Unit 5

Question 1

What are the 3 levels of the top-down approach in order to select controls

Answer 1

Financial Statement Level: Auditor evaluates overall risk
Entity Levlel: auditor identifies and tests controls on CRIME
Accounts disclolsuresm and assertions level

Question 2

When comparing an FS audit to an audit of internal controls for non-issuers, what is the difference in the extent of testing

Answer 2

extent of testing of internal controls for a FS audit is more limited than an audit of internal controls

Question 3

If you are performing an audit of internal controls for a nonissuer, how do you handle deficiencies identified during the audit

Answer 3

significant deficiencies and material weaknesses should be communicated in writing to management by the report release date

While control deficiencies which are not significant should be communicated in writing within 60 days of the report release date

Question 4

Material weakness of internal controls results in what

Answer 4

an adverse opinion

Question 5

What standards are referenced in the auditors report that provides an opinon on the operating effectiveness of internal controls for 1. issuers and 2. non issuers

Answer 5

1. issuers must reference that they followed standards set by PCAOB
2. non issuers must reference that they followed standards generally accepted in the USA

Question 6

Is the report that contains an opinion on the operating effectiveness of internal controls restricted in terms of use

Answer 6

generally no

Question 7

What is an attestation agreement

Answer 7

one where the CPA is engaged to issue an examination, a review, or an agreed-upon procedure reported on a subject matter or an assertion that is the responsilbility of management

Question 8

What are the 6 major categories of attestation services

CRAP FM

Answer 8

Compliance with regulatory or contractual reqs.
Reporting on controls at a service org
Agreed upon procedures
Pro forma FS

Financial forecasts and projections
Managements discussion and analysis

Question 9

How do attestation standards differ from GAAS

Answer 9

Attestation standards are more broad, there is no mention to GAAP or the FS, the level of assurance is below GAAS

Question 10

What are the common concepts related to all attestation engagements

CAPE CORP

Answer 10

Compliance with all relevant attestation standards
Acceptance and continance are performed for relationships
Preconditions for an engagement are present (independence and responsibility)
Engagement documentation standards for timeliness, retention, ownership etc..

Change in terms are accepted when reasonable
Other cpa’s work is allowed to be used
Responsibility for quality control lies with engagement partner
Professional skeptisism and judgement is required

Question 11

What are the levels of assurance for an examination, review and agreed upon procedures

Answer 11

Examination: positive opinion, high level of assurance, based on a variety of procedures.

Review: “negative assurance”, moderate level of assurance, based on inquiry and analytical procedures

Agreed upon procedures: No assurance, but procedures and findings are listed

Question 12

What are the seven conditions that must exist in order to perform an agreed upon procedure

I AM SURE

Answer 12

Independence

Agreement of parties
Measurability and consitency of subject matter

Sufficiency of procedures
Use of report is restricted
Responsibility of subject matter is with client
Engagements to perform agreed upon procedures on prospective FS must include a summary of significant assumptions.

Question 13

Whats the difference between a financial forecast and financial projection

Answer 13

Financial forecast is the expected results based on conditions and expected course. It is appropriate to be for general or limited use.

Financial Projections are more of a what if, and is only appropriate for limited/restricted use only

Question 14

How can a CPA be associated with prospective FS

Answer 14

CPA an preparea and/or comile the FS
apply agreed upon procedures and examine them.

BUT CPA CANNOT review prospective FS

Question 15

how does an examination of prospective FS differ from applicaiton of agreed upon proceudres

Answer 15

an examination is broader and more substancial in scope and responsibility than agreed upon procedures engagement

an examination also inludes an expression of an opinion as to whether the statements are presented in conformity with AICPA guidelines and whether guidlines provide a reasonable basis for statements

Question 16

What kind of engagement can an auditor perform on pro forma FS

Answer 16

they can perform either an examination or review of pro forma statements

Question 17

What are the two types of reports may a service auditor provide, and what is the difference in how the user auditor may use them

Answer 17

Type 1 report is a report on managements description of the service orgs system and suitability of the design of controls. This report DOES NOT support a reduction in the assessed level of control risk

Type 2 report is a report on managements description of the service orgs system and suitability of design AND operating effectiveness of controls. This report MAY support a reduction in the assessed level of control risk.

