Audit Surgent CPA Prep Review

Coding (2 definition)

1. An ordered list or lists of the successive instructions which direct a computer to perform a particular process 2. The act of preparing a coding

Name at least 6 circumstances related to recent developments that create risk.

1. Changes in operating environment 2. Changes in financial markets or current economy 3. New personnel 4. New or revamped information systems 5. Rapid growth 6. New technology 7. New business models, products or activities 8. Corporate restructurings 9. Expanded foreign operations 10. New accounting pronouncements

Name the three types of engagements for prospective financial statements.

1. Compilation 2. Examination (expresses opinion) 3. Agreed-upon procedures (always restricted in use); no option for review

Name substantive tests that can be performed for PP&E

1. Existence 2. Rights and obligations 3. Completeness 4. Valuations 5. Presentation and disclosure

Name at least 6 examples of incentive/pressure leading to audit fraud

1. High degree of competition 2. Declining margins 3. Vulnerability to rapid changes 4. Significant declines in market demand 5. Threat of bankruptcy 6. Recurring negative cash flows 7. Third party transactions 8. Personal financial threats 9. Compensation incentives 10. Personal obligations 11. Known future layoffs 12. Inconsistent compensation expectations

Name at least one element of a compilation report for prospective financial statements

1. Identification of prospective financial statements presented by responsible party 2. Compiled in accordance with AICPA standards 3. No opinion or any form of assurance expressed 4. Prospective results may not be achieved 5. No responsibility for events after report date

Name three aspects of fraud

1. Opportunity 2. Motivation or pressure 3. Rationalization

Name the four parts of the AICPA code of professional conduct

1. Principles of conduct 2. Rules 3. Interpretations of rules 4. Ethics rulings

Name two types of audit tests that use sampling

1. Test of controls: a. Provide evidence about operating effectiveness of a control in preventing or detecting material misstatements in a financial statement assertion b. Concerned with rates of any deviation from a prescribed control procedure 2. Substantive procedures: a. Provide evidence about the validity and propriety of accounting treatment of transactions/balances or detecting misstatements

Elements of a report on supplementary information

1. The audit is conducted to form an opinion on the financial statements as a whole 2. Provided additional analysis and is not required 3. Management is responsible for supplementary information 4. Information is derived from accounting records 5. Subjected to procedures used in a financial statement audit and additional procedures required per GAAS

What are the component risks that make up audit risk?

1. The risk of material misstatement times detection risk 2. Inherent risk times control risk times detection risk

In dealing with the identification of material risk, the identification of a risk factor would include which four items?

1. Type of risk that may exist 2. Significance of the risk 3. Likelihood of risk 4. Pervasiveness of the risk

Ultimate risk (audit risk)

A combination of the risk that material error will occur in the accounting process used to develop the financial statements and the risk that any material errors that occur will not be detected by the auditor

Define "audit plan"

A detailed audit plan is a set of audit programs that addresses specific audit objectives. It documents the nature, extent, and timing (NET) of audit procedures

In terms of statistical sampling tests, what is a dual-purpose test?

A dual-purpose test is a test that used both as a test of control and substantiation of the dollar amount of an account balance

Expansion factor

A factor used in the calculation of sample size in a probability proportional to size sampling application if errors are expected

Program flowchart

A flowchart diagramming the processing steps and logic of a computer program; contrast with system flowchart

What is an auditor's awareness consent letter?

A letter signed and dated by the auditor to acknowledge awareness that a review report on unaudited interim financial information is being used in a registration statement filed under the Securities Act of 1933; commonly referred to as an "acknowledgement letter"

Emphasis-of-Matter paragraph

A paragraph included in the auditor's report that is required by GAAS or is included at the auditors' discretion, and that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor's' judgment, is of such importance that it is fundamental to users' understanding of the financial statements (e.g., a lack of consistent application of GAAP, substantial doubt about an entity's ability to continue as a going concern)

Define internal control

A process, effected by those charged with governance, to provide reasonable assurance that entity objectives will be achieved: 1. Reliability of financial reporting 2. Effectiveness and efficiency of operations 3. Compliance with laws and regulations

Limit test

A programmed check for errors in input data or processing. Note: for this test, a data items is compared with a test amount larger ( or smaller) than the data item should be if it is correct; if the checked item is larger (or smaller) than the test amount, an error is indicated

Modified opinion

A qualified opinion, an adverse opinion, or a disclaimer of opinion.

Public Company Accounting Oversight Board (PCAOB)

A regulatory body created by the Sarbanes-Oxley Act of 2002 (SOX), which regulates audits of SEC registrants, and operates under the U.S. securities and exchange commission

Haphazard sample

A sample consisting of sampling units selected without any conscious bias; that is, without any special reason for including or omitting items from the sample. It does not consist of sampling units selected in a careless manner, and is selected in a manner that can be expected to be representative of the population

Random sample

A sample selected so that every combination of the same number of items in the population has an equal probability of selection

Classical variables sampling

A sampling approach that measures sampling risk using the variation of the underlying characteristic of interest. This approach includes methods such as mean-per-unit, ratio estimation, and difference estimation

Sequential sampling (stop or go sampling)

A sampling plan for which the sample is selected in several steps, with each step conditional on the results of the previous steps

Test data

A set of transactions developed by the auditor with a known output result. Some of the transactions may include errors. The transactions are processed on the client's system. The objective is to test the effectiveness of the client's system by comparing the processed information with the known output

What is an auditor's consent letter?

A statement signed and dated by the auditor that indicates consent to use the auditor's report, and other references to the auditor, in a registration statement filed under the Securities Act of 1933

Pervasive

A term used in the context of misstatements to describe the effects on the financial statements of misstatements or the possible effects on the financial statements misstatements, if any, that are undetected due to an inability to obtain sufficient appropriate audit evidence

Probability proportional to size (PPS) sampling, (dollar unit sampling, CMA sampling)

A variables sampling procedure that uses attributes theory to express a conclusion in dollar amounts

Nonsampling risk

All aspects of ultimate risk not due to sampling

Expected population deviation rate

An anticipation of the deviation rate in the entire population. It is used in determining an appropriate sample size for an attributes sample

What is the difference between an error and fraud in a financial statement audit?

An error is an unintentional misstatement or omission, while fraud is intentional

Tolerable error

An estimate of the maximum monetary error that may exist in an account balance or class of transactions, when combined with error in other accounts, without causing the financial statements to be materially misstated

Professional skepticism

An open-minded attitude that presumes that parties are neither totally honest nor totally dishonest

Attribute

Any characteristics that is either present or absent. In tests of controls, the presence or absence of evidence of the application of a specified internal control structure procedure

Compilation (SSARS Definition)

Assisting management in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements in order for the statements to be in conformity with the applicable financial reporting framework

Name an example of an adverse interest threat to independence

Commencing, or expressing intent to commence litigation

A CPA who is not independent may issue a blank report

Compilation

An auditor selected items for test counts while observing a client's physical inventory count. The auditor then traced the test counts to the client's inventory listing. This procedure most likely obtained evidence concerning management's balance assertion of

Completeness

Supplementary Information

Consolidating information, statistical data, and historical summaries of items extracted from basic financial statements; not considered necessary for the financial statements to be fairly presented and excluding required supplementary information (RSI)

Rule of conduct 1.510 regulates which area?

Contingent fees

Securities Exchange Act of 1934

Created the Securities and Exchange Commission (SEC); regulates securities registered on national exchanges and OTC with > $10 million in assets and > 500 shareholders

What is the quick ratio (acid test) formula and what does it measure?

Current asset minus inventory/Current liabilities Measures degree of immediate liquidity

An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements, provided that:

Distribution of the report is restricted to the specified users

Name a primary function of the purchasing department

Ensuring the acquisition of goods of a specified quality

Operational Deficiency

Exist when a properly designed control does not operate as designed or the person performing does not have necessary authority or qualifications to perform the control

Design Deficiency

Exists when (1) a control necessary to meet the relevant control objective is missing or (2) an existing control is not properly designed so that, even if the control operates as designed, the control objective would not be met

If noncompliance with laws and regulations has a material effect on the financial statements and it has not been adequately reflected in the financial statements, the auditor should

Express a qualified or adverse opinion

Under SSARS 21 for compilations, if an accountant is unable to complete the engagement because management failed to provide requested records, documents, explanations or other material, the accountant should disclaim an opinion

False. Under SSARS 21 for compilations, if an accountant is unable to complete the engagement because management failed to provide requested records, documents, explanations or other material, the accountant should consider withdrawing from the engagement

What entity is charged with the responsibility for issuing generally accepted auditing standard (GAAS)?

GAAS are issued by the auditing standard board (ASB) in the form of statements on auditing standards (SASs) and codified into AU-C sections

GAGAS

Generally Accepted Government Auditing Standards

Rule of conduct 1.100. Integrity and objectivity:

In the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall now knowingly misrepresent facts or subordinate his or her judgment to others

Internal control definition

Internal control is an element of a system (sales, purchases) that assures management that the system will work according to management's intentions and will work effectively and efficiently

Application controls

Internal controls relating to a specific computer operations such as the processing of customer invoices

Sampling risk varies blank with sample size

Inversely

If sufficient information about suspected noncompliance with laws and regulations cannot be obtained, the auditor should

Issue a qualified opinion or disclaim an opinion

What is the return on investment (ROI) formula?

Net income/Investment May reveal inconsistencies with industry data and performance

What is a type 2 subsequent event and what are the reporting/disclosure requirements?

Nonrecognized subsequent events are events that provide evidence with respect to conditions that did not exist at the date of the balance sheet being issued, but arose subsequent to that date. These events are not recognized in the financial statements, but should be disclosed if their effect is material. Common examples include a loss of plant or inventories as a result of fire or natural disaster that occurred after the balance sheet date

Transaction code

One or more characters that form a part of a record and signify the type of transaction represented by that record

GAAS audits require a blank paragraph for required supplementary information (RSI)

Other-matter

An auditor most likely would extend substantive tests of payroll when

Overpayments are discovered in performing tests of details

Describe the members of a group engagement team

Partners, including the group engagement partner, and staff who establish the overall group audit strategy, communicate with component auditors, perform work on the consolidation process, and evaluate the conclusions drawn from the audit evidence as the basis for forming an opinion on the group financial statements

Which department should have the responsibility for authorizing payroll rate changes?

Personnel

Any CPA firm performing auditing, accounting and review services is required to abide by nine elements of quality control. Element # 7 is "advancement", which means what?

Promotion policies should be established to ensure that promoted personnel are the most qualified for their new responsibilities

If opening balances contain material misstatements or inconsistencies in the application of accounting methods, express an blank opinion

Qualified or adverse

If the work of a specialist indicates that the financial statements are known to be incorrect, the auditor should issue a blank opinion

Qualified or adverse

What is a ratio analysis?

Ratio analysis consists of a comparison of relationships among financial statement accounts, using nonfinancial data and industry data. It is most appropriate when accounts are fairly predictive and stable and is often used to analyze operating characteristics

Internal control procedures are strengthened when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to the

Receiving department

An accountant's report on a review of pro forma financial information should include what kind of statement?

References to the financial statements from which the historical financial information is derived

What are underlying assumptions of analytical procedures?

Relationships exist among data and they are expected to continue in the future absent any changes in conditions or operations in the company

Who is responsible for determining disclosure of related parties?

Since GAAP requires proper disclosure, the auditor is responsible for determining if that disclosure is proper

Variables sampling

Statistical sampling that reaches a conclusion on the monetary amounts of a population

Regarding audit evidence, how is "sufficient" audit evidence defined?

Sufficient is the measure of the quantity of audit evidence (how much)

If requested to perform a review engagement for a nonpublic entity in which an accountant has an immaterial direct financial interest, is the accountant independent or not independent? Can a review report be issued?

The accountant is not independent and, therefore, may not issue a review report

Inherent risk (related to audit sampling)

The auditor's assessment of the susceptibility of an account balance or class of transactions to errors exceeding tolerable error before considering the operation of related internal control structure

Logical unit

The balance or transaction that includes the selected dollar in a probability proportional to size sample

The party responsible for assumptions identified in the preparation of prospective financial statements is usually

The client's management

What is "audit risk"?

The risk that an auditor unknowingly may fail to modify the opinion on financial statements that are materially misstated

Those charged with governance

Those responsible for overseeing the strategic direction of the entity and obligations related to the accountability of the entity

In a reissued report, the auditor has no responsibility for any events which may have occurred during the period between the original report date and the date of the release of additional reports.

True. Use of the original report date on the reissued report applies no further action

Comfort letters ordinarily are addressed to whom?

Underwriters of securities

An auditor most likely would analyze inventory turnover rates to obtain evidence concerning management's assertions about:

Valuation or allocation

When goods are received, the receiving clerk should match the goods with the

Vendor's invoice and the receiving report

What is the auditor's main concern regarding an entity's internal controls (PDCMM)?

Whether and how a specific control prevents, detects, and/or correct material misstatements (PDCMM) in relevant assertions

Sample

items selected at random from a population to reach a conclusion about the population

Risk with internal control (under-reliance)

under-reliance (alpha or good risk)- the auditor decides that internal control is weak when in fact it is working effectively. The auditor would gather more evidence than necessary and only waste time (inefficient)

What word indicates a presumptively mandatory requirement in generally accepted auditing standards?

"Should"

For fiscal years beginning on or after January 1, 2015, non-federal entities that expend ______ or more in a year in federal awards are required to have a single or program-specific audit

$750,000

Name the five rules of conduct that apply only to CPAs in public practice

1. 1.200: Independence 2. 1.700: Confidential client information 3. 1.510: Contingent fees 4. 1.600: Advertising and other form of solicitation 5. 1.800: Form of organization and name

What are the four main statements for rule of conduct 1.800 (form of organization and name)?

1. A member may practice public accounting only in a form of organization permitted by state law or regulation whose characteristics conform to resolutions of council 2. A member shall not practice public accounting under a firm name that is misleading 3. Names of one or more past owners may be included in the firm name of a successor organization 4. A firm may not designate itself as "members of the AICPA" unless all of its owners are members of the AICPA

Code of professional conduct principles of conduct 0.300.050 (Article iv). Objectivity and independence: what are the two main points of independence?

1. A member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilities 2. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services

Name at least three tasks an accountant is charged with in order to comply with SSARS 21 compilation requirements

1. Accounting principles and industry practices through experience 2. Client's general organization 3. Operating characteristics 4. Nature of assets, liabilities, revenues and expenses 5. Applicable financial reporting framework 6. Significant accounting policies intended to be used in preparation of financial statements

Name at least three types of information processing controls that are tested under the "C" of crime (control activities)

1. Accuracy: recalculate 2. Completeness: all transactions were recorded 3. Authorization: proper approvals 4. General controls 5. Application controls

Name at least three examples of external confirmations

1. Bank balances and other relevant information 2. Inventory held by third parties 3. Property title deeds held by legal counsel 4. Investments held by third parties 5. Amounts due to lenders including relevant terms of repayment and restrictive covenants

Name five common transactions that may result in a pro forma presentation

1. Business combinations 2. Changes in capitalization 3. Disposition of a significant portion of a business 4. Changes in the form of organization or status as an autonomous entity 5. Proposed sale of securities and application of proceeds

Name at least four financial statements prepared in accordance with a special purpose framework

1. Cash or modified cash 2. Income tax 3. Regulatory 4. Contractual 5. Other basis of accounting applying a definite set of criteria having substantial support to all material items

Name at least three items that must be included in a comfort letter

1. Clearly state that inquires and other procedures did not cover the period from the cut-off date through the date of the letter 2. Address only to the requesting parties 3. Identify the financial statements and securities offering in an introductory paragraph 4. Refer to any emphasis-of-matter paragraph that was included in the auditor's report on financial statements and discuss the subject matter 5. Refer to the requesting party's representation letter, if applicable 6. Reference, but do not repeat, the report on the audited financial statements

The department of labor conducts financial and performance audits for what three purposes?

