one

Question 1

Statements on Standards for Consulting Services, which of the following statements best reflects a CPA’s responsibility when undertaking a consulting services engagement? The CPA must:

Answer 1

The member should also consider informing the company and the executives of possible results of the engagement prior to accepting the engagement

Question 2

A financial projection is appropriate for limited use only.

Answer 2

The following would be examples of limited use:

With a mortgage application (negotiating directly with the bank)
With a report to the audit committee (for use by the responsible party)
With a document for negotiating a labor contract (negotiating directly with the union)

Question 3

Financial forecast

Answer 3

prospective financial statement included in an offering statement would have to be a financial forecast, as it is the prospective financial statement that is appropriate for use by persons with whom the entity is not negotiating directly (general use).

Question 4

Independance

Answer 4

t is impossible to enumerate all circumstances in which the appearance of independence might be questioned. A member should evaluate whether that circumstance would lead a reasonable and informed third party who is aware of all the relevant facts to conclude that there is a threat to the member’s and the firm’s independence, or both, that is not at an acceptable level. Participating in the hiring or termination of a client’s employees is considered a management participation threat and would impair independence.

Question 5

Reveiw engagement requires independance

Answer 5

A review does not contemplate obtaining an understanding of the entity’s internal control; assessing fraud risk; testing accounting records by obtaining sufficient appropriate audit evidence through inspection, observation, confirmation, or the examination of source documents; or other procedures ordinarily performed in an audit.

Question 6

Real time issue disclosures

Answer 6

Section 409 of the Sarbanes-Oxley Act (SOX) dictates that issuers disclose to the public on a rapid and current basis any additional information concerning material changes in the financial condition or operations.

Question 7

Standards of consulting services

Answer 7

n this case, Nile, CPA, is providing technical assistance on an IT system. This kind of service would be considered consulting, since Nile is not performing an audit engagement and it does not involve the firm’s quality control. Therefore, Nile would follow the Standards for Consulting Services as administered by the AICPA.

Question 8

Based on the AICPA’s Code of Professional Conduct, a firm may accept any legal business form. However, in all instances, CPAs must have control over the firm’s ownership, voting rights, and professional matters.

Answer 8

proprietorships, general partnerships, general corporations, professional corporations, limited liability companies, and limited liability partnerships if permitted by state law.

Question 9

Compilation engagement

Answer 9

The accountant on a compilation engagement must show due professional care but is not required to be independent. He or she is not required to make inquiry or perform other procedures to verify, corroborate, or review information supplied by management.

Question 10

Compilation

Answer 10

the financial statements have not been audited or reviewed and, accordingly, the accountant does not express an opinion or provide any assurance about whether the financial statements are in accordance with accounting principles generally accepted in the United States of America;

Question 11

Family and medical leave act

Answer 11

The Family and Medical Leave Act (FMLA) requires employers of 50 or more employees to give up to 12 weeks of unpaid, job-protected leave to eligible employees for the birth or adoption of a child or for the serious illness of the employee, spouse, or parent.

Question 12

Accounting and review services committee

Answer 12

The preface to the Accounting and Review Services Statements (AR) notes that the Accounting and Review Services Committee is the committee designated by the AICPA Council to promulgate standards in connection with unaudited financial statements of nonpublic entities

Question 13

Allowed and prohibited services

Answer 13

Tax 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.

The Sarbanes-Oxley Act of 2002 specifically prohibits a registered accounting firm from providing internal audit outsourcing services during an audit, actuarial services related to the audit contemporaneously with the audit, and advice on financial information system design during an audit.

Question 14

Attest engagement

Answer 14

Both an audit and an attest engagement require that the auditor be independent in mental attitude

Question 15

Attest engagement

Answer 15

An attestation engagement is an examination, review, or agreed-upon procedures engagement performed under the attestation standards related to subject matter or an assertion that is the responsibility of another party.

