Auditing 403- Final Exam

reliable

worthy of trust

positive confirmations

Alternative Procedures are only used for what type of confirmation?

Preventative Controls

An example of this would be a safety deposit box.

Detective Controls

An example of this would be an alarm system in a house.

Unmodified Opinion

An opinion issued when the auditors conclude that the financial statements present the financial condition, results of operations, and cash flows in accordance with GAAP (until recently, known as an unqualified opinion).

Qualified Opinion

An opinion issued when the auditors conclude that, with the exception of one or more issue(s), the financial statements present the financial condition, results of operations, and cash flows in accordance with GAAP. They can be issued for material departures from GAAP and material scope limitations.

relevant reliable

Appropriate means the evidence is _____ and _____

IR x CR x DR RMM x DR Client Risk x DR

Audit Risk Formula

Liabilities Expenses

Auditors are worried about completeness for ______ and ______.

persuasive convincing

Auditors gather evidence that is ______, not ________.

sufficient, appropriate

Auditors need to gather ______ _______ evidence

Cash A/R Inventory

Auditors should get confirmations for: (3 items)

Adverse Opinion

The opinion issued when the auditors conclude that the financial statements do not present the financial condition, results of operations, and cash flows in accordance with GAAP.

Misappropriation of Assets (Employee Fraud)

The use of fraudulent means to take money or other property from an employer. It consists of three phases: (1) the fraudulent act, (2) the conversion of the money or property to the fraudster's use, and (3) the cover-up.

True

True/False External Auditing is required to sit for the CPA Exam.

Competency Objectivity

Two things auditors should observe when looking at internal auditors:

Variable Sampling

Type of sampling that has do do with Substantive Test of Details.

Attribute Sampling

Type of sampling that has to do with Test of Controls

1) Inspection of the Records and Documents (vouching, tracing, scanning) 2) Inspection of Tangible Assets 3) Observation 4) Inquiry 5) Confirmation 6) Recalculation (7) Reperformance 8) Analytical Procedures

Types of Ways to Gather Evidence: (8)

large

A _____ number of errors are anticipated for positive confirmations.

small

A ______ number of accounts are involved for positive confirmations

Disclaimer of Opinion

A report issued when auditors don't express an opinion on the fairness of the entity's financial statement. This is issued for pervasive going-concern uncertainties, pervasive scope limitations, situations in which auditors are associated with (but did not audit) financial statements, and situations in which the auditors are not independent.

Embezzlement

A type of fraud involving employees or nonemployees wrongfully taking money or property entrusted to their care, custody, and control, often accompanied by false accounting entries and other forms of lying and cover-up

Client Risk

Besides risk of Material Misstatement, Inherent Risk and Control risk is also called:

fraud

Between fraud and error, it his harder to find misstatements from:

Occurrence Assertion

Between occurrence assertion and cutoff assertion, which on would be more worrisome to an auditor.

Negative Confirmation

Confirmation where a large number of small balances is involved

Positive Confirmations

Confirmation where a small number of accounts are involved and large number of errors are anticipated.

Sampling Risk and Nonsampling Risk

Detection Risk is made up of:

Compilation

Engagement(s) that does not require auditor to be independent.

Reviews Audits

Engagement(s) that is an assurance service?

Compilations Reviews Audits

Engagement(s) that is an attestation service?

Audit

Engagement(s) that requires auditor to understand internal controls

Review Audit

Engagement(s) that requires auditors to be independent:

management

Financial Statements are the responsibility of:

low

For negative confirmations, the combines assessed level of inherent and control risk is _____.

Occurrence Assertion

Fraudulent entries have to do with which assertion?

Adverse Opinion

If departure from GAAP is material and pervasive, what opinion is issued?

Qualified Opinion

If departure from GAAP is material but not pervasive, what opinion is issued?

Unmodified Opinoin

If departure from GAAP is not material, what opinion is issued?

Unmodified Opinion

If scope limitation is material but alternative procedures are available, what opinion is issued?

Disclaimer of Opinion

If scope limitation is material, no alternative procedures are available, and it is pervasive, what opinion is issued?

Qualified Opinion

If scope limitation is material, no alternative procedures are available, but it is not pervasive, what opinion is issued?

Unmodified Opinion

If scope limitation is not material, what opinion is issued?

deviation

If there is missing item, that should be classified as a(n):

cutoff

If you see that revenues are recorded too early, that is a _____ issue.

Revenue

In the planning stage, Analytical procedures have to be done on what account?