1. Compliance with applicable laws and regulations 2. Evaluation of economy and efficiency of operations 3. Evaluation of effectiveness in achieving program results

Name the four statistical parameters an auditor considers when determining an appropriate sample size for attribute testing

1. Confidence level 2. Expected deviation rate 3. Tolerable deviation rate 4. Population to be sampled

Name at least three areas where general IT controls exist

1. Data center and network operations 2. System software acquisitions, change, and maintenance 3. Program change 4. Access security 5. Application systems acquisition, development, and maintenance

Name examples of documents used in the auditing of property, plant and equipment (PP&E)

1. Deeds and titles 2. Purchase invoices and cancelled checks 3. Perpetual inventory records of fixed assets 4. Insurance records 5. Property tax records

Conditions for inclusion of supplementary information in an audit report

1. Derived from, and relates directly to, the underlying accounting records used to prepare financial statements 2. Relates to the same period as the financial statements 3. The auditor is the principal auditor 4. The auditor did not express either an adverse opinion or a disclaimer of opinion on the financial statements

Name four required elements of presentation of pro forma information

1. Description of the transaction that is reflected in the data 2. Source of the historical financial information on which the pro forma data is based 3. Significant assumptions used in developing the pro forma adjustments 4. Any significant uncertainties about assumptions

What is the purpose of an engagement quality control review?

1. Ensure CPA firm personnel are performing engagements in accordance with professional, regulatory, and firm-specific quality standards 2. Often occurs after the audit report date 3. Notes must be cleared before report release 4. Focus on high-risk audit engagements

Name at least four examples of audit "other information"

1. Financial summaries 2. Employment data 3. Planned capital expenditures 4. Financial ratios 5. Name of officers and directors 6. Selected quarterly data

Name three responsibilities of the auditor regarding internal controls

1. Gain sufficient understanding of the internal control elements to plan the audit and determine the nature, timing and extent of tests to be performed 2. Assess control risk 3. Communicate reportable conditions and internal control weaknesses to appropriate level of management

Name at least two situations where a CPA is permitted to disclosure confidential information without the specific consent of the client

1. In response to a subpoena 2. To comply with a law or regulation 3. As part of a professional practice review by the AICPA, state society or state licensing authority 4. AS part of a disciplinary hearing or ethics investigation

Name at least 2 examples of misstatements

1. Inaccuracy in gathering or processing data from which financial statements are prepared 2. Omission of an amount or disclosure 3. Financial statement disclosure not presented in conformance with the applicable financial reporting framework 4. Incorrect accounting estimate from overlooking or misinterpreting facts

Name at least 4 examples of attitude/realization for audit fraud

1. Inappropriate values 2. Known history of violations by management 3. Excessive interest in earnings trends 4. Employing tax-motivated transactions 5. Pushing the concept of materiality 6. Employee dissatisfaction 7. Frequent disregard for internal control 8. Tone at the top

Name four ways related parties can be identified

1. Inquire of management 2. SEC filings and annual reports require this disclosure 3. List of officers, stockholders and subsidiaries 4. Working papers from prior years

Name 4 risk assessment procedures to assess the risk of material misstatement

1. Inquiry 2. Analytical procedures 3. Observation 4. Inspection

Name the five fundamental principles of the IFAC code of ethics

1. Integrity 2. Objectivity 3. Professional competence and due care 4. Confidentiality 5. Professional behavior

Name four techniques used to gain an understanding of the internal control system

1. Internal control questionnaires (ICQ) 2. Narratives 3. Flowcharts 4. Walk-throughs

Name five factors that increase sample size in variable testing

1. Larger population monetary amount 2. Decreased tolerable misstatement 3. Higher risk if material misstatement 4. Fewer or no other relevant substantive procedures 5. Increased size or frequency of expected misstatement

Name the six SQCS elements of quality control

1. Leadership 2. Ethical requirements 3. Acceptance and continuance of clients 4. Human resources 5. Engagement performance 6. Monitoring

What documentation is required for materiality issues?

1. Levels of planning materiality 2. Levels of performance 3. Threshold below which misstatements would be considered to be clearly trivial 4. Basis of determination

Name 3 audit tasks that are not performed in SSARS review

1. Obtaining an understanding of the entity's internal control 2. Assessing fraud risk 3. Testing accounting records by obtaining sufficient appropriate audit evidence through inspection, observation, confirmation or examination of source documents

Name the 5 types of assertions for classes of transactions

1. Occurrence: recorded transactions and events occurred and pertain to the entity 2. Completeness: all transactions and events are recorded 3. Accuracy: amounts and other data are recorded appropriately 4. Cutoff: transactions and events are recorded in the correct period 5. Classification: transactions and events are recorded in the proper accounts

Name 3 management responsibilities to support the auditor

1. Provide all information, documents, records relevant to the preparation of the financial statements 2. Provide unrestricted access to those within the entity from whom the auditor determines it necessary to obtain audit evidence 3. Provide any additional information requested for purposes of the audit

Define required supplementary information (RSI)

1. RSI is additional information required to be presented by other accounting standard setters along with the basic financial statements 2. RSI is considered an essential part of financial reporting 3. GAAS audits require an other-matter paragraph addressing RSI

Name at least three types of attribute sampling methods

1. Random: statistical, random number table or computer generated 2. Systematic: statistical, if no pattern to bias; interval or random starting point with uniform interval 3. Haphazard: nonstatistical, no conscious bias 4. Block sampling: nonstatistical tests of contiguous items 5. Discovery sampling: used to search for a very critical character and only appropriate when expected occurrence rate is near zero

Name three risks if electronic data interchange (EDI)

1. Security of information 2. Concentration of control 3. Loss of flexibility

Under SQCS, when should a firm/partner consider rejecting an attest engagement?

1. The client is unwilling to make all records available 2. Management disregards responsibility for the design, implementation, or maintaining of internal control 3. Management disregards responsibility for the preparation and fair presentation of financial statements 4. Sufficient evidence is not available to support the conclusion or opinion

The nature, timing and extent of risk assessment procedures depend on

1. The size and complexity of the entity 2. The auditor's experience with the client

Dump (2 definitions)

1. To copy the contents of a set of storage locations, usually from an internal storage device (core storage) to an external storage medium (magnetic tape) and usually for diagnostic or rerun purpose 2. Data that results from the process as defined in (1)

ERISA requires an annual independent audit for employee benefits plans with blank participants

100 or more

The PCAOB requires audit documentation to be completed within blank following the report release date; work papers must be retained for blank years.

45 days; 7 years

According to US GAAS, audit documentation should be retained a minimum of blank years from the report release date

5

PCAOB Auditing Standards require that audit documentation be retained a minimum of blank years from the report release date

7

Dollar value estimation

A decision model to estimate the dollar amount of the population

Hypothesis testing

A decision model to test the reasonableness of an amount

Material weakness

A deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected, on a timely basis.

Flowchart

A diagram showing, by means of symbols and interconnecting lines, (1) the structure and general sequence of operations of a program or (2) a system of processing

Check digit

A digit associated with a word or part of a word for the purpose of checking for the absence of certain classes of errors

Describe a financial projection

A financial projection presents expected financial position, results of operations and cash flows given one or more hypothetical assumptions

Change request log

A log of suggested changes to existing programs requested by users experiencing difficulties with employing programs

Allowance for sampling risk (precision, sampling error)

A measure of the difference between a sample estimate and corresponding population characteristics at a specified sampling risk

Standard deviation

A measure of the dispersion among the respective amounts of a particular characteristic as measured for all items in the population for which a sample estimate is developed

Rule of conduct 1.200. Independence:

A member in public practice shall be independent in the performance of professional services as required by standards promulgated by bodies designated by council

Rule of conduct 1.700. Confidential client information:

A member in public practice shall not disclose any confidential client information without the specific consent of the client

What is a misstatement?

A misstatement is the difference between what is reporting and what is required for fair presentation: 1. Account, classification, presentation or disclosure 2. Can arise from fraud or error 3. Accumulate misstatements identified during the audit, other than those that are clearly trivial

Describe block sampling

A nonstatistical test of control; contiguous population items

Self-checking number

A numeral that contains redundant information (such as an appended check digit) permitting it to be checked for accuracy after it has been transferred from one medium or device to another (for example, by means of residue check)

Other-Matter paragraph

A paragraph included in the auditor's' report that is required by GAAS or is included at the auditors' discretion, and that refers to a matter other than those presented or disclosed in the financial statements that, in the auditor's' judgment, is relevant to users' understanding of the audit, the auditors' responsibilities, or the auditors' report.

Nonstatistical sampling

A sampling technique for which the auditor considers sampling risk in evaluating an audit sample without using statistical theory to measure that risk

What is a significant deficiency?

A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles (GAAP) such that there is more than a remote likelihood that a misstatement of the entity's financial statements that is more than inconsequential will not be prevented or detected

Audit committee

A subcommittee of the board of directors composed of nonmanagement members who act as a liaison between the board and the auditor. The auditor should be able to discuss any problems related to the audit, any reportable conditions, problems with GAAP and GAAS and any other items deemed necessary by the auditor

Batch processing

A technique in which items to be processed are collected into groups (batched) to permit convenient and efficient processing. Note: The records of all transactions affecting a particular master file are accumulated over a period of time, then arranged in sequence and processed against the master file; most business applications are of the batch processing type

Parallel simulation

A testing process used by the auditor where actual client data are processed on the auditor's EDP equipment. The output is then compared with information processed on the client's equipment

What is a management representation letter?

A written representation from management and those charged with governance: 1. Acknowledging their responsibility for preparation and fair presentation of financial statements 2. Verifying the completeness of information provided to the auditors 3. Confirming the oral representations that were given to the auditor during the engagement 4. Serving as documentation of the continuing appropriateness of the representations 5. Reducing the chance of misunderstanding between the auditor and the client 6. Evaluating the results of other audit procedures

In an audit of inventories, an auditor would least likely verify that

All inventory owned by the entity is on hand at the time of the count.

To whom must matters of fraud be communicated?

All matters of fraud must be communicated to management whether material or not

Component

An entity or business activity for which group or component management prepare financial information that should be included in the group financial statements

Fraud

An intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception that results in a misstatement in the financial statements that are the subject of an audit

Describe analytical procedures

Analytical procedures are evaluations of financial information, using both financial and nonfinancial data, to study plausible relationships that are reasonable expected to exist and continue in the absence of known conditions to the contrary. The auditor should investigate fluctuations/relationships inconsistent with other relevant information or that deviate significantly from predicted amounts

Describe what is meant by "improper influence" as used by SOX

Any action taken by an issuer's officers or directors to fraudulently influence, coerce, manipulate or mislead any auditor of that issuer for the purpose of rendering such financial statements materially misleading is prohibited

Sampling unit

Any of the individual elements, as defined by the auditor, that constitute the population

An auditor is reporting on cash-basis financial statements. These statements are best referred to in his or her opinion by what description?

Assets and liabilities arising from cash transactions, and revenue collected and expenses paid

Main purpose of audit documentation

Audit documentation should enable experienced auditor, having no previous connection to the audit, to understand the: 1. Nature, timing and extent of procedures performed 2. Relevant audit evidence obtained 3. Conclusions reached 4. Agreement of the accounting records with the audited financial statements and other information

Audit risk formula

Audit risk (AR) = IR x CR x DR

Component auditors

Auditors who do not meet the definition of a member of the group engagement team, including an auditor who may work for a network firm of the group engagement partner's firm or may even work for a different office of the same firm

What is the basis for inherited property?

Basis is usually the fair market value (FMV) at date of death. FMV six months after death is an alternative for an estate tax return if this produces a lower value for the gross estate and lower estate tax liability

GAGAS definition of abuse

Behavior that is deficient or improper when compared with behavior that a prudent person would consider reasonable and necessary business practice given the facts and circumstances

Rule of conduct 1.520 regulates which area?

Commissions and referral fees

Regarding completing the audit, what is the definition of "commitments"?

Commitments are contractual agreements to execute a transaction under specific terms in the future. These types of commitments are usually searched for in the normal course of the engagement and require no unusual audit procedures

Regarding the accounts receivable and sales cycle, cutoff tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about management's assertion of

Completeness

An auditor's report would be designated a special report when it is issued in conjunction with what type of compliance?

Compliance with aspects of regulatory requirements related to audited financial statements

Regarding completing the audit, what is the definition of "contingencies"?

Contingencies are existing conditions, situations or a set of circumstances in which uncertainty exists as to an entity's possible future gain or loss. They are classified probable, reasonably possible or remote

What is the inventory turnover and what does it measure?

Cost of goods sold/Average inventory Measures liquidity of inventory and inventory efficiency; may indicate obsolete goods or pricing overstatements

A CPA who is associated with the financial statements of a public entity, but has not audited or reviewed such statements, should read them in order to

Determine whether there are obvious material errors

Regarding the accounts receivable and sales cycle, name an internal control procedure that most likely would assure that all billed sales are correctly posted to the accounts receivable ledger

Each sales invoice is supported by a prenumbered shipping document

The auditor may observe the distribution of paychecks to ascertain

Employees of record actually exist and are employed by the client

Preliminary arrangements agreed to by the auditor and the client should be reduced to writing by the auditor. The best place to set forth these arrangements is in a blank

Engagement letter

For effective internal control, the accounts payable department generally should

Establish the agreement of the vendor's invoice with the receiving report and purchase order

A signed management representation letter is required for a non-attest engagement under SSARS 21 Section 70 ("Preparation of Financial Statements", effective December 2015.

False. A signed management representation letter is not required

The inability to perform a specific procedure constitutes a limitation on the scope of the audit

False. It does not constitute a limitation on the scope of the audit if the auditor is able to obtain sufficient appropriate audit evidence by performing alternative procedures

The first step in applying analytical procedures is to compare the client's recorded balance or ratio with expectation

False. The first step to applying analytical procedures is to develop an expectation of a balance or ratio by using relationships that are expected to exist. Comparing the client's recorded balance or ratio with expectation is the second step

Under the single audit act, materiality is calculated in relation to the financial statements taken as a whole (similar to GAAP requirements)

False. Under the single audit act, materiality is determined separately for each major federal financial assistance program

Define fraud

Fraud is an intentional act that involves one or more individuals among management, those charged with governance, employees or third parties, and it applies the use of deception, resulting in a misstatement in financial statements that are the subject of an audit

The purpose of the analytical procedures at the conclusion of the audit is to determine

If a thorough audit has been performed and if all variations discovered during the planning stage have been properly explained and documented

Sarbanes-Oxley restriction on consulting engagement

If the accounting firm performs the audit, they cannot perform advisory services for the firm unless the advisory fees are less than 5% of the total fees, which includes the audit fee

Tainting (as found in sampling)

In a probability-proportional-to-size sample, the proportion of error present in a logical unit. It is usually expressed as the ratio of the amount of error in the item to the item's recorded amount

CPA's are required to be independent in mind and in appearance. Explain independence in mind

Independence in mind is a state of mind that permits the performance of an attest service without being affected by influences that compromise professional judgement. It allows the CPA to act with integrity, exercise objectivity, and apply professional skepticism.

CPA's are required to be independent in mind and in appearance. Explain independence is appearance

Independence is appearance requires that CPA to avoid situations that would cause reasonable and informed third party to reasonably conclude compromise, having knowledge of all relevant information and applied safeguards

What is an integrated audit?