Question 16

PCAOB

Answer 16

The Public Company Accounting Oversight Board (PCAOB) was established by the Sarbanes-Oxley Act of 2002. Section 101(a) of the Sarbanes-Oxley Act states

Question 17

Materiality

Answer 17

Materiality is a consideration with respect to assessing adequacy of disclosure of a client’s illegal act, to the discovery of weaknesses in a client’s internal control structure, and to the decision whether to use positive or negative confirmations of accounts receivable.

Question 18

section 105 of sox

Answer 18

Section 105 of the Sarbanes-Oxley Act (SOX) dictates that the Public Company Accounting Oversight Board (PCAOB) may investigate any act or practice, or omission to act, by a registered public accounting firm that may violate any provision of the Sarbanes-Oxley Act, PCAOB rules, securities laws, and professional standards.

Question 19

DOL

Answer 19

Department of Labor (DOL) rules state that the rendering of services by an actuary associated with an accountant or accounting firm would not impair independence.

Question 20

Disclosing names of clients

Answer 20

The Internal Revenue Service (IRS) has rules against a CPA or other preparer disclosing a tax return client’s name. Since auditing and tax preparation have been separated by the Sarbanes-Oxley Act, audit clients could be disclosed. Such disclosure would be prohibited if it would suggest the company had financial problems, such as a company consulting a bankruptcy specialist.

Question 21

SSARS

Answer 21

The presentation of financial statements that the accountant has prepared for a nonissuer (either manually or with computer software) to a client or third parties requires compliance with the Statements on Standards for Accounting and Review Services (SSARS).

Question 22

he written communication regarding significant deficiencies and material weaknesses identified during the audit should include all of the following except:

Answer 22

a paragraph describing management’s assertion concerning the effectiveness of internal control.

Question 23

Successor accountant

Answer 23

A successor accountant is not required to communicate with a predecessor accountant in connection with acceptance of a compilation or review engagement, but he or she may believe it is beneficial to obtain information that will assist in determining whether to accept the engagement.

Question 24

successor auditor

Answer 24

A successor auditor is an auditor who replaces the previous auditor. The successor auditor must take the initiative to obtain permission of the auditee to communicate with the predecessor auditor as part of the pre-engagement activities (specifically related to the decision to accept the engagement). He should make specific and reasonable inquiries of the predecessor auditor regarding facts that bear on the integrity of management; on disagreements with management as to accounting principles, auditing procedures, and other similarly significant matters; and on the predecessor’s understanding as to the reasons for the change of auditors (AU-C 210.A31). The successor auditor must communicate with the predecessor auditor before reissuing the prior period report or restating the prior period financial statements.

Question 25

Documentation requirements

Answer 25

Under PCAOB rules, firms must keep audit documentation for issuer clients for a minimum of seven years.he Statements of Standards for Accounting and Review Services (SSARS) do not specifically give a time period for retention of records. Therefore, the firm must establish policies and procedures to retain the engagement records for a period sufficient to meet the needs of the firm, standards, and regulations.

Question 26

Review and compilation

Answer 26

In discussion of a compilation agreement on engagement terms, AR-C 90.10 makes no mention of the accountant obtaining an understanding of internal control for neither a review nor a compilation. Independence is required “when providing auditing or other attestation services” and when performing a review. Although the accountant expresses no opinion or assurance in a compilation, he does express limited assurance in a review report. The accountant is required to obtain a written management representation letter for a review engagement (since the report will provide limited assurance)

Question 27

SSARS

Answer 27

Statements on Standards for Accounting and Review Services (SSARS) provide standards with respect to compilations and reviews of financial statements. SSARS do not apply to the processing financial data for clients of other CPA firms or to consulting on accounting matters since neither of these would be considered a compilation or a review.

Question 28

Audit to review

Answer 28

If the accountant concludes, based upon his or her professional judgment, that there is reasonable justification to change the engagement and if he or she complies with the standards applicable to a review engagement, the accountant should issue an appropriate review report. The report should not include reference to the original engagement, any audit procedures that may have been performed, or scope limitations that resulted in the changed engagement.

