertions are claims made by members of management regarding certain aspects of a business on the financial statements.

The nature of the mgmt assertion will help determine whether and to what extent analytical procedures should be used when assessing the efficiency and effectiveness of analytical procedures as compared to tests of details.

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35
Q

prior-period financial statements have been restated

A

predecessor auditor should reissue the report.

if predecessor doesn’t reissue: the successor accounting firm may be engaged to reissue the prior-period report.

If the predecessor accountant does not reissue his or her report and the successor accountant is not engaged to report on the prior year financial statements, the successor accountant should indicate in the introductory paragraph of the compilation or review report that a predecessor accountant reported on the financial statements of the prior period before restatement.

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36
Q

integrated audit

A

report on fs and internal control over financial reporting

  1. The audit is conducted in accordance with Generally Accepted Auditing Standards (GAAS)
  2. The auditor believes the audit provides a reasonable basis for the issued opinion.
  3. Management is responsible for maintaining effective internal control.
  4. Internal control over financial reporting includes policies and procedures regarding the ability to report financial data consistent with management’s assertions.
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37
Q

low control risk

A

less substantive testing
higher detection risk
lower sample size

With lower control risk, an auditor can afford a higher detection risk and use a smaller sample size.

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38
Q

retained earnings

A

net income this year
+ previous year closing retained earning
- dividend paid
= ending retained earnings

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39
Q

management letter

A

written by external auditor
signed by senior management

  • attest to accuracy of fs in accordance w GAAP
  • mgmt acknowledge responsibility for the design and implementation of programs and controls to detect fraud.
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40
Q

advisor relationship

A

does not impair independence

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41
Q

debit memo

A

when shipping department returns items back to vendor, purchasing department should send debit memo to accounting dept so they can make adjustment to vendor account

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42
Q

credit memo

A

provided by vendor

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43
Q

diff between GAAS and attestation standards

A

GAAS:

  1. report on the adequacy of disclosure in the financial statements
  2. standards of fieldwork: “The auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures.”

Attestation Standards:
1. forecast and projections

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44
Q

when control risk is low

A

substantive procedures include analytical procedure and recalculating

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45
Q

The primary objective of using stratification as a sampling method in auditing is to

A

decrease the effect of variance in the total population.

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46
Q

attribute sampling

A

Attribute sampling provides evidence of the rate of occurrence of a specified characteristic in a population at auditor-specified levels of precision and reliability

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47
Q

The chronological steps to applying audit data analytics are as under:

(ADA)

A
  1. Planning of audit data analytics
  2. Access and prepare data
  3. Assess the relevance and reliability of data
  4. Performing audit data analytics
  5. Evaluate and Conclude
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48
Q

unmodified opinion of NONissuer

A

TIMAA - EMO

title
intro
management responsibilities
auditor's responsibilities
audit opinion

emphasis of matter
other matter

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49
Q

auditor’s responsibility paragraph

A

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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50
Q

things component auditor should communicate with group engagement team

A
  1. if they complied with ethical requirements relevant to the group audit, including independence and professional competence
  2. ID of the financial information of the component on which the component auditor is reporting
  3. auditor’s overall findings, conclusions, or opinion
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51
Q

monitoring

A

Controls being assessed through ongoing activities and evaluations

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52
Q

control activities

A

Duties being clearly defined and separated are related to the segregation of duties,

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53
Q

information and communication

A

Policy Manuals providing a clear understanding of internal controls

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54
Q

To understand and document system processes and internal controls,

A

the auditor uses procedures such as talking to the client, internal control and internal control evaluation questionnaires, narrative notes and flowcharts.

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55
Q

type 1 sampling error

A

Type 1 is associated with the efficiency of an audit and occurs when the sample selected indicates an error, but the population is not misstated.

Risk of incorrect acceptance impacts the effectiveness of the audit.

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56
Q

walkthrough

A

Following a transaction from its origination until it is reflected in the financial statements

is a risk assessment procedure to obtain evidence about the design and implementation of internal control. Here the auditor traces transactions from inception through recording in books to reporting in financial statements.

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57
Q

The following duties are considered incompatible in the case of IT personnel:

A

(1) transaction origination or correction, (2) transaction authorization, (3) initial data preparation, (4) custody or control over non-IT assets, (5) authorization or change of controls, and (6) origination of master file changes.