It combines a financial statement audit with an audit of internal control over financial reporting (ICOFR). The objective if an ICOFR audit is to obtain reasonable assurance whether any material weaknesses exist, taken as a whole, as of a point in time. The auditor cannot audit ICOFR without also auditing the financial statement

In terms of attribute sampling, what is the expected deviation rate?

It represents the auditor's best estimate of the actual failure rate. The rate usually is based on client inquiries, changes in personnel, process observations, prior-year test results or even the results of a preliminary sample

Describe some of the characteristics of a negative accounts receivable confirmation

Negative A/R confirmations are less persuasive than positive confirmations. They should be the sole substantive audit procedures unless all of the following are present: 1. Risk of material misstatement (RMM) is low for relevant assertions 2. The auditor has obtained sufficient appropriate evidence relating to operating effectiveness of relevant controls 3. The population has a high volume of small, homogeneous items 4. A very low exception rate is expected 5. Unaware of conditions that would cause recipients to disregard the confirmation request

Securities Act of 1933

Provides information on securities offered for public sale and prohibits false representatives or fraud in security sales

What is meant by a "one-year cool-down period" as required by SOX?

SOX prohibits a CPA firm from auditing an issuer if the CEO, controller, CFO, CAO or any equivalent was employed at the CPA firm and participated in the audit of the entity during a one-year period preceding the date of the initiation of the audit

The PCAOB may investigate any act or practice or omission to act, by a registered public accounting firm. What type of sanctions can the PCAOB issue for violations?

Sanctions may include temporary suspension, permanent revocation, limitation of activities, civil monetary penalties, required training or other penalties

Describe what is meant by using a "scanning technique" as an audit procedure

Scanning involves the use of professional judgment to review accounting data in order to identify significant or unusual items. The auditor should perform tests of details on those items, searching for anomalies within accounts or other data such as large or unusual items or nonstandard journal entries

Segregation of duties is a component of control activities (C in crime"). What does the mnemonic "CAR" help you to remember?

Segregation of duties helps to eliminate incompatible duties; individuals cannot perpetuate and conceal errors or fraud: 1. Custody 2. Authorization 3. Recordkeeping

Regarding the accounts receivable and sales cycle, tracing shipping documents to prenumbered sales invoices provides evidence that

Shipments to customers were properly invoiced

In a special purpose framework presentation, what term is used in place of "balance sheet"?

Statement of Assets and Liabilities

In a special purpose framework presentation, what term is used in place of "income statement"?

Statement of Revenues and Expenses

What standards apply to the quality control for a CPA firm's accounting and attest practice?

Statement on quality control standards (SQCS) describe the elements of quality control that an audit firm is responsible for. SQCS provide reasonable assurance that the auditor complied with professional and regulatory requirements, and that the CPA firm issued an appropriate attest report under the given circumstances

Attributes sampling

Statistical sampling that reaches a conclusion about a population in terms of a rate of occurrence

Briefly describe what the information and communication component of "crime" consists of

The "information and communication" component of crime relates to how the company records, processes, summarizes and reports financial data, if its information systems are effective, and if all valid transactions are identified and recorded in the proper time period at the proper amounts

What is the Sarbanes-Oxley Act of 2002?

The act signed into law that became effective in 2002. It contains sweeping reforms for issuers of publicly-traded securities, corporate board members, and lawyers. It adopts tough new provisions intended to deter and punish corporate and accounting fraud and corruption, threatening severe penalties for wrongdoers, and protecting the interest of workers and shareholders

What is covered in an engagement to report on summary financial statements (condensed financial statement)?

The auditor forms an opinion about whether the summary financial statements are consistent, in all material respects, with the audited financial statements from which they were derived, in accordance with the applied criteria

Auditor's responsibility for fraud

The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud

What is the auditor's responsibility for internal control in a SSARS compilation or review of a non-issuer?

The auditor has no responsibility for understanding internal control in a compilation or review of a non-issuer

What is an auditor's responsibility regarding accounting estimates made by management?

The auditor is responsible for evaluating the reasonableness of accounting estimates made by management by applying professional skepticism and considering both subjective and objective factors

Detection risk

The auditor's assessment of the risk that the auditor's procedures will lead him or her to conclude the error exceeding tolerable error does no exist when in fact it does exist

Control risk

The auditor's assessment of the risk that the error exceeding tolerable error that may occur will not be prevented or detected on a timely basis by the system of the internal control structure

Regarding the accounts receivable and sales cycle, name an internal control procedure that most likely would help ensure that all credit sales transactions of an entity are recorded

The billing department supervisor matches prenumbered shipping documents with entries in the sales journal

Where does the code of professional conduct get its authority from?

The code derives its authority from the bylaws of the AICPA

Confidence level (reliability level)

The complement of the applicable sampling risk

Deficiency in internal control

The design or operation of a control does not allow management or employees in the normal course of performing their assigned functions, to prevent or detect and correct, misstatements on a timely basis

What is the purpose of an audit?

The purpose of an audit is to provide financial statement users with an opinion by the auditor on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework

Define audit sampling

The purpose of audit sampling is to evaluate some characteristic testing is less than 100% of the items and projecting the results to the entire account balance or class of transactions. Sample results should correspond, within a stated risk level, to what would have been obtained had 100% of population been tested

Define "control risk" in an audit

The risk that material misstatement in an assertion will not be prevented or detected and corrected on a timely basis by the entity's internal control. Control risk exists independently of the audit

Define "inherent risk" in an audit

The susceptibility of an assertion to a material misstatement, assuming there are no related controls. It is the auditor's "gut" instinct and exists independently of the audit

Preconditions for an audit

The use by management of an acceptable financial reporting framework in the preparation of the financial statements and the agreement of management and, when appropriate those charged with governance, to the premise on which an audit is conducted

An accountant's compilation report on a financial forecast should include a statement that:

There will usually be differences between the forecasted and actual results

What is a material misstatement?

They are errors and fraud which cause the financial statements to not be presented fairly in conformity with the applicable financial reporting framework. It would change or influence the judgment of a reasonable person relying on the information contained in the financial statements

Fraud risk factors

They are events or conditions that indicate motivations for pressures to perpetrate fraud, opportunities to carry them out, and rationalization to justify the action

Define subsequent events

They are events or transactions that occur after the balance sheet date, but before financial statements are issued or are available to be issued. There are recognized (type 1) and unrecognized (type 2) subsequent events

What should the auditor do if he/she has doubt about the reliability of a positive confirmation response?

They should obtain further audit evidence to resolve the doubts. The auditor should also reevaluate RMM and other planned audit procedures. Example responses which might cause such doubt include: 1. Response was not received by the auditor directly 2. Response does not appear to come from originally intended confirming party 3. Respondent may not be knowledgeable 4. Integrity of the confirmation process is comprised

Describe the objective of an audit

To identify and assess the risks of material misstatements, whether due to fraud or error, at the financial statement and relevant assertion levels through understanding the entity and its environment, including the entity's internal control

Code of professional conduct principles of conduct 0.300.040 (Article iii). Integrity:

To maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity

Edit

To modify the form or format of data; may involve the rearrangement, addition, and deletion of data, code translation, and the control of layouts for printing

Money laundering

To move illegally acquired cash through financial systems so that it appears to be legally acquired

What is the purpose of an external confirmation?

To obtain a representation of information or existing condition directly from an independent and knowledgeable third party in writing. An oral response is not an external confirmation

What is the objective of a review under SSARS?

To obtain limited assurance that there are no material modifications that should be made to the financial statements in order for the statements to be in conformity with the applicable financial reporting framework

Regarding the accounts receivable and sales cycle, proper authorization procedures in the revenue cycle usually provide for the approval of bad debt write-offs by an employee in which department?

Treasurer

As the acceptable level of detection risk decreases, an auditor may postpone the planned timing of substantive tests from interim dates to the year-end

True

Definition of error in regard to "error or fraud"

Unintentional misstatements or omission of amounts or estimates of GAAP, etc

Rule 10b-5 of the 1934 Securities Act makes it unlawful to

Use any instrument of interstate commerce to do the following: 1. Employ an device, scheme or artifice to defraud 2. Make any untrue statement or omit a material fact 3. Engage in any act, practice, or business that operates as a fraud or deceit upon any person in connection with the purchase or sale of a security

Any CPA firm performing auditing, accounting and review services is required to abide by nine elements of quality control. Element # 3 is "consultation", which means what?

When technical problems arise, procedures should ensure that one seeks guidance from those with appropriate levels knowledge, competence, judgment and authority

Material weakness

a significant deficiency or combination of control deficiencies that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected

Risk with internal control (over-reliance)

over-reliance (beta or bad risk)- the auditor decides that internal control is strong when in fact it is not and a material misstatement has occurred (ineffective)

A control deficiency exists when

The design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.

Name what best describes proper internal control over payroll

The duties of hiring, payroll computation, and payment to employees should be segregated

Definition of materiality

The magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgement of a reasonable person relying on the information would have been charged or influenced by the omission or misstatement

Define a group engagement partner

The partner or other person in the firm who is responsible for the group audit engagement and its performance and for the auditor's report on the group financial statements that is issued on behalf of the firm

Name at least three types of risk (of material misstatement) that may require special consideration

Significant risks often relate to nonroutine transactions and judgmental matters. Consider whether risk relates to: 1. Fraud 2. Economic, accounting, or other changes 3. Complex transactions 4. Related parties

Tolerable rate

The maximum population rate of deviations from a prescribed control procedure that the auditor will tolerate without modifying the planned reliance on the internal control structure

What is the receivables turnover formula and what does it measure?

Net credit sales/Average net accounts receivable Measures liquidity of receivables, efficiency and collection period

What is the times interest earned ratio and what does it measure?

Net income before interest expense and taxes/interest expense Measures a company's ability to meet its debt obligations; protects creditors

What is the gross profit formula?

Net income/Net sales May reveal inconsistencies with industry results

What is the asset turnover formula and what does it measure?

Net sales/Total assets Measures efficiency of resource utilization

Name the six rules of conduct that apply to CPAs in business, industry and in the public sector

1. 1.00: Integrity and objectivity 2. 1.300: General standards 3. 1.310: Compliance with standards 4. 1.320: Accounting principles 5. 1.400: Acts discreditable 6. 1.520: Commissions and referral fees

A qualifying audit committee is required for listed publicly-traded companies. To qualify, the committee must be composed of independent outside directors with at least one qualifying as a financial expert. What are the PCAOB requirements for a financial expert?

1. Acquired the attributes of a financial expert through education and experience 2. An understanding of U.S. GAAP and financial statements 3. Experience in both the preparation or auditing of financial statements of generally comparable issues and the application of such principles in connection with the accounting for estimates, accruals and reserves 4. Experience with internal accounting controls 5. An understanding of audit committee functions

What problems can arise in the auditing of property, plant and equipment (PP&E)

1. Acquisition costs not properly capitalized 2. Retirements are not recorded or not properly recorded 3. Item not in use 4. Depreciation is calculated incorrectly

Name at least 4 risk conditions in the entity structure that may indicate risks of material misstatement.

1. Acquisitions, reorganizations or other entity changes 2. Planned sale of entities or divisions 3. Complex alliances and joint ventures 4. Significant transactions with related parties 5. Changes in supply chain 6. Developing/offering new products, services or business line 7. Expanding into new locations

Name examples of documents used in the auditing of investments and marketable securities

1. Actual stock or bond certificates 2. Broker's statement 3. Trustee statement 4. Cancelled checks 5. Income forecast 6. Deposits of dividends and interest

Name at least two audit objectives related to accounting estimates

1. All material accounting estimates have been developed and recorded 2. Accounting estimates are reasonable; methods and changes are appropriate and consistently applied 3. Accounting estimates are presented in conformance with the applicable financial accounting framework and properly disclosed

Name at least three situations involving the use of accounting estimates

1. Allowance for doubtful accounts 2. Inventory obsolescence 3. Warranty obligations 4. Depreciation method or asset useful life 5. Outcome of long term contracts 6. Costs arising from litigation settlements and judgements

A member is not allowed to charge contingent fees based in the results of

1. An audit or review 2. A compilation when there is no lack of independence disclosed and it is reasonably expected that a third party will use the financial statements 3. An examination of prospective financial information

A flowchart or narrative of the accounting system describing the recording and classification of transactions for financial reporting is required documentation in an audit performed in accordance with generally accepted auditing standards (GAAS)

False. An audit program setting forth in detail the procedures necessary to accomplish the engagement's objectives is required documentation in an audit performed in accordance with generally accepted auditing standards

An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements

False. An auditor considers materiality for planning purposes in terms of the smallest, not largest, aggregate level of misstatements that could be material to any one of the financial statements

An auditor may reference the work of a specialist in an unmodified opinion if the specialist's work is relevant to the opinion

False. An auditor may not refer to a specialist in an unmodified opinion. If the opinion is any other type besides unmodified, an auditor can mention the use of a specialist only if it will help the reader understand the reason for the opinion given

An unmodified opinion can be given on an element within a set of financial statements even if an adverse or disclaimer on overall financial statements was issued

False. An unmodified opinion cannot cannot be given on an element if an adverse opinion or disclaimer was issued on the financial statements (considered a piecemeal opinion)

Analytical procedures can only be used during the substantive phase of the audit

False. Analytics are used in three phases of an audit: planning (required); substantive testing (optional); overall review (required)

What is auditor-used computer software used to perform various routine audit procedures such as comparing records, selecting samples, or making calculations?

Generalized audit software

Generally Accepted Government Auditing Standards (GAGAS; also known as the yellow book) are issued by the

Government Accountability Office (GAO)

Describe some of the characteristics of a positive accounts receivable confirmation

A positive A/R confirmation asks the confirming party to reply directly to the auditor. The confirmee may simply indicate agreement with information provided, or may be asked to provide certain information. Confirmations may include procedures to test validity of addresses provided by management, including email, fax or other addresses. The auditor can send additional requests if the previous request is not responded to in a reasonable period to time

Discovery sampling

A procedure for determining the sample size required to have a stipulated probability of observing at least one occurrence when the expected population occurrence rate is at a designated level

Integrated test facility

A set of auditor-generated dummy transactions that is processed with valid client transactions. The objective is to test the effectiveness of the client's processing system

Batch total

A sum of a set of items which is used to check the accuracy of operations on a particular batch of records

Privity standard

Accountant's liability is limited to those third parties with whom the accountant has a contractual relationship

Define nonsampling risk

An erroneous conclusion for any reason other than sampling risk. For example: 1. Failure to properly define population 2. Failure to clearly define nature of audit exception 3. Failure to evaluate sample findings properly 4. Failure to recognize an error when one exists Note: (it can be reduced to an acceptable level by adequate planning, supervision, and quality control)

How is the appropriateness of audit evidence defined?

Appropriateness is the measure of the quality of audit evidence, which is the relevance and reliability in providing support for or detecting misstatements in, the classes of transactions, account balances and disclosures and related assertions

What is the current ratio formula and what does it mean?