Question 29

To service on the PCAOB does not require CPA

Answer 29

Members of the Public Company Accounting Oversight Board must be of high integrity and be committed to the interests of investors and the public. Additionally, these members should have an understanding of the financial reporting process along with the responsibilities of accountants regarding the preparation and issuance of audit reports.

Question 30

Partner rotation

Answer 30

itle II of the Sarbanes-Oxley Act (SOX) states that the lead audit partner must rotate out at least every five years for the accounting firm to continue to provide audit service to the client. This rotation is intended to promote independence of the audit firm.

Question 31

authoritative body for attestation standards

Answer 31

n the preface to the AT section for the Statements on Standards for Attestation Engagements is a notation that indicates, “These statements are issued by the Auditing Standards Board, the Accounting and Review Services Committee, and the Management Consulting Services Executive Committee.” These are units of the American Institute of CPAs.

Question 32

FASB and GASB

Answer 32

The FASB and GASB are independent authoritative bodies designated to promulgate financial accounting and reporting standards for business (for-profit) and governmental (and not-for-profit) entities. The Government Accountability Office (GAO) is the accounting, auditing, and investigating agency of the U.S. Congress.

Question 33

threats to independance

Answer 33

The GAO has identified seven types of circumstances that could lead to threats of independence: ``` Self-interest Self-review Bias Familiarity Undue influence Management participation Structural threats ```

Question 34

Contingent fee

Answer 34

A contingent fee would be permitted when representing a client in an examination by a revenue agent of the client’s federal or state income tax return.

Question 35

Engagement letter

Answer 35

The auditor's engagement letter specifies what services the auditor will perform and will state any assistance or restrictions on the audit. The engagement letter also informs the client that the auditor cannot guarantee that all acts of fraud will be discovered and management (not the board of directors) is responsible for maintaining effective internal control.

Question 36

Review

Answer 36

An accountant does not perform substantive tests in a review, so the accountant would not include documentation relating to the internal auditor's inspection reports of the level of oil reserves, or the response of the client's legal counsel to pending worker's compensation claims. An accountant does not assess control risk or perform tests of controls in a review and would therefore not include an evaluation of the refinery's controls over oil pressure levels.

Question 37

SOX

Answer 37

Section 103 of the Sarbanes-Oxley Act dictates that the Public Company Accounting Oversight Board (PCAOB) has the authority to set, amend, update, and modify auditing, quality control, and ethics standards.

Question 38

Consulting services

Answer 38

A member may provide extensive consulting services to an audit client without losing independence as long as the member does not make management decisions and the member’s role is advisory in nature.

Question 39

Consulting services

Answer 39

A member is allowed to review a client-prepared business plan, and can assist the client with obtaining financing, so long as the member is not considered to be making management decisions. Once a member is considered to be making decisions on behalf of a client, then independence has become impaired. It is important for a member in public practice to provide services in a strictly advisory role when independence is required.

Question 40

Section 406

Answer 40

Section 406 of Title IV of the Sarbanes-Oxley Act (SOX) dictates that each issuer disclose whether or not they have adopted a code of ethics for senior financial officers. Any change in or waiver of the code of ethics for senior financial officers requires immediate disclosure.

Question 41

section 408

Answer 41

Section 408 of the Sarbanes-Oxley Act (SOX) dictates that the SEC will review disclosures made by issuers.

Question 42

Objectivity is a pervasive characteristic

Answer 42

Regardless of service or capacity, members should protect the integrity of their work, maintain objectivity, and avoid any subordination of their judgment. Members employed by others to prepare financial statements or to perform auditing, tax, or consulting services are charged with the same responsibility for objectivity as members in public practice.

Question 43

Audit documentation retention period

Answer 43

AU-C 230.17 states that the retention period “should not be shorter than five years from the report release date.”

Question 44

Government auditing standards

Answer 44

Government Auditing Standards, which would be followed for audits of recipients of federal financial assistance, require that the auditor report on compliance and internal control over financial reporting, which would include documenting the understanding of internal control established to ensure compliance with the applicable laws and regulations. GAO audits (“Yellow Book” audits) do not require disclosure of all possibly fraudulent and abusive acts and noncompliance with laws and regulations to the federal inspector general, nor do they require that the accounts be 100% verified by substantive tests. The auditor is permitted to determine materiality levels for these audits, also.

