Point of Emphasis - Final Exam

Question 1

Components of Internal Controls

Answer 1

1. Control Environment (Umbrella)
2. Risk Assessment
3. Control Activities
4. Information & Communication
5. Monitoring

Question 2

Audit Risk Model

Answer 2

[PDR=AAR/(IR x CR)]

• Planned Detection Risk (PDR)
• Acceptable Audit Risk
• Inherent Risk
• Control Risk

Question 3

Control Environment (Umbrella)

Answer 3

The actions, policies, and procedures concerning internal control.

Question 4

Risk Assessment

Answer 4

Analysis of risks concerning the preparation of financial statements.

Question 5

Control Activities

Answer 5

Policies and procedures to reduce risks.

Question 6

Information & Communication

Answer 6

Methods used to initiate, record, process, and report transactions and to maintain accountability for assets.

Question 7

Monitoring

Answer 7

Assessing quality of internal control performance to determine that controls are operating as intended.

Question 8

Planned Detection Risk

Answer 8

The risk that audit evidence for a segment will fail to detect misstatements.

Question 9

Acceptable Audit Risk

Answer 9

How willing the auditor is to accept misstatements after the audit is completed and an unqualified audit opinion has been issued.

Question 10

Inherent Risk

Answer 10

Assessment concerning material misstatement before considering the effectiveness of internal control.

Question 11

Control Risk

Answer 11

Assessment of the risk that misstatement could occur in an assertion and not be prevented or detected by internal controls.

Question 12

If Acceptable Audit Risk (AAR) ↑, then Planned Audit Evidence…

Answer 12

Decreases ↓ (Inverse)

Question 13

If Acceptable Audit Risk (AAR) ↓, then Planned Audit Evidence…

Answer 13

Increase ↑ (Inverse)

Question 14

If Inherent Risk (IR) ↑, then Planned Audit Evidence…

Answer 14

Increase ↑ (Direct)

Question 15

If Inherent Risk (IR) ↓, then Planned Audit Evidence…

Answer 15

Decrease ↓ (Direct)

Question 16

If Planned Detection Risk (PDR) ↑, then Planned Audit Evidence…

Answer 16

Decrease ↓ (Inverse)

Question 17

If Planned Detection Risk (PDR) ↓, then Planned Audit Evidence…

Answer 17

Increase ↑ (Inverse)

Question 18

If Control Risk (CR) ↓, then Planned Audit Evidence…

Answer 18

Decrease ↓ (Direct)

Question 19

If Control Risk (CR) ↑, then Planned Audit Evidence…

Answer 19

Increase ↑ (Direct)

Question 20

If Acceptable Audit Risk (AAR) ↑, then Planned Detection Risk (PDR)…

Answer 20

Increase ↑ (Direct)

Question 21

If Acceptable Audit Risk (AAR) ↓, then Planned Detection Risk (PDR)…

Answer 21

Decrease ↓ (Direct)

Question 22

If Inherent Risk (IR) ↓, then Planned Detection Risk (PDR)…

Answer 22

Increase ↑ (Inverse)

Question 23

If Inherent Risk (IR) ↑, then Planned Detection Risk (PDR)…

Answer 23

Decrease ↓ (Inverse)

Question 24

If Control Risk (CR) ↓, then Planned Detection Risk (PDR)…

Answer 24

Increase ↑ (Inverse)

Question 25

If Control Risk (CR) ↑, then Planned Detection Risk (PDR)...

Answer 25

Decrease ↓ (Inverse)

Question 26

If Planned Detection Risk (PDR) ↓, then Planned Audit Evidence...

Answer 26

Increase ↑ (Inverse)

Question 27

If Planned Detection Risk (PDR) ↑, then Planned Audit Evidence...

Answer 27

Decrease ↓ (Inverse)

Question 28

Types of Audit Reports

Answer 28

1. Standard Unqualified Opinion 2. Unqualified Opinion with Explanatory Paragraph of Modified Wording 3. Qualified Opinion 4. Adverse Opinion 5. Disclaimer of Opinion

Question 29

Standard Unqualified Opinion

Answer 29

Immaterial

Question 30

Unqualified Opinion with Explanatory Paragraph of Modified Wording

Answer 30

Immaterial/Material Substantial doubt about going concern. Inconsistency of GAAP Emphasis of other matters

Question 31

Qualified Opinion

Answer 31

Material | Scope limitation and/or departure from GAAP.

Question 32

Adverse Opinion

Answer 32

Highly material | Auditor has knowledge*

Question 33

Disclaimer of Opinion

Answer 33

Highly material Severe scope limitation* Nonindependent relationship.

Question 34

Types of Confirmations for Accounts Receivable

Answer 34

1. Positive Confirmation 2. Blank Confirmation 3. Invoice Confirmation 4. Negative Confirmation

Question 35

Positive Confirmation

Answer 35

Confirmation request if correct or incorrect.

Question 36

Blank Confirmation

Answer 36

Request to provide information.

Question 37

Invoice Confirmation

Answer 37

Confirmation of individual invoice but not entire account receivable balance.

Question 38

Negative

Answer 38

Confirmation request only if stated amount is incorrect.

Question 39

Transaction-Related Audit Objectives for Sales

Answer 39

1. Occurrence 2. Completeness 3. Accuracy 4. Posting & Summarization 5. Classification 6. Timing

Question 40

Transaction-Related Audit Objectives for Sales: Occurrence

Answer 40

Recorded sales are for shipments actually made to non-fictitious customers. (Vouching)

Question 41

Transaction-Related Audit Objectives for Sales: Completeness

Answer 41

Existing sales transactions are recorded. (Tracing)

Question 42

Transaction-Related Audit Objectives for Sales: Accuracy

Answer 42

Recorded sales are for the amount of goods shipped and are correctly billed and recorded.

Question 43

Transaction-Related Audit Objectives for Sales: Posting & Summarization

Answer 43

Sales transactions are correctly included in the accounts receivable master file and are correctly summarized.

Question 44

Transaction-Related Audit Objectives for Sales: Classification

Answer 44

Sales transactions are correctly classified.

Question 45

Transaction-Related Audit Objectives for Sales: Timing

Answer 45

Sales are recorded on the correct dates.

Question 46

The Fraud Triangle

Answer 46

1. Incentives/Pressures 2. Opportunities 3. Attitudes/Rationalization

Question 47

The Fraud Triangle: Incentives/Pressures - Example

Answer 47

Significant declines in customer demand for entity's goods/services.

Question 48

The Fraud Triangle: Opportunities - Example

Answer 48

Weak internal controls

Question 49

The Fraud Triangle: Attitudes/Rationalization - Example

Answer 49

Inappropriate or ineffective communication and support of the entity's values.