Current assets/Current liabilities Primary measure of liquidity, able to meet current obligations; may identify going concern issues

Regarding the accounts receivable and sales cycle, name a test of controls most likely would help assure an auditor that goods shipped or properly billed

Examine shipping documents for matching sales invoices

A predecessor auditor can be from the same firm, as long as they are located in a different city or country

False. A predecessor auditor: 1. Is from a different firm 2. Reported on the most recent audited financial statements, or was engaged to but did not complete the audit

AU-C 935 (compliance audits) is applicable for a compliance audit in conjunction with a financial statement audit performed in accordance with government auditing standards only

False. AU-C 935 is applicable to audits performed in accordance with both GAAS and government accounting standards

In an integrated audit of a nonissuer, an auditor should issue a qualified opinion on the effectiveness of an entity's internal control if a material weakness exists

False. An adverse opinion should be issued

An auditor's working papers serve mainly to document the level of independence maintained by the auditor

False. Working papers provide the principal support for the auditor's report

Define "sufficient" and "appropriate" audit evidence

Sufficient: measures the quantity of audit evidence and is affected by the assessed RMM Appropriate: measures the quality of audit evidence, its relevance, and its reliability

Audit sampling

The application of an audit procedure to less than 100% of the items within an account balance or class of transactions for the purpose of evaluating some characteristic of the balance or class

Name three examples of a familiarity threat to independence

1. An immediate family member, close relative, or close friend in a key position at an attest client 2. A partner or partner equivalent member of an engagement team for a prolonged period of time 3. A member of a firm recently a director or officer of an attest client

Name at least three items of inquiry with a predecessor auditor

1. Any information that might bear on the integrity of management 2. Disagreements with management about accounting policies, auditing procedures or other similar significant matters 3. Understanding about reasons for the change in auditors 4. Communications regarding fraud and noncompliance with laws or regulations by the entity 5. Communications regarding significant deficiencies and material weaknesses of internal control

Describe a CPA's liability in registration statements filed with the SEC under the Securities Act of 1933

1. Any person who acquires securities may sue the CPA who audited the financial statements 2. Financial statements must contain an untrue statement or omission of a material fact 3. Burden of proof is shifted from the plaintiff to the CPA: a. The plaintiff does have to prove fraud or deceit, only simple negligence b. The plaintiff does not have to prove reliance on the financial statements as the cause of any loss c. The CPA has the burden to establish innocence

Name at least three types of specialists that an auditor may work with in the course of an audit

1. Appraisers and fair value experts 2. Actuaries 3. Environmental remediation consultants 4. Attorneys 5. Engineers, geologist, etc

Describe discovery sampling

1. Appropriate when the expected occurrence rate is near zero 2. Designed to yield a large enough sample size so that if the auditor is wrong, at least one occurrence will be produced 3. Used to search for a very critical characteristic that might indicate a more serious issue

What three items are useful in obtaining information to identify risks?

1. Asking inquiries of management 2. Evaluating analytical procedures for the possibility of fraud 3. Considering fraud risks

Describe a compilation of prospective financial statements

1. Assembling, to the extent necessary, the prospective financial statements based on the responsible party's assumptions 2. Performing required compilation procedures: read the financial statements along with required summaries of significant assumptions and accounting policies; consider whether the statements appear to be presented in accordance with AICPA presentation guidelines and are not obviously inappropriate; issue a compilation report

Name at least three auditor responses to increased financial statement risk

1. Assign more experienced staff or specialists 2. Increase supervision 3. Add elements of unpredictability (surprise procedures at unannounced locations) 4. Evaluate the effectiveness of design and operation of the control environment 5. Maintain professional skepticism

Name at least five subjects that may be covered by a comfort letter

1. Auditor independence 2. Whether audited financial statement materially comply regarding form with the applicable requirements of the Securities Act of 1933 and related SEC rules and regulations 3. Comments on tables, statistics, and other financial information 4. Whether certain non-financial statement information materially complies regarding form with regulation S-K 5. Unaudited financial statements, condensed interim financial information 6. Capsule financial information 7. Pro forma financial statements and financial forecasts 8. Management's discussion and analysis (MD&A) 9. Changes in selected financial statement items during a period subsequent to the latest financial statement period

What are an auditor's options in regards to reporting on supplementary information?

1. Auditor may render an opinion on whether supplementary information is fairly stated in all material respects, in relation to the financial statements as a whole, and using same materiality as financial statements as a whole 2. Add an other-matter paragraph to the report 3. Issue a separate report with audited financial statements made available

Name at least three advantages of PPS sampling

1. Automatically results in a stratified sample because items are selected in proportion to dollar value 2. Automatically identifies any item that exceeds the sampling interval (individually significant) 3. Usually results in a smaller sample size if no errors are expected compared to classical variable sampling 4. Overstatement is more likely to be identified than understatements

The mnemonic BAM can be used to remember the components of the fourth paragraph for a review report under SSARS 21, What does it stand for?

1. Based on review 2. not Aware of 3. any Material modifications

Name two threats to independence unique to governmental audits than to regular audits

1. Bias: political, ideological, social or other convictions that could result in a nonobjective position 2. Structural: an audit organization's placement within a government entity, in combination with the structure of the government entity itself

Name at least two items that are generally included in the permanent file of an auditor's working papers

1. Bond indenture agreements 2. Lease agreements 3. Flowchart of the internal control structure

The Sarbanes-Oxley Act prohibits providing nonaudit services to audit clients? Name at least five services that are prohibited

1. Bookkeeping or other services related to the accounting records or financial statements of the audit client 2. Financial information systems design and implementation 3. Appraisal or valuation services 4. Actuarial services 5. Internal audit outsourcing services 6. Management functions or human resources 7. Broker or dealer, investment advisor or investment banking services 8. Legal and expert services unrelated to the audit

In a qualified opinion or disclaimer of opinion, the auditor's inability to obtain sufficient appropriate audit evidence may arise from

1. Circumstances beyond the control of the entity 2. The entity's accounting records have been destroyed 3. The accounting records of a significant component have been seized 4. Circumstances relating to the nature or timing of the auditor's work 5. Limitations imposed by management

Name at least three examples of an uncertainty/contingency that could result in a future loss

1. Collectability of receivables 2. Obligations related to product warranties/defects 3. Litigations, claims, and assessments pending, threatened or unasserted 4. Environmental remediation obligations 5. Guarantees for obligations of third parties

Name at least four factors to be considered in the control environment ("E" in crime) stage of the audit

1. Communication and enforcement of integrity and ethical values 2. Management's commitment to competence 3. Functioning of the board of directors and audit committee 4. Management's philosophy and operating style 5. Entity's organizational structure 6. Methods of assigning authority and responsibility 7. Personnel policies and practices 8. Financial performance

Name at least three sources of information that are used in analytical procedures

1. Comparable prior periods, considering known changes 2. Anticipated results, such as budgets or forecasts 3. Relationships among accounts within the period 4. Industry data and trends 5. Nonfinancial information

Name four general auditor responsibilities

1. Comply with relevant ethical requirements 2. Plan and perform the audit with professional skepticism 3. Exercise professional judgement 4. Obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level

Name five "other categories of reports" that auditors may become involved with

1. Comprehensive basis other than GAAP, such as cash basis 2. Special elements, accounts or items 3. Compliance reports 4. Special purpose reports prepared to comply with an agreement 5. Reports on prescribed forms or schedules

Name at least four items that need to be documented in the audit work papers regarding any assessment related to a going concern issue

1. Conditions and events creating the going concern doubt 2. Possible effect, including operations cutbacks, layoffs, bankruptcy filing 3. Management's evaluation of significance and mitigating factors 4. Whether operations may need to be discontinued 5. Management's plans including prospective financial statements 6. Information about asset recoverability or liability classifications

Name two risks regarding electronic commerce

1. Confidentiality of information 2. Transaction integrity: proper controls must be in place to ensure that transactions cannot be changed, altered, duplicated or incorrectly processed

If a material weakness in internal controls is identified, what is the required response?

1. Consider implications on assessed RMM 2. Communicate to management and governance 3. Perform substantive procedures responsive to risk 4. If no control reliance, must perform tests of details

Name the 5 components of internal control (CRIME)

1. Control activities 2. Risk assessment 3. Information and communications 4. Monitoring 5. (Control) environment

Name four items included in a registration statement with the SEC under the securities act of 1933 to offer securities for public sale

1. Description of the company's properties and business 2. Description of the security offered for sale 3. Information about company management 4. Financial statements audited by independent CPAs following PCAOB auditing standards

Name at least three items that would be included in a partner/manager review of the audit work papers

1. Detailed review of F/S and disclosures 2. Summary and evaluation schedules 3. Significant or unusual matters 4. Appropriateness of auditor's opinion 5. Final check to ensure sufficient and appropriate audit evidence obtained to support the auditor's conclusions

What are an auditor's responsibilities if it is discovered after the audit that certain procedures were omitted?

1. Determine if the audit opinion can be supported by other procedures performed, including evidence from subsequent audits supporting a previously expressed opinion 2. If an omitted procedure impairs the auditor's ability to support a previously expressed opinion being relied on, promptly apply the omitted audit procedure or alternative 3. If unable to apply the omitted procedure, consult an attorney

Name at least three ways that an auditor can evaluate a specialist

1. Determining the threat to objectivity 2. Obtaining knowledge of qualifications, including professional association, license 3. Obtaining an agreement as to roles and responsibilities 4. Including within the scope of quality control policies and procedures 5. Understanding significant assumptions and methods used

Name five conditions that increase fraud risks in accounting estimates

1. Differing interpretation of accounting principles 2. Required complex or subjective judgement 3. Assumptions about the effects of future events 4. Potential lack of consistency from period to period 5. Management bias

Name at least three examples of a self-interest threat to independence

1. Direct financial interest 2. Material indirect financial interest 3. Loan from a client, officer/director of a client or an individual who owns more than 10% equity of a client 4. Excessive reliance on revenues from a single client 5. A material joint venture or other business arrangement

Name at least three examples of acts discreditable

1. Discrimination or harassment in employment practices 2. Soliciting or disclosing CPA exam questions of answers 3. Failure to file a tax return or pay a tax liability 4. Negligence of preparation of financial statements or records 5. False, misleading or deceptive acts in promoting or marketing professional services

Name at least four red flags that might indicate a going concern issue

1. Disposing of assets 2. Delaying or reducing payments 3. Increasing capital requests 4. Borrowing money 5. Restructuring debt

Name at least five additional procedures to perform if substantial doubt exists for going concern

1. Document and review the cause of substantial doubt 2. Obtain information about management's plans to mitigate risk 3. Assess the likelihood of effective implementation of plans 4. Identify elements especially significant to mitigating the risk 5. Review the reasonableness of projections and future performance 6. Plan and perform sufficient appropriate procedures 7. Obtain appropriate written representations from management 8. Summarize procedures performed and conclusions reached

Name at least three common areas of direct internal control assistance

1. Documentation of evaluation of design and implementation of internal controls 2. Tests of operating effectiveness of internal controls 3. Confirmation of accounts receivables 4. Vouching fixed asset additions

Name at least three factors to consider when evaluating the competency of internal auditors

1. Education level and professional experience 2. Professional certification and continuing education 3. Evaluation of internal auditor's performance 4. Supervision and review of internal auditor's activities 5. Quality of working paper documentation, reports and recommendations

Review Requirements under SSARS

1. Engagement letter required 2. Independence required 3. Primarily inquiry and analytical procedures (no understanding of internal control, detailed audit tests or third party required) 4. Management representation letter required 5. Review report required 6. Limited assurance provided (not reasonable assurance, as in an audit)

For an examination of prospective financial statements, what must be evaluated to provide a basis for an opinion?

1. Evaluate the preparation of prospective financial statements 2. Evaluate support for underlying assumptions (reasonable basis for the forecast or projection, given hypothetical assumption) 3. Evaluate presentation for conformity in accordance with AICPA presentation guidelines 4. Note that the prospective results may not be achieved

What is the auditor's responsibility in reviewing/testing subsequent events?

1. Evaluate whether events occurring between the financial statements date and the auditor's report date require adjustment or disclosure 2. The auditor's report informs financial statement users of the effect of events and transactions of which the auditor become aware up through the audit report date 3. The auditor should perform procedures as near the audit report date as practicable

Name 3 procedures to test for management override of internal control.

1. Examine journal entries and other adjustments for evidence of possible material misstatement 2. Review accounting estimates for bias that could result in material misstatement 3. Evaluate business rationale for significant unusual transactions

Prospective financial statements should not be compiled if the financial statements

1. Exclude disclosure of the summary of significant assumptions 2. Exclude identification of hypothetical assumptions 3. Exclude a description of the limitations on the usefulness of the presentation

Name an example of substantive tests that can be performed in the auditing of investments and marketable securities

1. Existence 2. Rights and obligations 3. Completeness 4. Valuation 5. Presentation and disclosure

Name 4 types of assertions for account balances.

1. Existence: assets, liabilities and equity interests exist 2. Rights & obligations: the entity holds or controls the rights to assets, and liabilities are obligations of the entity 3. Completeness: all assets, liabilities, and equity interests have been recorded 4. Valuation and allocation: assets, liabilities, and equity interests are included at the appropriate amounts

Name three examples of an advocacy threat independence

1. Expert witness testimony 2. Representative in US tax court 3. Promoting securities in an initial public offering

Categories of misstatement

1. Factual: where there is no doubt 2. Judgmental: management's judgments appear unreasonable; inappropriate selection or application of policies 3. Projected: best estimate of misstatement in a population; projection of results of the sample to the entire population

Name four department of labor laws/regulations relevant to audits

1. Fair labor standards act, including minimum wage and overtime laws 2. Worker's compensation, related to injuries sustained on the job 3. Occupational safety and health act 4. Family and medical leave act

Name at least two entities that are affected by the revised OMB guidance

1. Federal agencies 2. State and local governments 3. Not for profits 4. Institutions of higher education 5. Native American tribes

Name 4 conditions related to recent developments that increase fraud risk.

1. Financial stability or profitability threatened 2. Excessive pressure exists for management to meet the requirements or expectations of third parties 3. Information available indicates management or those charged with governance's personal financial situation are threatened by the company's financial performance 4. Excessive pressure placed on management or operating personnel to meet established financial and performance targets, including incentive goals

Name three examples of special reports

1. Financial statements prepared in accordance with a special purpose framework 2. Specified financial statements elements, accounts or items 3. Engagement to report on summary financial statements

Name four methods of documenting the auditor's understanding of the client's internal control system

1. Flowcharts 2. Narratives or memoranda 3. Internal control questionnaires 4. Decision tables: graphic measures describing the logic of decisions

Name the two types of prospective financial statements.

1. Forecast (for general or limited use) 2. Projection ( for limited use, always restricted)

What are the two goals of an audit program?

1. Gather sufficient appropriate audit evidence that supports the conclusions reached 2. Design the program to show how the audit procedures selected are directly linked to achieve audit objectives

An examination of management's discussion and analysis has what features?

1. General use report 2. Provides an opinion on presentation as a whole 3. Provides reasonable assurance by accumulating sufficient evidence and limiting attestation risk 4. Generally relates to annual periods

Name at least 2 financial related risk conditions that may indicate risks of material misstatement.

1. Going concern or liquidity issues 2. Marginally achieving explicitly stated strategic objectives 3. Constraints on capital/credit availability 4. Use of off-balance sheet financing including special purpose entities and other complex financing arrangements

Name at least 4 audit risk factors related to management attributes and the control environment

1. High turnover of top management 2. Management dominated by one individual 3. Strained relationship with auditors 4. Overwork internal audit staff or accountants 5. Management does not support internal control 6. Non-financial management involved in choice of accounting methods 7. History of violations

Name at least four types of allowable subject matter for an attestation engagement

1. Historical or prospective performance or conditions (backlog data, performance measurements) 2. Physical characteristics (square footage or narrative description of facilities) 3. Historical events (price of a market basket or goods on a certain date) 4. Analyses (breakeven analyses) 5. Systems and processes (reports on internal control, reports of processing of transactions by service organizations) 6. Behavior (corporate governance, compliance with laws and regulations)

Name at least two audit objectives for obtaining a legal representation letter

1. Identify conditions or circumstances that warrant further analysis 2. Determine the period in which the underlying cause of legal action occurred in order to determine whether it is an accrual or disclosure event 3. Evaluate/corroborate management's assertions related to the probability of an unfavorable outcome and the amount or range of potential loss

The purpose of risk assessment procedures is to gather information about the entity and its environment in order to

1. Identify relevant risk factors 2. Evaluate likelihood and magnitude 3. Identify mitigating or eliminating controls 4. Evaluate design and implementation 5. Design tests of operating effectiveness, if applicable 6. Design nature, timing and extent of substantive tests

Name four auditor's report modifications for a special purpose framework

1. Identify the applicable financial reporting framework 2. Management is responsible for preparation and fair representation of special purpose framework financial statements 3. Management is responsible for determining the framework is acceptable in the circumstances 4. Description of the purpose for which financial statements are prepared (when required)

Name at least three items that need to be in the opening paragraph of an unmodified audit report

1. Identify the entity audited 2. State that financial statements have been audited 3. Identify the titles of the statements audited 4. Specify the date or period covered by the financial statements Note: the paragraph does not make reference to either management's or the auditor's responsibility

How should reporting on statements prepared for use in other countries be handled?