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58
Q

when to stratify a population into meaningful groups

A

when the population has highly variable recorded amounts

Stratified sampling can be particularly useful in reducing the overall sample size on populations that have a wide range of dollar values (or highly variable recorded amounts). The primary objective is to decrease the effect of variance in the total population, thereby reducing sample size.

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59
Q

impact on the quantity and content of the auditor’s working papers

A

A. The condition of the client’s records
B. The assessed risk of material misstatement
C. The nature of the auditor’s report

60
Q

The group engagement team should perform the following audit procedures on the consolidation process:

A
  1. all components have been included in the group financial statements.
  2. Evaluate the appropriateness, completeness, and accuracy of consolidation adjustments and reclassifications and should evaluate whether any fraud risk factors or indicators of possible management bias exist
  3. If the financial information of a component has not been prepared in accordance with the same accounting policies applied to the group financial statements, the group engagement team should evaluate whether the financial information of that component has been appropriately adjusted for purposes of the preparation and fair presentation of the group financial statements
  4. If the group financial statements include the financial statements of a component with a financial reporting period-end that differs from that of the group, the group engagement team should evaluate whether appropriate adjustments have been made to those financial statements in accordance with the applicable financial reporting framework.
61
Q

The Statements on Standards for Attestation Engagements

A

are applicable to engagements to issue an assertion about subject matter that is the responsibility of another party.

In an attest service, the practitioner is engaged to issue a report on subject matter or on an assertion about the subject matter

62
Q

The Statements on Auditing Standards

A
  1. audit fs

2. review of interim fs

63
Q

The Statements on Standards for Accounting and Review Services (SSARS)

A
  1. prepare fs
  2. compile fs
  3. review fs
  4. compile fs projections or forecast
64
Q

Statements on Standards for Consulting Services

A
  • information technology selection and implementation
  • support services
  • business plan preparation.
  • advisory services,
  • implemen­tation services
  • product services as consulting services.
65
Q

reasonable assurance

A
  1. It is obtained when the auditor has gathered sufficient appropriate audit evidence to reduce audit risk to an acceptably low level
  2. It is the standard because there are inherent limitations of an audit that result in most of the audit evidence being persuasive rather than conclusive.
  3. It is a high, but not absolute, level of assurance.
66
Q

US GAAS

A

are developed and issued in the form of Statements on Auditing Standards (SAS)

67
Q

Quality control, as referred to in Statements on Quality Control Standards (SQCS),

A

applies to audits and accounting practice

HEAL ME

H/R
ETHICS
ACCEPTANCE OF CLIENTS
LEADERSHIP

MONITOR
ENGAGEMENT PERFORMANCE

68
Q

auditor owns building which client leases. when is independence impaired

A

if the lease is a capital lease.

69
Q

The IFAC Code of Ethics describes

A

specific circumstances and relationships that may create threats to independence and describes the safeguards that can be used to eliminate the threats or reduce them to an acceptable level.

A conceptual framework that requires a professional accountant to identify, evaluate, and address threats to compliance with established principles.

70
Q

management’s specialist

A

individual or organization possessing expertise in a field other than accounting or auditing, whose work in that field is used by the entity to assist the entity in preparing the financial statements

71
Q

PCAOB weaknesses in internal control over financial reporting

A

weaknesses must be communicated in writing to the audit committee and mgmt

must be communicated prior to the issuance of the auditor’s report on internal control over financial reporting.

72
Q

test of control

A

test operating effectiveness of controls

A test of controls is an audit procedure designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level (as opposed to the financial statement level).

73
Q

Embedded audit modules

A

are coded into a client’s application to collect data for the auditor

assist with audit calculations

Enable continuous monitoring in an audit environment that is changing

Weakness: requires implementation into the system design

is an audit system inserted into the client’s system as a monitoring device to apply audit procedures to client data throughout the period, which can be difficult to design

74
Q

Obtaining an understanding of internal control consists of

A

evaluating the design and implementation of controls.

DIM

design
implementation
maintenance

75
Q

The auditor only tests the operating effectiveness of controls when:

A

(1) the auditor’s risk assessment includes an expectation of the oper­ating effectiveness of controls or
(2) when it is not possible or practicable to reduce detection risk at the relevant assertion level to an acceptably low level with audit evidence obtained from substantive procedures alone.