Question 45

PCAB has adopted its own rules

Answer 45

In addition to adopting some rules from the AICPA and Auditing Standards Board (ASB), the Public Company Accounting Oversight Board has adopted its own rules regarding auditing standards, ethics, and independence.

Question 46

Covered member Question #201652

Answer 46

If an attest client offers a covered member employment, and the covered member is on that client’s attest engagement team or can otherwise influence the engagement, the individual should promptly report such consideration or offer to an appropriate person in the firm, must immediately cease participation in the engagement, and cannot provide any services to the attest client until the employment offer is rejected or employment is no longer sought. If a covered member becomes aware that an individual is considering employment or association with an attest client, the covered member should also notify an appropriate person in the firm.

Question 47

Discreditable includes soliciting cpa questions

Answer 47

An act that is discreditable to the profession, according to the Acts Discreditable Rule of the AICPA Code of Professional Conduct (ET 1.400.001). Although the rule is not specific, violations include a CPA committing a felony, failure to return client’s records, signing of a false return, and issuing a misleading audit opinion.

Question 48

Contingent fees

Answer 48

An act that is discreditable to the profession, according to the Acts Discreditable Rule of the AICPA Code of Professional Conduct (ET 1.400.001). Although the rule is not specific, violations include a CPA committing a felony, failure to return client’s records, signing of a false return, and issuing a misleading audit opinion.

Question 49

Audit documentation

Answer 49

AU-C 230.08 states: "The auditor should prepare audit documentation that is sufficient to enable an experienced auditor, having no previous connection with the audit, to understand: "the nature, timing and extent of the audit procedures performed to comply with GAAS and applicable legal and regulatory requirements; "the results of the audit procedures performed, and the audit evidence obtained; and "significant findings or issues arising during the audit, the conclusions reached thereon, and significant professional judgments made in reaching those conclusions."

Question 50

Attestation services

Answer 50

Attestation standards apply to three levels of service—examination, review, and agreed-upon procedures; applicability of the specific AT-C section(s) depends on both the level of service provided and the subject matter. The purpose of the attestation engagement is to provide users of information, generally third parties, with an opinion, conclusion, or findings regarding the reliability of subject matter or an assertion about the subject matter, as measured against suitable and available criteria.

Question 51

Goverment auditing standards

Answer 51

A quality control requirement under Government Auditing Standards requires a CPA seeking to enter into an audit contract to provide the CPA's most recent external quality control review report to the party contracting for the audit.

Question 52

Retaining client records is prohibited unless

Answer 52

The ethical standards clearly state that the client records should be returned to the client upon request from the client. The only reason a client record may be withheld is if the engagement has not been completed. While AICPA rules allow holding records when an audit or other service has not been paid up by the client, some state laws prohibit this practice.

Question 53

predecessor auditor

Answer 53

AU-C 510.A5 states that the predecessor auditor should permit the successor auditor to review workpaper analysis of any matters of continuing accounting significance. These specifically include workpapers related to balance sheet accounts, both current and noncurrent, and contingencies.

Question 54

Documentation standards

Answer 54

do not require the auditor to include copies of client invoices.

Question 55

successor accountant

Answer 55

A successor accountant is not required to communicate with a predecessor accountant in connection with acceptance of a compilation or review engagement, but he or she may believe it is beneficial to obtain information that will assist in determining whether to accept the engagement.

Question 56

Siginificant deficiencies and material weaknesses

Answer 56

While the auditor may communicate there were no material weaknesses identified during the audit, AU-C 265.16 precludes “a written communication stating that no significant deficiencies were identified during the audit.”

Question 57

GAO

Answer 57

he Government Accountability Office (GAO) requires auditors who spend 20% or more of their time performing government audits to have 80 hours of CPE every two years directly related to government auditing (also called “Yellow Book” hours). Adding, on top of that requirement, state requirements for tax and ethics hours, government auditors have a heavy education requirement. A firm that performs government audits must have a system of quality control in place to assure compliance with professional standards and legal and ethical requirements. The quality control system should address, among other areas, human resources policies and procedures. An external peer review is required at least once every three years.