1. Identify the financial statements audited 2. Refer to note explaining the basis used, including nationality 3. State the audit followed U.S. auditing standards and those of the other country if appropriate 4. Include a paragraph on whether the statements are presented fairly in conformity with basis used

Name at least two of management's responsibilities in a governmental compliance audit for which written representation is required

1. Identifying government programs 2. Understanding and complying with relevant requirements 3. Establishing and maintaining effective controls that provide reasonable assurance that the entity administers government programs in compliance with requirements, including evaluation and monitoring of the entity's compliance and taking corrective action when relevant

Field (3 definitions)

1. In a punched card, a group of columns whose punchings represent one item 2. A subdivision of a computer word or instruction 3. A subdivision of a record; that is, an item

Auditors evaluate a change in accounting principle by determining that the newly adopted principle is

1. In accordance with the applicable framework (GAAP) 2. Accounted for properly 3. Adequately disclosed 4. Justified and preferable

In a qualified or adverse opinion, material misstatement of the financial statements may arise in relation to

1. Inappropriate accounting policies selected and/or applied 2. Inappropriate financial statement presentation and/or inadequacy of disclosures in the financial statements

Name 3 risk conditions in IT that may indicate risks of material misstatement.

1. Inconsistencies between IT strategy and business strategy 2. Changes in the IT environment 3. Installations of significant new IT systems related to financial reporting

Name at least four types of financial regulatory reforms in the Dodd-Frank wall street reform and consumer protection act of 2010

1. Increased investor protection 2. Increased regulatory enforcement and remedies 3. Improved regulation of credit rating agencies 4. Improved asset backed securitization process 5. Enhanced accountability, including executive compensation 6. Strengthened corporate governance

Compilations Requirements under SSARS

1. Independence must be evaluated, but may be disclaimed 2. Engagement letter required 3. Compilation report required 4. No assurance given, so does not require inquiry, analytics or other procedures

Name at least two items that the group partner should disclose if the group partner actually names the component auditor (CA) in the group report

1. Indicate the dollar amounts audited by the CA (total assets) 2. Obtain the CA's permission to include their name 3. Present the CA's report

Name at least five items to take into consideration on an audit (ownership structure)

1. Industry conditions 2. Relevant accounting pronouncements 3. Legal and political conditions 4. Regulatory environment 5. Operations 6. Governance structure 7. Financing structure 8. Financial performance

Audit risk is the product of which three risks?

1. Inherent risk (IR) 2. Control risk (CR) 3. Detection risk (DR)

Name four examples of application controls

1. Input controls 2. Data conversion 3. Processing controls 4. Output controls

How are related party transactions found?

1. Inquire of management 2. Give a list of names to your staff and ask them to look for transactions with those individuals or companies 3. Look for conditions that make you suspect problems 4. Read board of directors' minutes 5. SEC filings on conflict of interest statements 6. Scan accounts at or near year-end for unusual transactions

What are the auditor's required procedures in regards to noncompliance with laws and regulations?

1. Inquire of management whether the entity is in compliance with laws and regulations 2. Inspect relevant correspondence with licensing or regulatory authorities 3. Inquire of in-house legal or external counsel 4. Read minutes 5. Evaluate results of other audit procedures

Name at least two required audit procedures related to "supplementary information"

1. Inquire regarding the purpose and criteria used for preparation 2. Determine whether the form and content complies with applicable criteria 3. Obtain an understanding of the methods used to prepare 4. Evaluate any changes from prior periods and reasons thereof 5. Evaluate appropriateness and completeness 6. Obtain required written representations from management 7. Compare and reconcile to underlying records

Name at least four procedures that can be used to obtain an understanding of the five components of internal control

1. Inquiry of management and entity personnel 2. Observation of the application of specific controls 3. Inspection of documents and reports 4. Tracing transactions through the information system relevant to financial reporting (walkthrough) 5. Analytical procedures

Name the five sections in an auditing standard

1. Introduction: covers the purpose and scope of the standard 2. Objective: clarifies the standard setters' intentions 3. Definitions: explains key terms 4. Requirements: what the auditor "should" and "must" do 5. Application: provides additional guidance to the auditor

Name at least three types of accounting records

1. Invoices 2. Contracts 3. General and subsidiary ledgers 4. Journal entries and adjustments to the financial statements 5. Records such as worksheets and spreadsheets

The SEC will review disclosures of public companies at least once every three years. Special attention is paid to higher-risk matters, such as

1. Issues material misstatements of financial results 2. Experienced significant stock price volatility 3. Have largest market capitalization 4. Emerging companies with disparate price to earnings ratio 5. Operations that affect any material sector of the economy

Under the revised OMB guidance for single audits, a program is type A (low-risk) if

1. It was audited as a major program in at least one of two most recent years 2. There were no material weaknesses, no modified compliance opinion, or no questioned costs greater than 5% of total awards expended

What problems can arise in auditing long-term liabilities and loss contingencies?

1. Just discovering contingent liabilities as well as determining appropriate accounting treatment 2. Setting up interest expense and accruals at year-end 3. Amortization of bond premium or discount 4. Security on loans 5. Client breaking a loan covenant

Name at least 3 areas where a CPA firm's personnel should be competent

1. Knowledge of relevant industry, IT and specialized areas of accounting or auditing or other relevant subject matter 2. Experience with relevant legal and regulatory requirements including reporting 3. Ability to apply professional judgment 4. Understanding of the firm's quality control policies and procedures

Name 2 risk conditions in personnel that may indicate risks of material misstatement.

1. Lack of personnel with appropriate accounting and financial reporting skills 2. Changes in key personnel, including executives and governance

Name at least two management's responsibilities under an internal control over financial reporting engagement

1. Management accepts responsibility for the effectiveness of internal control 2. Management evaluates the effectiveness of internal control using suitable and available criteria 3. Management supports its assertion with sufficient appropriate evidence 4. Management provides a written assertion in the report

Name at least specific written representations that must be obtained from management in a review engagement

1. Management fulfilled its responsibility for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework 2. Management acknowledges its responsibility for designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements, including its responsibility to prevent and detect fraud 3. Management has provided the accountant with all relevant information and access 4. Management has responded fully and truthfully to all accountant inquiries 5. All transactions have been recorded and are reflected in the financial statements 6. Management has disclosed knowledge of fraud or suspected fraud; any knowledge of alleged or suspected fraud affecting the financial statements; any known or suspected instances of noncompliance with laws and regulations which could impact financial statements; all known actual or possible litigation and claims which could impact financial statements, including disclosure 7. Management has disclosed all related party relationships and transactions of which they are aware; all events occurring subsequent to financial statement date; and other representations as deemed necessary

Name two examples of limitations imposed by management (for a modified opinion report)

1. Management prevents the auditor from observing the counting of the physical inventory 2. Management prevents the auditor from requesting external confirmation of specific account balances

Name at least three examples of an undue influence threat to independence

1. Management threatens to replace a member over a disagreement over application of an accounting principle 2. Management pressures a member to reduce necessary procedures in order to reduce fees 3. Member receives a more than inconsequential gift from a client, management or significant shareholders

In the auditor's assessment of the risk of material misstatements due to fraud, auditors are required to ask management which two questions?

1. Management's understanding of the potential fraud 2. Whether or not management aware of any instances of fraud occurring within the organization during the year

Name at least two examples of fraud

1. Manipulation, falsification or alteration of financial records 2. Misrepresentation or omission of events, transactions, etc 3. Intentional misapplication of accounting principles 4. Misappropriation of assets (theft, embezzlement, fictitious vendors)

Name three reasons for inherent limitations in detecting noncompliance with laws and regulations

1. Many laws and regulations relate principally to the operating aspects of an entity and do not affect the financial statements 2. Act may involve collusion, forgery, deliberate failure to record transactions, management override of controls or intentional misrepresentations made to the auditor 3. Whether an act constitutes noncompliance is ultimately a matter for legal determination, such as by a court of law

Name 5 factors to consider when determining whether a control is relevant.

1. Materiality 2. Entity size 3. Nature of the entity and its operating environment 4. Diversity and complexity of operations 5. Applicable legal and regulatory requirements 6. Nature and complexity of systems

Name at least two key factors that help to define the audit focus

1. Materiality 2. Preliminary risk assessment of material misstatements 3. Material locations

Key considerations in a compliance audit

1. Materiality is in relation to the government program as a whole; may reduce materiality to the compliance requirement level for specific audit purposes 2. Tests of details are generally required to support conclusions 3. Tests of operating effectiveness of controls may be required by the regulatory body, even if they are not efficient

Key GAGAS reporting considerations

1. May issue a single report on internal control, compliance, and other matters 2. May or may not opine on controls and/or compliance 3. Must include written views of responsible officials within the report

Name three types of audit variable sampling methods

1. Mean-per-unit estimation (MPU) 2. Ratio estimation 3. Difference estimation

Name three examples of a management participation threat to independence

1. Member is an officer or director at the attest client 2. Member accepts responsibility for the design, implementation, or maintenance if internal control 3. Member hires, supervises or terminates client employees

Name at least three examples of when independence in not impaired (according to ethics rulings)

1. Member provides extensive advisory services 2. Member holds a membership in a social club (if membership is essentially a social matter, not managerial) 3. Member leases property to or from a client and the lease qualifies as an operating lease (providing the lease is comparable to other similar leases and all the terms of the lease are currently met) 4. Member has a checking or savings accounts or a CD or money market at a client financial institution (providing the accounts are fully insured or the amount uninsured is immaterial to the member)

What documents can be used in auditing long-term liabilities and loss contigencies?

1. Minutes of board of directors and stockholders' meetings 2. Bank confirmations 3. Correspondence with lawyers 4. Bond indenture and copies of notes payable 5. Cash receipts journal 6. Cancelled checks 7. Attorney's letter

Name two types of fraud

1. Misappropriation of assets, or defalcation 2. Fraudulent financial reporting

Name four inherent limitations related to internal control

1. Mistakes and errors in judgement 2. Collusion: controls can be circumvented 3. Management override: management establishes the controls 4. An error in design of, or change to, a control may exist

Name at least 1 condition or sign indicating that there may be an increased fraud risk

1. Multiple discrepancies in accounting records 2. Conflicting/missing evidential matter 3. Problematic/unusual relationship between auditor and client

Name at least four elements of a legal letter

1. Nature of a litigation 2. Progress of any cases to date 3. How the entity is responding or intends to respond 4. Evaluation of the likelihood of an unfavorable outcome 5. Evaluation of any estimate of the amount or range of loss 6. A statement that the list of matters is complete 7. Confirmation that management has been informed of any claims requiring disclosure

What are the disclosure requirements for a loss contingency?

1. Nature of accrual, using terms like "estimated liability" or "liability of an estimated amount". The term "reserve" should not be used, which is limited to an amount of an unidentified or unsegregated assets held or retained for a specific purpose 2. The amount accrued, if required under authoritative guidance 3. Indicate that it is at least reasonably possible that a change in an estimate of a probable liability could occur in the near term

Name three inherent limitations of an audit that create an inability to provide absolute assurance in an audit

1. Nature of financial reporting 2. Nature of audit procedures 3. Need for the audit to be conducted in a reasonable period of time, with a balance between benefit and cost

Name at least four financial/economic indications of substantial doubt of an entity's ability to continue as a going concern.

1. Negative trends in cash flows from operating activities 2. Recurring operating losses 3. Lack of ability to obtain additional financing 4. Heavy reliance on related party for financial report 5. Defaults on debt, debt covenants, or both 6. Arrearages in dividends

Name at least four types of risks to be concerned with during the risk assessment ("R" in crime) stage of the audit

1. New personnel 2. New technology 3. Rapid growth 4. Changes in account pronouncements

What procedures should an auditor take when a regulator needs access to audit documentation?

1. Notify the client of the request and intent to comply 2. Consider legal consultations 3. Obtain the client's written consent 4. Ensure confidentiality restrictions are clear

Name at least four example procedures for a MD&A (management's discussion and analysis) examination

1. Obtain an understanding of SEC rules and regulations 2. Consider relevant internal control 3. Assess attestation risk related to MD&A assertions 4. Obtain sufficient evidence (including completeness considerations) 5. Consider the effect of subsequent events 6. Obtain relevant written representations

What are the required audit procedures for subsequent events?

1. Obtain an understanding of management procedures to ensure subsequent events are identified 2. Inquire of management and others about whether any subsequent events that might affect the financial statements have occurred 3. Read minutes held after the financial statement date 4. Inquire about meetings where minutes are not available 5. Read the most recently released interim financial statements, if any

Name 3 situations where SSARS 21, Section 70 ("Preparation of Financial Statements", effective December 15) applies.

1. Preparation of financial statements prior to audit or review by another accountant, to be presented alongside a tax return or financial plan 2. Preparation of a single financial statement with substantially all disclosures omitted 3. Using information in the general ledger to prepare financial statements outside of a accounting software system

Name at least 4 user auditor responsibilities when considering the effects of a service organization on internal control.

1. Obtain an understanding sufficient to identify and assess risks of material misstatement 2. Consider the service auditor's competence and independence 3. Evaluate the sufficiency and appropriateness of evidence provided the user auditor's purposes 4. Determine whether necessary complementary user entity controls are designed and implemented 5. Evaluate the need to apply requirements to any sub-service organizations not included in the service auditor's report 6. Inquire of the user entity management about awareness of any fraud, noncompliance with laws and regulations or uncorrected misstatements affecting the financial statements of the user entity

Name at least two auditor responsibilities in a governmental compliance audit (according to AU-C 935)

1. Obtain reasonable, but not absolute, assurance about the entity's material compliance with applicable requirements 2. Identify and evaluate risk of material noncompliance, including pervasive risks; including evaluating design and implementation of relevant internal control over compliance 3. Design and perform procedures to detect material noncompliance due to both fraud and error 4. Communicate to those charged with governance the auditor's responsibilities and significant findings

What is the auditor's specific responsibility regarding noncompliance with laws and regulations?

1. Obtain sufficient appropriate audit evidence regarding material amounts and disclosures in the financial statements, determined by the provisions of laws and regulations generally recognized to have a direct effect 2. Perform specified audit procedures that may identify instances of noncompliance with other laws and regulations that may have material effect on the financial statements 3. Respond appropriately to noncompliance or suspected noncompliance

Name four required audit procedures for RSI

1. Obtain written representations from management acknowledging responsibility 2. Obtain written representations from management on whether RSI is measured and presented in conformity with prescribed guidelines 3. Inquire about the methods of preparing the RSI 4. Compare for consistency with management's responses, the financial statements, and knowledge obtained during the audit

Name at least three characteristics that increase the reliability of audit evidence

1. Obtained from a knowledgeable independent external source 2. Related internal controls to generate evidence are effective 3. Obtained directly by the auditor 4. Exists in documentary form (paper, electronic or other medium) 5. Original documents vs photocopies or facsimiles

Name the 4 types of assertions for presentation and disclosure.