76
Q

use of analytical procedure during audit

A
  1. planning (required)
  2. substantive test (can, but not required)
  3. review stage (required)
77
Q

control activities

A

PIPS

Performance reviews
Information processing
Physical controls
Segregation of duties

78
Q

control environment

A

CHOPPER

commitment to competence
human resource policies
organizational structure
philosophy of mgmt
participation of governance (actively monitor internal control function)
ethical value & integrity
responsibility assignment
79
Q

database admin

A

maintains database
restricts access
responsible for IT internal control

80
Q

system analyst

A

recommends changes or upgrades

liaison b/w IT and users

81
Q

librarian

A

responsible for disc storage

holds system documentation

82
Q

lead schedule

A

The audit working paper that reflects the major components of an amount reported in the financial state­ments is the

Work papers for each asset, liability, and equity account begin with a lead schedule summarizing the account’s balance per the general ledger, and then showing adjusting and reclassification entries, and the final balance per audit. The lead schedule also includes the auditor’s conclusion about whether the account is stated fairly.

83
Q

sampling risk

A

sampling risk is a risk of drawing the wrong conclusion from the sample because the sample is not representative of the population

84
Q

nonsampling risk

A

non-sampling risk is the risk due to auditor’s failure and not because of sample

human decision

  • failure to select appropriate audit procedures for a given objective
  • failure to recognize misstatements, thus making a procedure ineffective.
85
Q

Statements on Standards for Attestation Engagements

SSAE

A

Examination of financial projection

86
Q

how to determine audit sample size for test of control

A

TEA

tolerable deviation rate
expected deviation rate
allowable risk of assessing control risk too low

87
Q

report on compliance with aspects of contractual agreements or regulatory requirements in connection with an audit of F/S on nonissuers’s audit report

A

included in other matter paragraph or

separate report.

88
Q

substantive procedures - test of details

A

Reviewing the check register for unrecorded liabilities and evaluating a journal entry are examples of tests of details of classes of transactions, account balances—substantive procedures.

Substantive tests answer the question(s) reasonableness of account balances.

89
Q

test of control

A

-like yes or no questions
Did the manager review the bank reconciliation? Do the journal entries require approval before posting to the General Ledger?

interviewing and observing appropriate personnel to determine segregation of duties

90
Q

quality control

A

Reviewing the audit workpapers is an example of a quality control procedure performed by an audit firm to ensure the quality of its engagement performance

91
Q

during planning of an audit

A
  1. general understanding of the client’s industry, business;
  2. applying analytical procedures for risk assessment purposes
  3. determining materiality
92
Q

The reliability of audit evidence refers to

A

its source and nature and is dependent on the individual circumstances under which it is obtained.

93
Q

assessing the internal auditor’s competence and objectivity

A

A. Discussions with management personnel
B. External quality reviews of the internal auditor’s activities
C. Previous experience with the internal auditor

94
Q

US GAAS regarding service organizations do not apply to services that are

A

limited to processing an entity’s transactions that are specifically authorized by the entity, such as the processing of checking account transactions by a bank or the processing of securities transactions by a broker.

nor do they apply to the audit of transactions arising from an entity that holds a proprietary financial interest in another entity, such as a partner­ship, corporation, or joint venture, when the partnership, corporation, or joint venture performs no processing on behalf of the entity

95
Q

benefit directly derived from Audit Data Analytics

A

Controlling gaps that lead to fraud.
Ability to analyze larger volumes of data
Easier communication between the auditor and management

96
Q

how many days can auditor make written communication of significant deficiencies and material weaknesses to management and those charged with governance and the communication of other internal control deficiencies to management

A

no later than 60 days following the report release date

For public companies, should be made prior to the issuance of the audit report on the financial statements

97
Q

generalized audit software is used to accomplish six basic types of audit tasks:

A

(1) examining records for quality, completeness, consistency and correctness;
(2) testing calculations and making computations;
(3) comparing data on separate files;
(4) selecting, printing and analyzing audit samples;
(5) summarizing or resequencing data and performing analyses; and
(6) comparing data obtained through other audit procedures with company records.

98
Q

engagement quality review should include

A
  1. Identification of the engagement quality reviewer and others who assisted the reviewer.
  2. Identification of the documents reviewed by the engagement quality reviewer and others who assisted the reviewer.
  3. The date on which the engagement quality reviewer provided concurring approval of issuance.