Question 58

review has this languate and not compilation

Answer 58

The phrase “substantially less in scope than an audit” is found in a review report.

Question 59

Attest vs assurance engagements

Answer 59

review engagement is both an assurance and an attest engagement. A compilation is an attest engagement only, not an assurance engagement.

Question 60

Successor auditor

Answer 60

Before accepting an engagement, a successor auditor is required, with client permission, to make inquiries of the predecessor auditor. The auditor may make a proposal before contacting the predecessor auditor. Performance of audit procedures (testing controls or testing beginning balances for the current year) occurs after accepting the engagement.

Question 61

section 404

Answer 61

Section 404 of Title IV of the Sarbanes-Oxley Act (SOX) dictates that each annual report filed with the SEC contain an internal control report. This report states the responsibility of management for establishing and maintaining an adequate internal control structure and procedures for financial reporting. It also includes an assessment of the effectiveness of the internal control structure and procedures.

Question 62

successor auditor

Answer 62

nce an engagement has been accepted, the successor auditor may make specific inquiries of the predecessor auditor as to matters that affect the conduct of the audit, and review the predecessor's workpapers, including documentation of planning, internal control, audit results, and other matters of continuing accounting and auditing significance (such as the working paper analysis of balance sheet accounts, and those relating to contingencies).

Question 63

professional conduct

Answer 63

he AICPA Code of Professional Conduct clearly states, “For a member in public practice, the maintenance of objectivity and independence requires a continuing assessment of client relationships and public responsibility” (ET 0.300.050.04). The independence is required in both auditing and other attestation services.

Question 64

Independance

Answer 64

A member is not prohibited from having any financial interest with a client, so long as it does not impair or appear to impair their independence from the client. An example would be a checking or savings account that is insured by the FDIC. These types of accounts are permitted; so long as the checking or savings account is not material to the member's net worth, then it is not considered to impair the member's independence.

Question 65

quality control

Answer 65

Thus, having an appropriate system of quality control provides reasonable assurance

Question 66

SSCS

Answer 66

Statements on Standards for Consulting Services (SSCS), issued by the AICPA, supersede the Statements on Standards for Management Advisory Services (SSMAS). They provide standards of practice for practitioners performing consulting services (defined broadly as consultation, advisory, implementation, transaction, support, and product services).

Question 67

Reasonable assurance

Answer 67

Reasonable assurance includes the understanding that there is a remote likelihood that material misstatements will not be prevented or detected on a timely basis (i.e., reasonable assurance provides a high level, but it is not possible to obtain absolute assurance due to the nature of audit evidence and the risk of fraud).

Question 68

ownership of working papers, need client permission unless

Answer 68

CPAs are independent contractors, not employees; as a result, they have legal title to their workpapers. The CPA's ownership of the workpapers is custodial and cannot be transferred without the client's permission. Exceptions include subpoena by a federal court or agency, or inspection by an AICPA or state society quality review team. A seller of an accounting practice MUST obtain permission of the client before transfer to a buyer of the practice.

Question 69

sections

Answer 69

Section 402 of Title IV of the Sarbanes-Oxley Act (SOX) dictates that it is unlawful for any issuer to extend or maintain credit in the form of a personal loan to or for any director or executive officer of that issuer. Section 403 requires disclosures from a person who is directly or indirectly a beneficial owner of more than 10% of any class of any security registered pursuant to Section 12 of the Securities Exchange Act of 1934. Section 404 requires that an internal control report be filed with each annual report. Management must acknowledge responsibility for establishing and maintaining adequate internal control. Section 406 requires disclosure of whether or not the issuer had adopted a code of ethics for senior financial officers (and if not, why not). Any change in or waiver of this code requires disclosure as well.