Question 18

Under US auditing standards, when can an auditor issue a special report on a client’s compliance with contractual agreements or regulatory requirements

Answer 18

the audittor must have audited the clients FS and expressed an unmodified or qualified opionion
AND
may only give negative assurance on the compliance

Question 19

How may the compliance report be presented?

Answer 19

report on compliance may either be a seperate report provided or in an other matters paragraph

Question 20

when reporting on an attestation engagement regarding an entitys compliance with requirements of specific laws and regs, the CPA may be engaged to perform what type of engagements

Answer 20

the engagement may be an agreed upon procedures or examination

NOT a review

Question 21

What is the formula for audit risk of noncompliance

Answer 21

AR = Risk of material noncompliance x Detection Risk

Question 22

Explain the difference between “unconditional requirements” and “presumptively mandatory requirements” defined by the GAGAS (the yellow book)

Answer 22

“unconditional requirements” are where the auditors must comply and “presumptively mandatory” are where the auditor “should comply”

Any reason for not observing presumptively mandatory requirements that are not observed, need to be documented

Question 23

Identify the 3 types of govt. audits/engagements normally undertaken by CPAs

Answer 23

Financial Audits: incorporate GAAS and determine whether the financial statemtns presents fairly and in accordance with GAAP

Attestation Engagements: incorporate the AICPA standards for examinations, reviews, and agreed upon procedures by reference and include expanded requirements

Performance audits: engagmetns that may have the following objectives: effectiveness, economy, and efficiency, interal control, compliance etc..

Question 24

Attestation engagements performed in conformity with Governmental Auditing Standards (Yellow Book) could include what subjects

Answer 24

compliance with specified laws, regulations, rules, contracts, or grants

Effectiveness of internal control over conpliance with requirements

Presentation of MD&A

Question 25

What four objectives must be included in performance audits under GAGAS

Answer 25

effectivenessm economy and efficieny Internal control Compliance Prospective analysis

Question 26

When reporting on clients internal control deficiencies under GAGAS the auditor is required to perform which procedures

Answer 26

obtain an understanding of the design of relevant controls and determination if they have been implemented communicate all sig. deficiencies noted in the audit Prepare a written report on the auditors understanding of the clients internal control and assessment of risk Report sig. defs. to specific legislative and regulatory bodies.

Question 27

Which law and regulations need to be considered by the auditor in a governmental audit

Answer 27

Auditor must consider the effects of laws and regulations that have a direct and material effect on the FS

Question 28

Which ket category of performance audit objectives is described by the following: " Audit objectives that focus on program effectiveness and results to evaluate whether programs are metting theri goals and objectives which address the costs and resources used to execute program initiatives"

Answer 28

effectiveness, economy, and efficiency

Question 29

Which ket category of performance audit objectives is described by the following: " Audit objectives that relate to evaulating compliance with criteria established by provisions of laws, regulations, contracts, and grant agreements, or other requirements"

Answer 29

compliance

Question 30

What are the 3 sets of standards or support. reqs. that an audit of a govt. entity draws from

Answer 30

GAAS (all audits) GAGAS (yellow book) if the client is a govt. or receives financial support from govt. 2 CFR 200.500 (single audits of federal financial assistance) which is an entity expending more than 750k in federal assistance annually.

Question 31

What are the objectives of a single audit

Answer 31

Audit of the entity's financial statements and reporting on a seperate schedule of expenditures of federal rewards Compliance audit of federal rewards expended furing the year

Question 32

how does materiality under the single audit act differ from materiality under GAAS and GAGAS

Answer 32

under the single audit act materiality is set for each major program

Question 33

Material noncompliance with the requirements of major federal financial assistance programs results in what type of opinion on compliance

Answer 33

Qualified(except for) or adverse opinions

Question 34

What are the four reports recommended under the single audit act

Answer 34

opinion on FS and supplementary schedule of expenditures of federal awards report on compliance and on internal control over financial reporting Report on compliance and on internal control schedule of findings and questioned costs.

Question 35

What types of reports can be given on prospective FS

Answer 35

Examination or agreed upon procedures