**audit firm can approve client to use audit report after engagement quality review approves of issuance

99
Q

SAS statement on auditing standards

A

ASB&raquo_space;AICPA&raquo_space; SSARS&raquo_space; GAAS

100
Q

Sarbanes oxley

A

PCAOB

101
Q

The International Standards on Auditing require that the period of the auditor’s evaluation of an entity’s ability to continue as a going concern be

A

at least 12 months from the date of the financial statements, but do not limit it to 12 months.

102
Q

To test for appropriate segregation of duties,

A

the auditor observes and makes inquiries.

103
Q

Internal control is considered ineffective when computer department personnel can:

A

(1) originate or correct transactions,
(2) authorize transactions,
(3) prepare the initial data,
(4) maintain custody or control over non-EDP assets,
(5) authorize a change in controls, or
(6) originate master file changes.

104
Q

AICPA makes

A

SSARS

105
Q

The MD and A section

management discussion and analysis

A

is provided in a company’s annual report, along with the financial statements.

provides an overview of the previous year of operations and explains the period’s financial results.

Management may also comment on the upcoming year, outlining future goals and new projects.

After obtaining an understanding of the entity’s internal controls over preparation of the MD&A section, the CPA assesses control risk for the MD&A content. Control risk may be assessed at the maximum level (i.e. the greatest probability that a material misstatement would occur in an MD&A assertion and would not be prevented or detected in a timely manner) if the CPA believes controls are ineffective.

106
Q

relationships within which accounts yield highest level of evidence

A

income statement accounts.

Relationships involving income statement accounts, such as interest expense, tend to be more pre­dictable than relationships involving only balance sheet accounts because income statement accounts represent transactions over a period of time, whereas balance sheet accounts represent amounts as of a point in time.

107
Q

internal control over financial reporting

vs

understanding of internal control and assessing control risk as part of audit

A

scope: diff
procedure: same
objective: diff

108
Q

unconditional requirements

A

Auditors and audit organizations must comply with an unconditional requirement in all cases where such requirement is relevant

109
Q

presumptively mandatory requirements

A

Auditors and audit organizations must comply with a presumptively manda­tory requirement in all cases where such a requirement is relevant except in rare circumstances

may determine it necessary to depart from a relevant presumptively mandatory requirement.

must document their justification for the departure and how the alternative procedures performed in the circumstances were sufficient to achieve the intent of that requirement.

110
Q

auditing publication

A

Auditing guidance included in AICPA Audit Risk Alerts

111
Q

interpretive publications

A

Auditing interpretations of US GAAS

Auditing guidance included in AICPA Audit and Accounting Guides

Auditing guidance included in AICPA Statements of Position

exhibits to US GAAS.

112
Q

auditor’s responsibilities

A

reasonable assurance

US GAAS

113
Q

opinion paragraph

A

AFRF

114
Q

predecessor should let successor auditor see

A
  1. documentation of planning;
  2. risk assessment procedures;
  3. further audit procedures;
  4. audit results; and
  5. other matters of continuing accounting and auditing significance,
  6. such as the schedule of uncorrected misstatements,
  7. working paper analysis of balance sheet accounts, and
  8. those relating to contingencies.
115
Q

how to phrase scope limitation in “qualification” of opinion paragraph

A

“possible effects on the financial statements”

would not actually state “scope limitation”

116
Q

obsolete or slow-moving items

A

inquires about valuation and allocation

117
Q

Special-purpose financial statements

A

prepared in accordance with a REGULATORY basis of accounting

(basis of accounting that the entity uses to comply with the requirements or financial reporting provisions of a regulatory agency to whose jurisdiction the entity is subject).

118
Q

FASB

Financial Accounting Standards Board

A

created GAAP

119
Q

GAO

governmental accounting office

A

has the standards for audits of federally assisted programs called

Government auditing standards (GAS)

120
Q

The Governmental Account­ing Standards Board (GASB)

A

establishes financial accounting principles for state and local government entities.

121
Q

Governmental performance audit objectives include assessments of

A 
program effectiveness, 
economy, and efficiency; 
internal control; 
compliance; and 
prospective analyses
122
Q

The International Auditing and Assurance Standards Board (IAASB)

A

The International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants issues International Standards on Auditing (ISA).

123
Q

the predecessor auditor permits the auditor to review documentation of:

A

Planning
Risk assessment procedures
Further audit procedures
Audit results
Other matters of continuing accounting and auditing significance, such as:
The schedule of uncorrected misstatements
Working paper analysis of balance sheet accounts and those relating to contingencies

124
Q

differences between International Standards on Auditing (ISA) and Public Company Accounting Oversight Board (PCAOB)

A

PCAOB auditing standards do not include a requirement to put changes to the terms of an engagement in writing.