Question 70

independance, no other services except

Answer 70

registered public accounting firm is not independent of its audit client, or any affiliate of the firm, if during the audit and professional engagement period, the firm provides any nonaudit services to the audit client. Only the answer choice "reviewing a proposed transaction and informing the client of the tax consequences" is allowed during the engagement period; otherwise, the registered public accounting firm would not be considered independent.

Question 71

Contingent fees

Answer 71

Fees charged by a CPA may be contingent if a specified finding or result is attained. These fees are not considered contingent if they are fixed by courts, by other public authorities, or in tax matters if based on the results of judicial proceedings.

Question 72

consulting services

Answer 72

dvisory services, implementation services, and product services all fall within the broad category of “consulting services.

Question 73

Significant defeciency vs material weakness

Answer 73

A significant deficiency is less severe than a material weakness. Determining if a significant deficiency is also a material weakness requires professional judgment.

Question 74

disclosure of client info

Answer 74

Normally, the only time a CPA can disclose confidential information is with the client's consent. The exceptions to client's consent are: a peer review by a state CPA society or state board of accountancy. a subpoena or court summons to release confidential information. an inquiry that is made by a recognized investigatory body.

Question 75

Gov aud stan

Answer 75

Based on the Internet (online) version of Government Auditing Standards, the auditor organization and individuals should be independent in both mind and appearance.

Question 76

Independance

Answer 76

f the CPA has any direct or material indirect financial interest in the client, independence is impaired.

Question 77

Disclosure

Answer 77

Because it would cause damage to the reputation of a company, any disclosure of a client company name by a CPA specializing in bankruptcy procedures is a violation of client confidentiality under the AICPA Code of Professional Conduct (ET 1.700).

Question 78

Integrity principle

Answer 78

“Integrity requires a member to be, among other things, honest and candid within the constraints of client confidentiality.” Integrity helps a client have more confidence in the person with integrity and the company they represent. (The reference for this question is section 3121 in the Auditing & Attestation Reference

Question 79

Due care principal

Answer 79

“Due care requires a member to discharge professional responsibilities with competence and diligence.” The member should always endeavor to improve their expertise and show professional responsibility to the best of their ability. (The reference for this question is section 3121 in the Auditing & Attestation Reference Volume.)

Question 80

Objectivity and independance

Answer 80

The principle of objectivity imposes the obligation to be impartial, intellectually honest, and free of conflicts of interest. Independence precludes relationships that may appear to impair a member’s objectivity in rendering attestation services.” A member contributing to their professional responsibilities should maintain impartiality and have no conflicts of interest. (The reference for this question is section 3121 in the Auditing & Attestation Reference Volume.)

Question 81

Scope and nature of services

Answer 81

The public interest aspect of members’ services requires that such services be consistent with acceptable professional behavior for members.” A member will be able to identify the scope and nature of the services if they follow the principles of integrity, objectivity and independence, and due care. (The reference for this question is section 3121 in the Auditing & Attestation Reference Volume.)

Question 82

public interest principle

Answer 82

Members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate a commitment to professionalism.” In other words, a member should treat others the way they want to be treated.

Question 83

responsibilities principle

Answer 83

In carrying out their responsibilities as professionals, members should exercise sensitive professional and moral judgments in all their activities.” The member should tell the truth, but be sensitive about it, and use the judgment that best explains the appropriate behavior.

Question 84

Those charged with Governance

Answer 84

The term “those charged with governance” usually refers to the person(s) with responsibility for overseeing the strategic direction of the entity, the obligations related to the accountability of the entity, and the financial reporting process. The auditor is required to communicate certain information to those charged with governance, including the planned scope and timing of the audit, without compromising the effectiveness of the audit by revealing the nature and timing of detailed audit procedures and thereby making them predictable.

Question 85

CAAT

Answer 85

An integrated test facility allows fictitious and real transactions to be processed together without client operating personnel being aware of the testing process. This is because an integrated test facility is built into the data processing system, only using dummy data and files to test input, processing, and output controls. Input controls (designed to ensure proper authorization, completeness, and accuracy of the data entered into the system) could be analyzed by using a matrix. Parallel simulation is a computer-assisted audit technique using generalized audit software that can be programmed to process the same data as the client's programs. The data entry monitor merely shows the data as it is input; no testing is involved.

