Audit Test 2

when a control is applied on a transaction basis and if the control operates frequently, you should use __________ to test operating effectiveness

audit sampling techniques

auditor's point estimate is another term for

auditor's range

what type of claims is the client's lawyer not allowed to inform the auditor of

unasserted claims (exposure to litigation but no announcement of suing)

who directly sends the letter of inquiry to the lawyer to get the lawyer's letter

management, we draft it

price earnings ratio

market price per share/earnings per share

inherent limitation of potential effectiveness of internal control

-management override -mistakes in judgment -collusion

what goes into an approved voucher packet for purchases

-matched invoice -purchase order -receiving report -requisition

quick ratio

(Cash + Marketable Securities + Accounts Receivable) / Current Liabilities

rare of return on common SE

(net income - preferred dividends)/ave common SE

gross profit percentage

(sales - cost of goods sold) / sales

Main difference b/w PCAOB and AICPA's financial statement assertions

-PCAOB has 5 but -AICPA has 13 in 3 categories

when can you whistleblow

-subpoena -legal requirements -predecessor auditor (if client permission) -funding agency if GAO

3 categories of FS assertions

-account balances -presentation and disclosure -classes of transactions and events

data should have what 6 attributes

-accuracy -completeness -consistency -freshness -timeliness -clarity/relatedness

the auditor's substantive procedures should include the following related to the financial reporting process... (2 things)

-agree financial statement info to the underlying accounting records -examine material journal entries and other adjustments

things required to communicate to those charged w/governance

-auditor's responsibilities -planned scope/timing -signif deficiencies in internal control -signif audit findings -signif changes in accounting policies -signif difficulties encountered in the audit -all nontrivial disagreements w/management (resolved or not)

Segregation of Duties involves separation of what responsibilities

-authorization -recording -custody

who gets copies of the remittance list

-cashier -accounts receivable -acounting

auditor's objectives regarding the audit committee

-communicate responsibility and strategy -obtain info -provide timely significant observations

auditor's objectives regarding specialists

-determine if you need one -determine if the work the specialist does is good

five traditional financial statement assertions

-existence -completeness -rights and obligations -valuation and allocation -presentation and disclosure

General vs. Application Controls

-general are system-wide on many applications -application is specific to a particular application

4 main indicators of material weakness

-indications of fraud involving senior management -restatement of previous FS to correct material misstatement -finding material misstatement that wouldn't have been found by internal controls -ineffective oversight by those changed w/governance

3 parts of the definition of fraud

-intentional -use of deception -results in misstatement

what parts of payroll should be separate

-maintaining employee files -timekeeping -preparing payroll/record updates -distribution of checks -reconciling bank account (remember SCARE)

3 parts that should be included in the brainstorming session about fraud in the planning stage?

-management override -earnings management -professional skepticism

necessary conditions before you can use internal control's work to obtain audit evidence

-objectivity -competence -systematic and disciplined approach (including quality control)

Parts of the Fraud Triangle

-pressure -opportunity -rationalization

objectives of internal control in the payroll cycle

-proper authorization -valid employees -correct computations -proper recording -wthholdings properly remitted -access limited

audit procedures for obtaining evidence

-risk assessment procedures -tests of controls -substantive procedures

5 components of internal control

1. Control Activities 2. Risk Assessment 3. Info and Communication 4. Monitoring 5. control Environment (CRIME)

Types of Substantive Procedures

1. Tests of details 2. analytical procedures

4 factors that determine effectiveness and efficiency of analytical procedures used for substantive purposes

1. nature of the assertion 2. the plausibility and predictability of the relationship 3. the availability and reliability of the data used to develop the expectation 4. the precision of the expectation

by when must you have a final set of audit documentation after the report release date

45 days public, 60 days private

what do you need to document for your analytical procedures?