ISA do not have a requirement for an audit of internal control over financial reporting that is integrated with an audit of financial statements.

ISA do not allow the principal auditor to share responsibility with another auditor and accordingly, do not allow a reference in the audit report to another auditor.

125
Q

obtain assurance that all inventory items in a client’s inventory listing are valid, an auditor most likely would trace

A

inventory listing» inventory tag»auditor’s record count sheet

Working from inventory tags to the inventory listing tests that all items on tags are included in the inventory listing (completeness).

126
Q

Data Analytics can be used in which steps of the audit?

A

all steps

Test of controls
Test of details
Risk Assessment Procedures
Final opinion

127
Q

The factors affecting sample size when using classical variables sampling are

A

(1) desired precision,
(2) desired sample reliability,
(3) variability among item values in the population (the estimate of the population’s standard deviation)
(4) population size.

128
Q

in comparative fs reporting

predecessor’s report is qualified and the report is not presented

A

successor should include in auditor’s INTRO paragraph:

  • prior period report is audited by someone else
  • date of predecessor’s report
  • unqualified opinion was expressed
  • nature of and reasons for unqualified opinion

whatever that was in the predecessors explanatory paragraph should go in successor’s intro paragraph

129
Q

five fundamental principles of the International Federation of Accountant’s Code of Ethics for Professional Accountants?

A 
integrity; 
objectivity; 
professional competence and due care; 
confidentiality; and 
professional behavior.
130
Q

analytical procedures

A

best for testing income statement accounts.

tend to be more predictable than relationships involving only balance sheet accounts because income statement accounts represent transactions over a period of time, whereas balance sheet accounts represent amounts as of a point in time.

131
Q

In order of severity, from least severe to most severe, the correct terms are:

A

LEAST TO MOST:

Other deficiencies in internal control
Significant deficiency
Material weakness

132
Q

Attribute sampling is used to

A

test the effectiveness of internal control procedures

test of control

RIOI

reperform
inspect
observe
inquire

133
Q

Variable sampling is utilized

A

when testing details of transactions and account balances.

match assertion to source doc

Variable sampling is used by the auditor to estimate the total dollar amount of a population at auditor-specified levels of precision and reliability

134
Q

discovery sampling

A

Discovery sampling is a form of attribute sampling that is designed to locate at least one exception if the rate of occurrence in the population is at or above a specified rate

This method is used to search for critical occurrences that may indicate the existence of an irregularity, and is appropriate when the expected occurrence rate is quite low (usually near zero) and the auditor wants a sample that will provide a specified chance to observe one occurrence

135
Q

AP during planning stage

A

Identifying account balances that represent specific risks relevant to the audit or detecting fraud that may cause the statements to be misstated are objectives of analytics during planning

The purpose of applying analytical procedures in planning the audit is to assist in planning the nature, timing, and extent of auditing procedures that will be used to obtain audit evidence for specific account balances or classes of transactions. To accomplish this, the analytical procedures used in planning the audit should focus on enhancing the auditor’s understanding of the client’s business and the transactions and events that have occurred since the last audit date

136
Q

AP during substantive test stage

A

Gathering evidence from tests of details to corroborate financial statement assertions is an objective of using analytical procedures as a substantive test.

137
Q

AP during review stage

A

assist the auditor in assessing the conclusions reached and in the evaluation of the overall financial statement presentation.

138
Q

SOX

A

made PCAOB

139
Q

SEC

A

has oversight authority over PCAOB

140
Q

PCAOB

A

The PCAOB provides independent oversight of public accounting firms providing audit services—setting standards as well as registering, investigating, and disciplining auditors

141
Q

AICPA (non-issuer)

A

made GAAS

follow by SSARS

142
Q

precision

A

In classical variables sampling for estimation, precision represents the range within which the sample result is expected to be accurate.

Hence, it provides a calculation of the maximum acceptable error in either direction.

143
Q

IFAC

A

International Federation of Accountants

144
Q

check digit

A

input controls is a numeric value computed to provide assurance that the original value has not been altered in construction or transmission

A check digit is a digit that is appended to a piece of numeric data following a pre-specified routine

145
Q

parity check

A

is an extra bit attached to the end of a string of bits to detect errors resulting from electronic interference when transmitting the string

AUD COPY (11 decks)

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