Question 86

performance Materiality

Answer 86

"Performance materiality. The amount or amounts set by the auditor at less than materiality for the financial statements as a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. If applicable, performance materiality also refers to the amount or amounts set by the auditor at less than the materiality level or levels for particular classes of transactions, account balances, or disclosures."

Question 87

materiality

Answer 87

Performance materiality is often used in analytical procedures to investigate significant differences in current-year and prior-year comparison information. Tolerable misstatement is the application of performance materiality to a particular sampling procedure (AU-C 320.A2).

Question 88

test data vs integrate test facility

Answer 88

The test data approach (sometimes called the test deck approach) is a way to audit “through the computer.” Test data is introduced into the client's computer system using the same program to operate the application being tested. The output is compared to the auditor's predetermined results. The test data approach does not involve a separate program. An integrated test facility introduces a fictitious entity (such as a dummy subsidiary) with real entries in the master files of the client's computer system. The auditor then compares the processing of data through the fictitious entity with what should be there in order to test that the data processing is reliable. Like the test data (or test deck) approach, an integrated test facility uses the client's system

Question 89

ineffective general controls

Answer 89

Ineffective general controls by themselves do not cause misstatements; however, they can permit application controls to operate improperly and allow misstatements to occur.

Question 90

Online enquiry

Answer 90

The auditor is most likely to use online inquiry to confirm whether operating personnel had corrected several errors in transaction files discovered during a recent audit.

Question 91

it audit stuff

Answer 91

Parallel simulation processes real data through audit programs so simulated output and regular output can be compared. Mapping monitors the execution of a program. It would not be used to confirm whether operating personnel had corrected errors in transaction files discovered during a recent audit. Tracing provides an audit trail of the instructions that are executed when a program is run. It would not be used to confirm whether operating personnel had corrected errors in transaction files discovered during a recent audit.

Question 92

application controls vs general controls

Answer 92

nput controls, processing controls, and output controls are all examples of application controls. Examples of general controls are program change controls, controls that restrict access to programs or data, controls over the implementation of new releases of packaged software applications, and controls over system software that restrict access to or monitor the use of system utilities that could change financial data or records without leaving an audit trail.

Question 93

controls and assertions

Answer 93

In making risk assessments, the auditor should identify and document the controls that are likely to prevent or detect and correct material misstatements in specific relevant assertions. Controls can either be directly or indirectly related to an assertion. The more indirect the relationship, the less effective that control may be in preventing or detecting and correcting misstatements in that assertion.

Question 94

examination engagement

Answer 94

An examination engagement is an attestation engagement in which the practitioner obtains reasonable assurance by obtaining sufficient appropriate evidence about the measurement or evaluation of subject matter against criteria in order to be able to draw reasonable conclusions on which to base the practitioner's opinion about whether the subject matter is in accordance with (or based on) the criteria or the assertion is fairly stated, in all material respects. (AT-C 105.10)

Question 95

test data

Answer 95

By definition, the test data approach is the use of simulated transactions to test the processing and controls of the client's computer programs while the client's computerized accounting system is under the auditor's control. Control of the program by the auditor is necessary because the client could possibly substitute another program or make changes in the existing program which would produce output different from the program being tested. The program being tested is the same program used throughout the year by the client. Only a limited number of simulated transactions, some containing errors (but not all possible valid and invalid conditions) need to be tested.

Question 96

non compliance

Answer 96

The auditor has the responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, including misstatements resulting from noncompliance under applicable law or regulations having a direct and material effect on the financial statements. (This is the same responsibility the auditor has for errors or fraud.)

Question 97

Assessing control risk summary

Answer 97

The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of the risk that material misstatements may exist in the financial statements. The assessed levels of control risk and inherent risk are used to determine how much detection risk the auditor can accept in designing substantive tests to detect material misstatements that may exist in financial statement assertions. The assessed levels of control risk and inherent risk are inversely related to detection risk.