1. Occurrence, rights & obligations: disclosed events and transactions have occurred and pertain to the entity 2. Completeness: all disclosures have been included 3. Classification & understandability: financial information is appropriately presented and described 4. Accuracy & valuation: financial and other information is disclosed fairly and at appropriate amounts

Name at least 3 risk conditions in the operating environment that may indicate risks of material misstatement

1. Operations in economically unstable regions 2. Operations exposed to volatile markets 3. High degree of complex regulations 4. Changes in the industry 5. Inquiries into the entity's operations or financial results by regulatory or government bodies

There are numerous reasons for departing from the standard audit report. Name at least four possibilities

1. Opinion based, in part, on report of another auditor 2. Unusual circumstances requiring departure from promulgated GAAP 3. Uncertainties (may lead to a disclaimer) 4. Substantial doubt about ability to continue as a going concern (may lead to a disclaimer) 5. Inconsistency in application of GAAP between periods (GAAP change) 6. Certain circumstances affecting comparative statements 7. Report would require quarterly data for SEC reporting companies 8. Supplementary information required by the FASB and GASB 9. Other information in a document containing audited financial statements 10. Emphasis of a matter

Name at least two important aspects of a supervisor's review

1. Overall strategy, including risk assessment 2. Detailed audit plan to address risk 3. Sufficiency and appropriateness of audit evidence gathered to support the auditor's opinion 4. Reevaluation of strategy and plan for continued propriety after fieldwork

Name at least 5 possible auditor responses to significant fraud risk.

1. Perform surprise procedures at unannounced locations 2. Request physical inventory count to be performed at reporting period-end to minimize the risk of manipulation 3. Send confirmations to major customers or suppliers 4. Use disaggregated data for substantive analytics 5. Discuss fraud risk with component auditors and others 6. Inquire about period-end sales and any knowledge of unusual terms or conditions 7. Test the operating effectiveness of application controls

Name at least three items of required documentation related to materiality on a financial statement audit

1. Planning materiality 2. Performance materiality 3. Basis for planning materiality 4. Any revisions made to materiality limits as the audit progresses 5. Materiality, taken as a whole, for the financial statements

Name at least 4 examples of qualitative considerations related to assessing the materiality of misstatements

1. Potential effect on trends, such as profitability 2. Existence of statutory or regulatory requirements 3. Impact on compliance with loan covenants 4. Effect on executive compensation 5. Involves fraud, illegal acts or conflicts of interest 6. Likelihood of future period material impact

Name at least 4 management responsibilities for SSARS compilations and reviews

1. Preparation and fair presentation of financial statements in accordance with the specified applicable financial reporting framework 2. Design, implementation and maintenance of relevant internal control 3. Prevention and detection of fraud 4. Ensuring entity compliance with applicable laws and regulation 5. Making all financial records and related information available 6. Accuracy and completeness of records, documents, explanations and other information provided including significant judgments

Name at least four topics that might be addressed in a management representation letter

1. Preparation and fair presentation of the financial statements 2. Information provided and completeness of transactions 3. Fraud 4. Uncorrected misstatements 5. Related party transactions 6. Any additional written representations, under auditor's professional judgment

Name four management responsibilities that are listed in an engagement letter

1. Prepare and fairly present financial statements in accordance with the applicable framework 2. Ensure that the financial statements are free of material misstatement, whether due to error or fraud 3. Design, implement and maintain relevant internal control 4. Identify and describe the applicable financial and reporting framework in the financial statements

Name at least three examples of a self-review threat to independence

1. Preparing financial statements 2. Drafting disclosures 3. Maintaining depreciation schedules 4. Proposing recurring or closing journal entries 5. Preparing an income tax provision

Name at least 5 situations where SSARS 21, section 70 (Preparation of Financial Statements", effective December 2015) does not apply

1. Preparing financial statements when engaged to perform attest services on those financial statements 2. Preparing tax returns or other data solely for submission to taxing authorities 3. Personal financial statements prepared for inclusion is written personal financial plans prepared by the accountant 4. Financial statements prepared in conjunction with litigation services that involve pending or potential legal or regulatory proceedings 5. Maintaining depreciation schedules 6. Preparing or proposing certain adjustments 7. Drafting financial statement note 8. Entering general ledger transactions into an accounting software system

Name at least three situations when an other-matter paragraph would be appropriate

1. Prior period financial statements were not audited 2. Prior period financial statements were audited by a predecessor 3. The opinion on prior period statements is different from the opinion previously issued 4. Other information in documents containing financial statements 5. Supplementary information 6. Required supplementary information 7. Alerts as to report intended (restrictions in use)

Rule of conduct 1.300. General standards: A member shall comply with which four standards and with any interpretations thereof by bodies designated by council?

1. Professional competence 2. Due professional care 3. Planning and supervision 4. Sufficient relevant data

Review reports under SSARS may contain an emphasis-of-matter paragraphs. Name at least three items that may be discussed in this paragraph

1. Properly disclosed uncertainty regarding the entity's ability to continue as a going concern 2. Uncertainty relating to an unusually important disclosed litigation of regulatory action 3. Material disclosed subsequent event, such as a catastrophic disaster 4. Significant related party transactions

Name at least two required audit procedures related to "other information"

1. Read other information before the report release date; read as soon as practicable if after report release date 2. Identify any material inconsistencies with the financial statements 3. Determine whether audited financial statements or other information need to be revised 4. Inform those charged with governance of auditor's responsibility, including procedures performed and results

Name 3 procedures for a SSARS review of interim financial statements for an issuer

1. Read relevant audit and review documentation and reports in prior and current periods 2. Consider results of any audit procedures 3. Inquire about changes in business activities and significant relevant internal control

What is required by Statements on Quality Control Standards (SQCS)?

1. Reasonable assurance that the firm's accounting and auditing practice and its personnel comply with professional standards and applicable regulatory and legal requirements 2. Reasonable assurance that reports issued by the firm or engagement partners are appropriate in the circumstances

A member may not receive a commission for any of the following

1. Recommending or referring to a client any product or service 2. Recommending or referring any product/service supplied by a client 3. In any circumstance where there is an audit, review, compilation when lack of independence is not disclosed or there is an examination of prospective financial information

Name at least three duties of the PCAOB

1. Register public accounting firms that prepare audit reports of issuers 2. Establish or adopt standards related to auditing, other attestation quality control, ethics and independence 3. Conduct inspections of registered firms 4. Conduct investigations and disciplinary proceedings 5. Enforce compliance with the Sox act

Examples of Reissue Reports

1. Reissue of report on financial statements contained in annual reports filed with the SEC or other regulatory agency 2. Reissue of report on financial statements in a document submitted to the client or others that contains information in addition to the client's basic financial statements subsequent to the date of the original report 3. Furnishing additional copies of a previously issued report

What internal control procedures can be used in auditing long-term liabilities and loss contingencies?

1. Require authorization before bonds or notes are issued 2. Use of a trustee for issuance of bonds and interest payments 3. Review of interest payments

What types of disclosures are required by PCAOB in period financial reports of public companies?

1. Requires each financial report that contains GAAP-bases financial statements must reflect all material correcting adjustments identified by the registered public accounting firms 2. Each annual or quarterly report should disclose all material off-balance-sheet transactions, arrangements, obligations and relationships 3. Pro forma information should not contain an untrue material fact or omission

What internal control procedures can be used for PP&E?

1. Requisition system with appropriate authorization by an independent party 2. For large items, have board of directors approval 3. Periodic physical inventory 4. Separate purchasing department

The mnemonic RAS can be used to remember the components of the third paragraph for a review report under SSARS 21, What does it stand for?

1. Responsibility of accountant 2. in Accordance with 3. SSARS

The mnemonic RAP can be used to remember the components of the second paragraph for a review report under SSARS 21. What does it stand for?

1. Responsibility of management 2. Accordance with accounting principles 3. Preparation and fair presentation

A review of management's discussion and analysis has what features?

1. Restricted in use; not intended to file with SEC 2. Provides negative assurance conclusion only (would not become aware of all significant matters that would be disclosed in an examination) 3. Consists principally of inquiry and analytics 4. May relate to annual or interim periods or a combination

Review reports under SSARS may contain an other-matter paragraphs. Name at least three items that may be discussed in this paragraph

1. Restrictions on the use of the report 2. Degree of responsibility for supplementary information and required supplementary information For comparative financial statements only, the following items are required: 3. Changed reference to a prior departure because prior financial statements were corrected 4. Prior period attested upon by predecessor and report no resissued (presented) 5. Prior period had different level of service performed by continuing accountant

Name at three specific audit procedures that should be performed when there is substantial doubt about going concern

1. Review of subsequent events 2. Verifying compliance with terms of debt agreements 3. Reading minutes of meetings 4. Inquiry of entity's legal counsel about litigation, claims and assessments 5. Confirming third and related parties' details of support arrangements

Name at least four audit planning procedures

1. Review prior-year financial statements, auditor's report, working papers and correspondence files 2. Inquire of CPA firm personnel who performed any non-audit service for the client 3. Read/review interim financial information 4. Consider the effects of applicable accounting and auditing pronouncements 5. Determine the extent of involvement of others on the audit 6. Discuss the timing of the audit procedures with client's management and those charged with governance

The mnemonic RAISD can be used to remember the components of the first paragraph for a review report under SSARS 21. What does it stand for?

1. Reviewed 2. Analytical procedures 3. Inquiries of company management 4. Substantially less in scope than audit 5. Do not express an opinion

Name at least 3 characteristics of a detailed audit plan

1. Risk assessment procedures sufficient to identify and assess the risks of material misstatement 2. Further audit procedures at the relevant assertion level for each material class of transactions, account balances and disclosures 3. Other procedures to comply with GAAS 4. The plan takes into account the need to effectively achieve audit objectives through efficient use of resources

Name three audit procedures to obtain audit evidence

1. Risk assessment procedures: obtain an understanding of the entity and its environment to assess the risks of material misstatement at the financial statement level 2. Test of controls: when necessary, test the operating effectiveness of controls in preventing and detecting material misstatements 3. Substantive procedures: detect material misstatements, including tests of details of classes of transactions, account balances and disclosures, and analytical procedures

What are three characteristics of statistical sample?

1. Sampling risk is objectively measured using the laws of probability 2. Must be statistically selected 3. Results must be mathematically evaluated

Name some problems involved in the auditing of investments/marketable securities

1. Securities are stolen or misappropriated 2. Securities are exchanged for similar-looking securities 3. Securities are used to cover cash shortage 4. Income comes in at unusual time; stolen and not missed 5. Stocks are valued incorrectly 6. The equity method is applied incorrectly or not at all 7. Stocks are sold and gains or losses incorrectly computed

Name the five threats to auditor independence according to the IFAC code of ethics

1. Self-interest 2. Self-review 3. Advocacy 4. Familiarity 5. Intimidation

Minimum requirements under SSARS 21, section 70 ("Preparation of Financial Statements" effective December 15)

1. Signed engagement letter with required minimum elements 2. Understanding of the applicable financial reporting framework and significant accounting policies intended to be used 3. Preparing the financial statements with necessary disclosure that no assurance is provided 4. Discussing any significant judgments applied with management, ensuring management accepts responsibility 5. If financial statements are deemed incomplete, inaccurate or otherwise unsatisfactory, requesting additional corrected information from management

Name at least 4 examples of opportunity for audit fraud

1. Significant related party transactions 2. Significant estimates 3. High complex transactions 4. Multi-border operations 5. Ineffective monitoring and oversight 6. Unstable organization structure 7. Significant internal control deficiencies 8. Large amounts of cash on hand 9. Easily convertible assets 10. Inadequate segregation of duties 11. Lack of management oversight

Name at least 4 audit risk factors related to operating characteristics and financial stability

1. Significant related party transactions 2. Unusual or complex transactions 3. Declining cash flows while reporting earnings growth 4. Operating in tax-haven jurisdiction 5. Unrealistic incentive programs 6. Hostile takeover 7. Poor financial condition

Name at least three items that must be included in the content of the annual report filed with a form 10K

1. Statement of management's responsibility 2. Identification of framework used 3. Statement of conclusion regarding effectiveness as of the end of the fiscal year 4. Disclosure of any material weaknesses; if one or more exists, cannot assert that internal controls are effective 5. Statement of auditor's attestation or lack of such

Name the applicable standards to be followed for compilations and reviews

1. Statements on standards for accounting and review services (SSARS) issued by the accounting and review services committee 2. AICPA code of professional conduct 3. AICPA statements on quality control standards (SQCSs)

What documentation is required for the evaluation of misstatements?

1. Summary of both corrected and uncorrected misstatements other than those that are trivial 2. Conclusion as to whether financial statements are materially misstated 3. Basis for conclusion

Name the five phases of development and implementation in IT systems

1. System analysis: overall objectives are considered 2. System design: specific proposal is developed 3. Programming and testing 4. Implementation: most costly point to find problems 5. Monitoring: ongoing

Describe the engagement partner requirements under SQCS

1. Take responsibility for the overall quality on each audit to which that partner is assigned 2. Be alert for evidence of noncompliance with relevant ethical requirements 3. Identify threats to independence 4. Take appropriate action to reduce threats to an acceptable level, and possibly withdraw

The auditor should modify the opinion in the auditor's report if

1. The auditor concludes, based on the audit evidence obtained, that the financial statements as a whole are materially misstated 2. The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement

Name at least 3 items that must be communicated from the auditor to those charged with governance

1. The auditor's views about the qualitative aspects of significant accounting practices, including accounting policies, estimates and disclosures 2. All known and potential fraud and other than inconsequential illegal acts 3. Significant matters related to internal control 4. Uncorrected adjustments other than trivial 5. Material, corrected misstatements that were brought to the attention of management as a result of audit procedures 6. Any disagreements with management, whether satisfactorily resolved or not 7. Any consultations management had with other accountants about accounting and auditing matters 8. Representations being requested from management

Name three instances when usually no reference is made to the component auditor

1. The component auditor is associated with or retained by the group audit engagement team 2. The group audit partner is satisfied as to the component auditor's work 3. The portion of the financial statements examined by the component auditor is immaterial

Name two situations when a group engagement team may not use the work of a component auditor

1. The component auditor lacks independence relevant to the group audit 2. The group engagement team has concerns about the ability to make reference or otherwise use the work of the component auditor

Name at least five defenses that a CPA has against a liability claim related to a registration statement filed with the SEC under the Securities Act of 1933

1. The financial statements are true and not misleading 2. The misstatements is immaterial 3. The plaintiff purchased securities after a generally available earnings statement (usually 12 months after the registration statement) 4. The CPA exercised due diligence and had reason to believe the financial statements were true 5. The damage does not relate to the misstatement 6. The plaintiff had no knowledge of falsity 7. The statute of limitations expired (3 years from sale)

What us required of a CPA firm before accepting an engagement under SQCS?

1. The firm/partner must assess management's integrity 2. With the client's permission: talk to management, employees, and relevant third parties 3. Must communicate with the predecessor auditor in a financial statement audit and should consider such communications in other attest engagements

Name at least four characteristics of an Agreed-upon procedures report.

1. The nature, timing, and extent of procedures will vary based on the needs of the specified parties. 2. The practitioner does not perform an examination or review. 3. No opinion or negative assurance. 4. The report is in the form of procedures and findings. 5. The practitioner is independent. 6. Use of the report is restricted to specified parties.

Name 5 factors in determining the objectivity of an internal auditor.