Professional Skepticism

Includes a questioning mind and critical assessment for the facts.

CEO

Internal Audit department report administratively to:

Audit Committee of the Board of Directors

Internal Audit department report functionally to:

Audit Review

Management Representation Letter is required for what type of engagement(s)

last

Management letter should be obtained when?

Sufficient

Means enough evidence

Other Information: 1) Look at Handout with different Assertions and Audit Procedures 2) Understand how to do correcting Journal Entries

Other Information: 1) Look at Handout with different Assertions and Audit Procedures 2) Understand how to do correcting Journal Entries

Nonpublic Entities

Paragraph titles are used for which type of Audit report {Nonpublic Entities;Public Entities}

Questioning Mind Critical Assessment

Professional Skepticism includes a _______ ______ and ______ ______ of the facts.

Competency

Professional designations like CIA and CPA help to prove _______ of internal auditors?

PCAOB

Public entities report according to the:

Completeness (1st) Cutoff (2nd)

Reason you look at subsequent cash disbursements is for:

Allocation

Refers to the appropriate percentage of an asset or liability balance being recorded on the income statement in accordance with GAAP.

Accuracy

Refers to the appropriate recording of the transaction involving these items.

Board of Directors

Report for public and nonpublic entities are addressed to:

Bachelor's Degree CPA Exam Experience State Certificate and License

Requirements to become a CPA:

Control Risk and Inherent Risk

Risk of Material Misstatement is made up of:

Unqualified Opinion

SEC only accepts what opinion:

inverse

Sample size has an ________ relationship with sampling risk

Audits

Sampling is done for which engagement(s)?

Details

Test of ____ is usually made up of 2/3 statistical and 1/3 nonstatistical sampling

Controls

Test of _____ is equally divided between statistical and nonstatistical sampling?

Binary (Yes/No)

Test of controls has what type of response?

Introductory Paragraph Management's Responsibility Section Auditor's Responsibility Section Opinion Paragraph

What are the 4 parts of a nonpublic entity report?

Introductory Paragraph Scope Paragraph Opinion Paragraph Internal Control Paragraph

What are the 4 parts of a public entity report?

Rights and Obligations

What assertion does this deal with: Are related legal responsibilities identified?

Valuation

What assertion does this deal with: Are the accounts valued correctly?

Understandability

What assertion does this deal with: Are the disclosures comprehensible to users.

Cutoff

What assertion does this deal with: Are transactions at the beginning or en of a period included in the proper period?

Existence an Occurrence

What assertion does this deal with: Did the recorded sale transaction really occur?

Existence and Occurrence

What assertion does this deal with: Do the assets listed really exist?

Rights an Obligations

What assertion does this deal with: Does the company really own the assets?

Completeness

What assertion does this deal with: Does the financial statement contain all necessary components (including footnotes)?

Classification

What assertion does this deal with: Were all transactions recorded in the correct accounts?

Completeness

What assertion does this deal with: Were all transactions recorded?

Planning, Completion

What stages are you required to do analytical procedures?

Repair an Maintenance Legal Expense

What two accounts should you look at 100% of:

Inquiry and observartion

What two types of investigation techniques need to be corroborated:

Negative

What type of assurance is given for a Review

Positive

What type of assurance is given for an Audit

Independent

What word is seen in the title of both public and nonpublic entity reports.

Chief Audit Executive

What's the title of the person in charge of the Internal Audit department?

Date you have gathered sufficient, appropriate evidence

When is the report issued for both public and nonpublic entities.

Existence

When looking at assets, which assertion is tested?

Completeness

When looking at liabilities, which assertion is tested?

disaggregated

When performing analytical procedures on revenue, the information should be:

State Board of Accountancy (State Board of CPA's of Louisiana)

Who issues the CPA license:

See why they have litigation against them

Why would auditors look at 100% of legal expense

large small

With negative confirmation, a ____ number of ______ balances are involved.

classification

With repair an maintenance, auditors are worried about what assertion.

Planning Training Supervision

You can reduce nonsampling risk through proper:

Errors and Fraud

You have same responsibility to find misstatement from ______ and ______.

Tracing

_____ is used to test completeness assertion.

Vouching

______ is used to test occurrence assertion

Analytical Procedure

_______ _______ is when you compare one number to another

sufficiency

_______ relates to evidence quantity

relevance

________ pertains to management assertion we are testing

appropriateness

________ relates to evidence quality

Objectivity

____________ can be proven by seeing who internal auditors are reporting to administratively and functionally.