1. The organizational status of the internal auditor 2. The organizational level to which the internal auditor reports 3. The amount of access to the board of directors or audit committee 4. Whether the board of directors, the audit committee or owner manager oversees employment 5. The policies to maintain objectivity about the areas audited

Name at least five conditions for agreed-upon procedures on prospective financial statements

1. The practitioner is independent 2. The practitioner and specified parties agree on procedures 3. Specified parties take responsibility for sufficiency 4. Financial statements include a summary of significant assumptions 5. Financial statements are subject to reasonably consistent evaluation against criteria suitable and available to specified parties 6. Criteria for determining findings are agreed-upon 7. Procedures should result in reasonably consistent findings 8. Evidence is expected to exist as a reasonable basis for findings 9. Materiality is agreed-upon as relevant 10. Use of the report is restricted to specified parties

An auditor may accept an engagement to review the MD&A presentation of a nonpublic entity for an interim period if the following conditions are met

1. The practitioner reviews the historical financial statements for the related interim period under SSARS (statements on standards for accounting and review services) and issues on review report; or the practitioner audits the interim financial statements 2. The MD&A presentation for the most recent fiscal year has been or will be examined 3. Management will provide a written assertion stating that the presentation has been prepared using the rules and regulations adapted by the SEC as the criteria

Predecessor auditor responsibilities under GAAS

1. The predecessor auditor is not expected to be available to respond until a successor auditor has been selected and accepted the engagement 2. Communication may be written or oral 3. The successor auditor should evaluate responses, or implications if there is no response or a limited response

What three things must the principal auditor do first whether assuming or sharing responsibility or not?

1. The principal auditor must verify the professional reputation of the other auditor 2. The principal auditor must verify the independence of the other auditor in relation to the consolidation 3. The principal auditor must ascertain that the other auditor understands GAAP, SEC regulations, SASs and other matters

Name three requirements for a modified opinion report

1. The report must include a basis for modification paragraph describing the circumstances causing the modification 2. The basis for modification paragraph is placed before the opinion paragraph and must have an appropriate heading 3. The title of the opinion paragraph must be modified to reflect the type of opinion expressed

Name 3 factors that impact the nature, timing and extent of planning an audit

1. The size and complexity of the entity 2. The auditor's experience with the entity 3. The auditor's knowledge of the entity and its environment including internal control

Name at least three situations when an emphasis-of-matter paragraph is appropriate in an unmodified report

1. There is substantial doubt about the entity's ability to continue as a going concern; may lead to a disclaimer of opinion as an alternative 2. Material inconsistency in application of accounting principles. Change in accounting principle 3. Change from an inappropriate accounting principle to one that is in accordance with the reporting framework 4. Certain changes in the reporting entity 5. Other matters at the discretion of the auditor (subsequent events, related parties, catastrophe, significant uncertainty, etc)

Name at least 5 elements of a report on internal control under SOX section 404

1. Title that includes the word "independent" 2. Statement of management's responsibility 3. Identification of management's report on internal control 4. Statements of auditor's responsibility 5. Definition of internal control over financial reporting 6. Statement that audit was performed under PCAOB standards 7. Obtaining reasonable assurance whether material weakness exists 8. Summary of procedures performed 9. Statement that the auditor believes the procedures provide a reasonable basis for opinion 10. Statement of inherent limitations in projecting the conclusion to future periods 11. Opinions (express an adverse opinion if material weakness exists)

Name at least 5 elements of an agreed-upon procedures report

1. Title that includes the word independent 2. Identification of specified parties 3. Subject matter or assertion and character of engagement 4. Identification of responsible party, including a statement that the party is responsible for the subject matter 5. Procedures performed were agreed to by the identified specified parties (sufficiency of procedures is the sole responsibility of identified specified parties, practitioners specifically disclaims any responsibility; description of any agreed-upon materiality limits) 6. Engagement conducted in accordance with attestation standards established by the AICPA 7. List of procedures performed and related findings 8. Statement that an examination was not performed 9. Statement of restriction on use of report 10. Where applicable, include any reservations or restrictions on procedures or findings and a description of the nature or assistance of the specialist

GAAS objectives of audit client acceptance/compliance

1. To accept/continue an engagement only when the basis upon which it is to be performed has been agreed upon through establishing whether the preconditions for an audit are present and confirming the understanding of the terms of the engagement and responsibilities between the auditor, management and those charged with governance 2. Evaluate independence and other legal and ethical requirements 3. Take necessary action as new information is obtained that may impact the continuing relationship

What are the two objectives of an integrated audit?

1. To obtain sufficient evidence to support the auditor's opinion on internal control over financial reporting as if year-end 2. To obtain sufficient evidence to support the auditor's control risk assessments for purposes of the financial statement audit

Name at least four operating environment indications of substantial doubt of an entity's ability to continue as a going concern

1. Turnover of key management or other positions 2. Work stoppages or other labor difficulties 3. Substantial dependance on particular project success 4. Uneconomic long-term commitments 5. Entrance into an unprofitable market 6. Negative legal, legislative or regulatory proceedings 7. Uninsured catastrophic event

List at least four examples of indicators of possible noncompliance with laws and regulations

1. Unauthorized or improperly recorded transactions 2. Investigation by a governmental entity, an enforcement proceeding, or payment of unusual fines or penalties 3. Regulatory reports that cite violations 4. Large payments to consultants for unspecified services 5. Unexplained payments to government officials 6. Failure to file tax returns or pay duties or similar fees

An internal auditor may provide direct assistance to an independent auditor in what 3 types of procedures?

1. Understanding of internal control 2. Control risk assessment 3. Substantive procedures

Describe the characteristics of classical variables sampling

1. Use normal distribution theory to evaluate selected population characteristics 2. Must calculate an allowance for a specified risk of incorrect acceptance 3. Involves complex mathematical calculations that generally require the use of computer audit programs 4. Since it is not on PPS basis, it is appropriate to test for understatement

Compilations reports under SSARS 21 may contain an other-matter paragraph. Name at least three items that may be discussed in this paragraph

1. Use of a special purpose framework to prepare financial statements 2. Lack of independence 3. Financial statements substantially omit all disclosures 4. Known departure from applicable financial reporting framework 5. Accountant's responsibility for supplementary information, including required supplementary information

Name at least three items that can affect the sample size under classical variable testing

1. Variation within population for characteristic of interest 2. Stratum for stratified samples 3. Tolerable misstatement 4. Acceptable risk of incorrect acceptance Note: size is often calculated using a computer program

What should be mentioned in the introductory paragraph if there is a division of responsibility between the principal auditor and another auditor?

1. We did not audit the subsidiary 2. The size of the sub-present the percentage or total of assets and revenues to the consolidated total 3. State that the statements were audited by other auditors and do not name the other auditors due to confidentiality 4. State that the other auditors furnished us with their report 5. State that our report on the sub is based on the report of the other auditor

Name 2 prior history risk conditions that may indicate risks of material misstatement.

1. Weaknesses in internal control over financial reporting, especially those not addressed by management 2. Past misstatements, history of errors or a significant amount of adjustments at period-end

Name at least 5 topics of inquiry in a SSARS review

1. Whether financial statements are prepared and fairly presented in conformity with the applicable financial reporting framework and are consistently applied 2. Unusual or complex situations 3. Significant transactions 4. Status of uncorrected misstatements identified during any previous review 5. Matters about which questions have arisen in the course of applying review procedures 6. Events subsequent to the date of financial statements that could have a material effect on presentation 7. Knowledge of any fraud or suspected fraud 8. Whether management is aware of alleged or suspected fraud by employees, regulators or others 9. Whether management has disclosed all known instances of noncompliance or suspected noncompliance with laws and regulations that could impact fair presentation 10. Significant journal entries and other adjustments 11. Any communications from regulatory agencies 12. Related parties and transactions 13. Any litigation, claims and assessments 14. Whether management believes significant assumptions used in making accounting estimates are reasonable 15. Actions taken at board meetings

Contractual basis

A basis of accounting that the entity uses to comply with an agreement between the entity and one or more third parties other than the auditor

Check bit

A binary check digit. Note: A parity check usually involves the appending of a check bit of appropriate value to an array of bits

Echo check

A check upon the accuracy of a data transfer operation in which data received (usually by an output device) is transmitted back to its source (usually a control unit) and compared with the original data. For example, an echo check on an output operation usually can verify that the proper print hammers or punch pins were actuated at the proper moments, though it cannot ensure that the proper marks were actually recorded an the output medium

Mean-per-unit approach

A classical variables sampling technique that projects the sample average to the total population by multiplying the sample average by the total number of items in the population

Difference estimation

A classical variables sampling technique that uses the average difference between audited amounts and individual recorded amounts to estimate the total audited amount of a population and an allowance for sampling risk

Ratio estimation

A classical variables sampling technique that uses the ratio of audited amounts to recorded amounts in the sample to estimate the total dollar amount of the population and an allowance for sampling risk

Rule of conduct 1.600: Advertising and other forms of solicitation

A member in public practice shall not seek to obtain clients by advertising or other forms of solicitation in a manner that is false, misleading or deceptive. Solicitation by the use of coercion, overreaching or harassing conduct is prohibited

Rule of conduct 1.400. Acts Discreditable:

A member shall not commit an act discreditable to the profession

Rule of conduct 1.320. Accounting principles:

A member shall not express an opinion or state affirmatively or negatively that financial statements or other financial data are presented in conformity with GAAP, if there is any departure from an accounting principle that has a material effect on the statements or data

Code of professional conduct principles of conduct 0.300.060 (Article v). Due care:

A member should observe the profession's technical and ethical standards, strive to continually improve competence and quality of services and discharge professional responsibilities to the best of the member's ability

Rule of conduct 1.310. Compliance with standards:

A member who performs auditing, review, compilation, management, consulting, tax or other professional services shall comply with standards designated by council

Control clerk

A person having responsibility for performing duties associated with the control over data processing operations. Note: such duties usually include the checking of control totals, the checking of run to run controls, the checking of output before distribution, etc

Regarding the accounts receivable and sales cycle, the return of a positive account receivable confirmation without an exception attests to the

Accuracy of the receivable balance

Noncompliance

Acts of omission or commission by the entity, either intentional or unintentional, which are contrary to the prevailing laws or regulations

Any CPA firm performing auditing, accounting and review services is required to abide by nine elements of quality control. Element # 2 is "assigning personnel to engagements", which means what?

All personnel engagements should have an adequate degree of technical training and the proficiency to complete the job. Staff personnel should be assigned to jobs that give them a broad base of experience and assure that the best people are working on each job

Any CPA firm performing auditing, accounting and review services is required to abide by nine elements of quality control. Element # 5 is "hiring", which means what?

All personnel should be qualified to perform their work competently

Any CPA firm performing auditing, accounting and review services is required to abide by nine elements of quality control. Element # 6 is "professional development", which means what?

All personnel should receive sufficient professional development to enable them to perform their work competently and maintain their ability to do the work at a high level

Any CPA firm performing auditing, accounting and review services is required to abide by nine elements of quality control. Element # 8 is "acceptance and continuation of clients", which means what?

All potential and existing clients should be evaluated to minimize the chance of association with clients whose management lacks integrity

CPA firms with public clients are required to have periodic PCAOB inspections. Describe these inspections

An inspection and review of selected audit and review engagements is required. a. Every year if the firm has > 100 public clients. b. Every three years if the firm has <= 100 public clients 1. The inspection includes an evaluation of the sufficiency, manner of documentation and communication of the quality control system 2. The inspection includes testing of the audit, supervisory and quality control procedures. An inspection and review of selected audit and review engagement 3. Focus is on quality control and the firm's performance based on a sample of individual audit and review engagements. The report is transmitted to the SEC and other regulatory authorities; most of the report is publicly available 4. The discussion of criticisms of the CPA firm's quality control is not publicly available, unless the firm does not address the criticism within 12 months

When is an auditor "associated" with the financial statements?

Association occurs when an auditor has consented to the use of his or her name in a report, document, or communication containing statements, or submits to a client statements that the auditor prepared or assisted in preparing even though the auditor's name is not used with the statements

Audit evidence definition

Audit evidence consists of all information used by the auditor in arriving at the conclusions on which the audit opinion is based and includes the information contained in the accounting records underlying the financial statements and other information

An auditor most likely would assess control risk at the maximum if the payroll department supervisor is responsible for

Authorizing payroll rate changes for all employees

As the acceptable level of detection risk decreases, the assurance directly provided from tests of controls should increase

False. As the acceptable level of detection risk decreases, the assurance directly provided from substantive tests (not tests of controls) should increase

Providing tax services to audit clients is prohibited under the Sarbanes-Oxley Act

False. Auditors may provide tax service to audit clients. The service must be preapproved by the audit committee and disclosed to investors

GAGAS requires a report on compliance with laws, regulations, and provisions of contracts and grants, but only recommends a report on internal control over financial reporting

False. Both reports are required

Financial statement audits in accordance with the yellow book do not have to follow GAAS

False. Financial statements audits in accordance with GAGAS (yellow book) must follow both GAGAS and GAAS

For an initial audit, it is permitted to rely on the work of the predecessor auditor

False. For an initial audit, including reaudits, the auditor must determine whether opening balances were correctly brought forward and reflect the application of appropriate accounting policies, After reviewing documentation, if audit evidence suggests opening balance contain material misstatements, the auditor must perform additional appropriate procedures to come to a conclusion

If management imposes a scope limitation that will result in a disclaimer prior to auditor acceptance, the auditor should accept the engagement anyway

False. If management or those charged with governance impose a scope limitation that will result in a disclaimer prior to audit acceptance, the auditor should NOT accept the engagement, unless the entity is required by law or regulation to have an audit

In an audit of a special purpose framework, an auditor is NOT required to obtain agreement of management that us acknowledges and understands its responsibility

False. In an audit of a special purpose framework, an auditor IS required to obtain agreement of management that it acknowledges and understands its responsibility, including information describing the special purpose framework and any significant interpretations of the contract on which the special purpose financial statements are based

Independence is required for all attest and nonattest services

False. Independence is not required for nonattest services (including consulting and tax engagements). Independence is required for attest services, except when disclaimed in a compilation report

Judgmentally selecting significant customers for confirmation is the most persuasive audit evidence

False. It is systematically sampling not judgemental selection

Audit documentation is the property of the client

False. It is the property of the auditor

If a control reliance strategy is elected or necessary, the auditor must test controls from either the most recent prior period or the current period

False. It should be from only the current period

A contingency that might result in a gain usually should be reflected in the financial statements in the period it was identified

False. It should not be reflected in the financial statements because it may result in revenue recognized prior to realization. Adequate disclosure may be made of a possible gain contingency, but care should be exercised to avoid misleading implications as to realization likelihood

Those charged with governance are responsible for ensuring that an entity's operations are conducted in accordance with the provisions of laws and regulations

False. Management, not governance (board of directors) is charged with ensuring that an entity's operations are conducted in accordance with the provisions of laws and regulations

Performance materiality should be established at an amount greater than planning materiality

False. Performance materiality is an amount set at less than materiality for the financial statements as a whole. It is used to assess the risk of material misstatement and determine the nature, timing and extent of further audit procedures

Absolute assurance must be obtained about whether the financial statements as a whole are free of material misstatement due to fraud or error

False. Reasonable assurance, not absolute assurance, is required that the financial statements as a whole are free of material misstatement due to fraud or error

Responsibility for the audit opinion can be shared with the internal auditors as as they were assessed to be both competent and objective

False. Responsibility cannot be shared with the internal audit under any circumstances

Both tests of controls and substantive tests are required audit procedures

False. Tests of controls are optional while substantive tests are required

A CPA firm has decided to rely on the audit work performed by another audit firm. The CPA firm should reference the reliance on the other firm's work in the first paragraph of the opinion in the audit report

False. The CPA firm should review the other firm's audit workpapers and reperform a subset of audit testing to validate the firm's conclusions. If a group auditor does NOT wish to assume responsibility for a component, they should make reference to the component auditor in the group auditor's report

Under SSARS 21, section 70, preparation of financial statements, an auditor is required to verify the accuracy and completeness of accounting information in a SSARS review engagement

False. The accountant is not required to verify the accuracy and completeness of the information provided by management, or otherwise gather evidence to express an opinion or a conclusion on the financial statements, or otherwise report on the financial statements. The accountant uses the records, documents, explanations, and other information provided by management

The relationship between the cost of obtaining audit evidence and the usefulness of the information may be considered in gathering audit evidence. The degree of difficulty or expense involved in testing a particular item is a valid basis for omitting the procedure for which there is no appropriate alternative

False. The degree of difficulty or expense involved in testing a particular item is not, by itself, a valid basis for omitting the procedure for which there is no appropriate alternative

In an unmodified opinion, the emphasis-of-matter paragraph is placed after the opinion

False. The emphasis-of-matter paragraph is placed after the opinion paragraph but before "Report on other legal and regulatory requirements," if applicable. 1. Use an "emphasis-of-matter" heading 2. Clearly reference the matter emphasized and where it is identified in the financial statements 3. State the auditor's opinion is not modified

Externally generated, internally circulated evidence has the highest degree of persuasiveness

False. The order is: 1. Externally generated, externally circulated (external confirmation, newspaper stock quote) 2. Externally generated, internally circulated (bank statement, vendor invoice, debt agreement) 3. Internally generated, externally circulated (sales invoice, lease agreement to lessee) 4. Internally generated, internally circulated (purchase order, bank reconciliation)

The predecessor auditor is permitted to disclose any and all confidential information

False. The predecessor auditor is precluded from disclosing confidential information, unless management specifically consents. (Note that the AICPA members do have a responsibility to cooperate with each other)

Under the revised OMB guidance for single audits, a first-year audit may depart from the standard four-step process

False. The revised OMB guidance does not allow for variation from the four-step process. OMB circular A-133 allowed the departure for first-year single audits or a change in auditors

The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of the risk that specific internal control activities are not designed properly

False. 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

When the auditor's report is included is a registration statement, the auditor does not need to perform procedures on the prospectus and pertinent portions of the registration statement

False. When the auditor's report is included in a registration statement, the auditor must perform procedures on the prospectus and pertinent portions of the registration statements, including material incorporated by reference

For a SSARS engagement, the current auditor is required to communicate with the predecessor auditor

False. While not required, it may be beneficial to communicate with the predecessor accountant to identify any disagreements related to accounting principles or other significant matters, and the reason for change in accountants

The lower the tolerable deviation, the less persuasive the evidence

False. lower tolerable deviation = more persuasive evidence; higher confidence level = more persuasive evidence

Inquiry, observation, inspection, reperformance are examples of substantive tests

Fasle; Inquiry, observation, inspection, reperformance are examples of tests of controls

What type of audits does GAGAS apply to?

GAGAS applies to a variety of audits such as cities, states, hospitals, and universities

What is stratification sampling?

It divides the population into groups, called strata. It is used when the population is highly variable; it reduces variability and results in smaller sample sizes

What does the audit scope include?

It includes obtaining an understanding of the entity and its environment including its internal control, sufficient to assess risks of material misstatements and to design the nature, timing and extent of further audit procedures

What is the probability proportionate to size (PPS) sampling method?

It is a random selection of individual dollars from a population. In other words, the sampling unit is not an account balance or transaction, but an individual dollar in an account balance. The probability of an item being selected is directly proportional to the dollar value of the item. Large dollar amounts have a higher probability of being selected, thus overstatements are more likely to be detected. PPS must give special attention to zero or negative balances

What is an assertion?

It is a representation made by management: 1. Embodied in the financial statements 2. Implicit or explicit 3. Used by the auditor to consider the different types of potential misstatements that may occur

What is monetary unit sampling (MUS)?

It is a subset of PPS sampling, and is used to reach conclusions about a population in terms of a dollar amount. MUS uses attributes sampling theory to express a conclusion in dollar amount, rather than a rate of occurrence. Variations of MUS include dollar-unit sampling and cumulative monetary amounts (CMA) sampling

In some cases management and auditors will designate a "principal auditor" to sign the report. How is the principal auditor chosen?

It is generally the auditor who does the majority of the work-measured by the percentage of total assets and revenues to the consolidated total

What is the appropriate time frame for the legal representation letter?

It is preferable for the legal letter be dated to cover a period that closely corresponds to the auditor's report date (usually within 10 business days of the audit report date). If the letter does not specify an effective date, assume the date of the response is the effective date

What is alpha risk, in terms of attribute sampling?

It is that the population failure rate < sample deviation failure rate: 1. Deviations from sample > than tolerable rate 2. True deviations in population < the tolerable rate It results in inefficiency in that: 1. The auditor plans to perform more substantive testing than necessary 2. The auditor performs too much testing

What is beta risk, in terms of attribute sampling?

It is that the population failure rate > sample deviation failure rate: 1. Deviations from sample < than tolerable rate 2. True deviations in population > the tolerable rate It results in ineffectiveness, in that: 1. The auditor plans to perform less substantive testing than necessary 2. The auditor will not find material misstatements that exist

Rule 10b-5 of the 1934 Securities Act states that one must prove "scienter" in order to reach the CPA in legal proceedings. What is scienter?

It is the intent to deceive, manipulate, or defraud by the CPA; it is not only simple negligence. Recovery is limited to actual losses resulting from fraud

Describe attribute sampling

It is used to reach conclusions about a population in terms of rate of occurrence: 1. Generally used in tests of controls and tests of compliance 2. May be used to test cut-off or other substantive tests that are not intended to project misstatement in monetary terms 3. Each occurrence of, or deviation from occurrence, is given equal weight in the sample evaluation, regardless of the dollar amount of the transaction 4. Looks at characteristic vs amount

Relevant controls

It pertains to the entity's objective of preparing reliable financial statements that are fairly presented in accordance with the applicable financial reporting framework (including risk that may give rise to material misstatements)

What does the term "public companies" mean?

It refers to issuers of publicly traded securities. These companies are required to follow SEC and PCAOB rulings, in addition to AICPA guidelines

To gain assurance that all inventory items in a client's inventory listing schedule are valid, an auditor most likely would trace

Items listed in the inventory listing schedule to inventory tags and the auditor's recorded count sheets

What is management's control reporting requirement according to Sarbanes-Oxley Act Section 404?

Management must evaluate and disclose any change during a fiscal quarter that materially affected, or is reasonably likely to materially affect, internal control over financial reporting

Code of professional conduct principles of conduct 0.300.070 (Article vi). Scope and nature of services:

Members in public practice should observe the principles of the code in determining the nature and the scope of services

Code of professional conduct principles of conduct 0.300.030 (Article ii). The public interest:

Members should act in a way that serves the public interest, honors the public trust and demonstrates a commitment to professionalism

Code of professional conduct principles of conduct 0.300.020 (Article i). Responsibilities:

Members should exercise sensitive professional and moral judgments in all their professional activities

The objective of tests of details of transactions performed as tests of controls is to

Monitor the design and use of entity documents such as prenumbered shipping forms

Define/describe what planning an audit entails

Planning involves of the development of an overall strategy for the expected conduct, organization and staffing of the audit. Planning begins with engagement acceptance and continues throughout the audit to respond to changing circumstances

Any CPA firm performing auditing, accounting and review services is required to abide by nine elements of quality control. Element # 1 is "independence", which means what?

Policies and procedures need to be in place to help the firm know that all personnel meet the independence requirements of the code of conduct

Any CPA firm performing auditing, accounting and review services is required to abide by nine elements of quality control. Element # 9 is "inspection", which means what?

Policies and procedures should exist to make sure that the procedures to meet the other eight standards are consistently followed

The PCAOB has several requirements related to communication with the audit committee on independence issues. Name at least three such required communications

Prior to accepting an engagement: 1. Describe, in writing, all relationships that may reasonably bear on independence 2. Discuss the potential effects of such relationships on the independence of the auditor 3. Document the substance of discussions At least annually: 1. All of the above related to communications prior to accepting an engagement 2. Affirm, in writing, that, as of the date of the communication, the firm is independent

Ratio estimation is one of the classical variable testing techniques; describe ratio estimation

Ratio estimation uses a sample to estimate the ratio of misstatement in a sample to its book value and then projects it to the population

What procedure ordinarily should be applied when an independent accountant conducts a review of interim financial information of a public held entity?

Reading the minutes of the board of directors' meetings

To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all

Receiving reports

Name an internal control procedure that most likely addresses the completeness assertion for inventory

Receiving reports are prenumbered and periodically reconciled

What is a type 1 subsequent event and what are the reporting/disclosure requirements?

Recognized subsequent events are events or transactions that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. These events should be recognized in the financial statements. A common example is the resolution of litigation when the event giving rise to the claim took place prior to the balance sheet date

What should the auditor do if management refuses to provide a management representation letter?

Refusal by management to provide a signed management representation letter constitutes a scope limitations; the auditor should disclaim an opinion or withdraw from engagement

Related parties (SAS 45)

Related parties are those who can exert significant influence over the client or who the client can exert significant influence over

What is required in the footnote disclosure related to subsequent events?

Reporting entities must disclose through which subsequent events have been evaluated and whether the date is the date the financial statements were issued or available for issue. This is required regardless of whether the entity recognizes or disclosures a subsequent events in the financial statements. 1. The auditor's report date cannot be earlier than the date of management's subsequent events evaluation note 2. It should be the same date as the management representation letter

Why was the Public Company Accounting Oversight Board (PCAOB) created?

The Sox Act created the PCAOB to promulgate and enforce standards for accountants and accounting firms. The PCAOB oversees the audits of issuers that are subject to the securities laws; it protects the interest of investors and furthers the public interest in the preparation of informative, accurate and independent audit reports. (issuers are entities that are required to register with or file reports with the SEC)

Regarding reports on unaudited financial statements, when must an accountant comply with SSARS?

The accountant must comply with SSARS whenever the accountant presents to a client or third parties financial statements that the accountants has prepared either manually or with the use of a computer

When an auditor is requested to express an opinion on the rental and royalty income of an entity, the auditor may accept the engagement provided

The auditor's opinion is expressed in a special report

The international code of ethics established by the International Ethics Standard Board for Accountants (IESBA) has fewer or more definitive prohibitions compared to the US code of professional conduct?

The international code of ethics establishes worldwide requirements for professional accountants. It was established by the IESBA and provides a conceptual framework to ensure compliance with five fundamental principles of ethics. It has fewer definitive prohibitions compared to the US code of professional conduct

In terms of attribute sampling, what is the tolerance deviation rate?

The maximum amount of noncompliance that an auditor is willing to accept without altering the planned assessed level of control risk (the auditor can rely on the control working effectively)

Regarding materiality, how are tolerable misstatements defined?

The maximum error in a population that the auditor is willing to accept and is less than materiality for the financial statements taken as a whole and must be determined for each class of transaction, account balance and disclosure

What is the purpose of an emphasis-of-matter paragraph?

The paragraph highlights a matter that has been appropriately presented or disclosed in the financial statements, but the matter is of such importance that is is fundamental to the users' understanding of the financial statements. Note that this paragraph is not a substitute for a qualified or adverse opinion

Define "detection risk" in an audit

The risk that the auditor will not detect a material misstatement that exists in an assertion. It is a function of the effectiveness of an auditing procedure and its application by the auditor. The acceptable level of detection risk varies inversely to the assessed risks of material misstatement at the assertion level and can be altered by adjusting the nature, timing and extent of substantive procedures

Sampling risk

The risk that the auditor's conclusion based on a sample might be different from the conclusion he or she would reach if the test were applied in the same way to the entire population. For tests of controls, sampling risk is the risk of overreliance on the internal control structure or the risk of underreliance on the internal control structure. For substantive testing, sampling risk is the risk of incorrect acceptance or the risk of incorrect rejection

Audit risk definition

The risk that the financial statements are materially misstated and the auditor fails to detect such a misstatement or appropriately modify the auditor's opinion

Risk of underreliance on the internal control structure (alpha risk, type 1 error)

The risk that the sample does not support the auditor's planned degree of reliance on the control when the true compliance rate supports the reliance

Risk of overreliance on the internal control structure (beta risk, type 2 error)

The risk that the sample supports the auditor's planned degree of reliance on the control when the true compliance rate does not justify such reliance

Risk of incorrect rejection (alpha risk, type 1 error)

The risk that the sample supports the conclusion that the recorded account balance is materially misstated when it is not

Risk of incorrect acceptance (beta risk, type 2 error)

The risk that the sample supports the conclusion that the recorded account balance is not materially misstated when it is materially misstated

Define a nonstatistical sample

The sampling risk must be considered and restricted to a relatively low level, but cannot be objectively measured

An accountant has been asked to issue a review report on the balance sheet of a nonpublic company but not to report on the other basic financial statements. The accountant may not do so because

The scope of the inquiry and analytical procedures has been restricted

If there is a division of responsibility between the principal auditor and another auditor, how are the scope and opinion paragraphs altered in the report?

The scope paragraph is altered in the last sentence to indicate the report of the other auditor is used. The opinion paragraph divides the responsibility by stating that the opinion is based on our audit and the report of the other auditor

There has been a change in auditors. Can the new auditor (successor) present the old auditor's (Predecessor) report?

The successor may present the predecessor auditor's report with permission only when there are comparative statements

Under SSARS, what is defined as a "third party" regarding financial statements?

Third parties are defined as everyone except for members of management who are knowledgeable about the nature of the procedures applied and the basis of accounting and assumptions used in the preparation of the financial statements

Regarding the accounts receivable and sales cycle, an auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about

Valuation or allocation

Even if a report on internal control over compliance is not required by the governmental audit requirement, the auditor must still communicate significant deficiencies and material weaknesses in writing to management and those charged with governance

True

If financial statements are prepared in accordance with a contractual or regulatory basis, an other-matter paragraph restricting the use of the auditor's report to relevant parties must be included in the report

True

If a loss contingency arises after the financial statement date, but before the issuance, an accrual is not required

True. Disclosure may be necessary to keep the financial statements from being misleading. Include the: 1. Nature of loss or loss contingency 2. Estimate of the amount or range of loss, or statement that such an estimate cannot be made

Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments

True. Materiality is a matter of professional judgement, made throughout the audit in light of the surrounding circumstances, and necessarily involve both quantitative and qualitative judgments

If projected error > expected misstatement, then the sample may not be large enough to provided the planned risk of incorrect acceptance

True. Other reasons for this result include an inadequate allowance for sampling risk, and there may be other, undetected misstatements. The auditor should evaluate both the known and projected error in the aggregate

An auditor's opinion does not extends to "other information"

True. The auditor has no responsibility for determining whether "other information" is properly stated unless engaged to do so. However, the auditor must respond appropriately when aware that other information undermines the credibility of the financial statements and auditor's report

Under GAGAS, significant deficiencies and material weaknesses are communicated in a report on internal control

True. This differs from SAS, where significant deficiencies and material weaknesses are communicated orally or in writing to management and those charged with governance

Using analytical procedures in the planning phase of an audit can help identify areas that may represent specific risks relevant to the audit

True. Using analytics during the planning phase assists in planning the nature, timing and extent of substantive tests; helps to focus on enhancing the auditor's understanding; and is used to identify areas that may represent specific risks relevant to the audit

Regarding the accounts receivable and sales cycle, an auditor tests an entity's policy of obtaining credit approval before shipping goods to customers in support of management's financial statement assertion of

Valuation or allocation