1. expectations 2. results of comparisons 3. results of any additional procedures

3 things that make data more reliable

1. have been subject to audit testing 2. obtained from an external independent source 3. good internal control environment

5 steps of using ADAs as tests of control

1. plan 2. prepare data 3. consider relevance/reliability of data 4. perform 5. evaluate results

In evaluating the reasonableness of an accounting estimate, an auditor concentrates on key factors and assumptions that are: (4)

1. significant to the accounting estimate; 2. sensitive to variations; 3. deviations from historical patterns; and 4. subjective and susceptible to misstatement and bias.

types of tests of details

1. test of transactions 2. tests of ending balances

how many signatures should be required for checcks

2

how long must audit documentation be retained for after the report release date

5 years for public, 7 years private

During consideration of the internal control structure in a financial statement audit, an auditor is NOT obligated to A. Search for significant deficiencies in the operation of the internal control structure. B. Understand the internal control environment and the accounting system. C. Determine whether the control procedures relevant to the audit have been implemented. D. Perform procedures to understand the design of the internal control structure policies.

A

In obtaining an understanding of a manufacturing entity's internal control structure concerning inventory balances, an auditor would most likely A. Review the entity's descriptions of inventory policies and procedures. B. Perform test counts of inventory during the entity's physical count. C. Analyze inventory turnover statistics to identify slow-moving and obsolete items. D. Analyze monthly production reports to identify variances and unusual transactions.

A

Samples to test internal control structure procedures are intended to provide a basis for an auditor to conclude whether: A. The control procedures are operating effectively. B. The financial statements are materially misstated. C. The risk of incorrect acceptance is too high. D. Materiality for planning purposes is at a sufficiently low level.

A

The scope of an audit is not restricted when an attorney's response to an auditor, as a result of a client's letter of audit inquiry, limits the response to A. Matters to which the attorney has given substantive attention in the form of legal representation. B. An evaluation of the likelihood of an unfavorable outcome of the matters disclosed by the entity. C. The attorney's opinion of the entity's historical experience in recent similar litigation. D. The probable outcome of asserted claims and pending or threatened litigation.

A

Which of the following actions should the auditor take in response to discovering a deviation from the prescribed control procedure? A. Make inquiries to understand the potential consequence of the deviation. B. Assume that the deviation is an isolated occurrence without audit significance. C. Report the matter to the next higher level of authority within the entity. D. Increase sample size of tests of controls.

A

Which of the following controls would an entity most likely use in safeguarding against the loss of marketable securities? A. An independent trust company that has no direct contact with the employees who have record keeping responsibilities has possession of the securities. B. The internal auditor verifies the marketable securities in the entity's safe each year on the balance sheet date. C. The independent auditor traces all purchases and sales of marketable securities through the subsidiary ledgers to the general ledger. D. A designated member of the board of directors controls the securities in a bank safe-deposit box.

A

Which of the following internal control procedures would most likely assure that all billed sales are correctly posted to the accounts receivable ledger? A. Daily sales summaries are compared to daily postings to the accounts receivable ledger. B. Each sales invoice is supported by a prenumbered shipping document. C. The accounts receivable ledger is reconciled daily to the control account in the general ledger. d. Each shipment on credit is supported by a prenumbered sales invoice.

A

Which of the following statements concerning control risk is correct? A. Assessing control risk and obtaining an understanding of an entity's internal control structure may be performed concurrently. B. When control risk is at the maximum level, an auditor is not required to document the basis for that assessment. C. Control risk may be assessed sufficiently low to eliminate substantive testing for significant transaction classes. D. When assessing control risk, an auditor should not consider evidence obtained in prior audits about the operation of control procedures.

A

Which of the following statements is correct concerning an auditor's use of the work of an actuary in assessing a client's pension obligations? A. The auditor is required to understand the objectives and scope of the actuary's work. B. The reasonableness of the actuary's assumptions is strictly the auditor's responsibility. C. The client is required to consent to the auditor's use of the actuary's work. D. If the actuary has a relationship with the client, the auditor may not use the actuary's work.

A

Which of the following statements would most likely be included among the written client representations obtained by the auditor? A. Compensating balances and other arrangements involving restrictions on cash balances have been disclosed. B. Management acknowledges responsibility for illegal actions committed by employees. C. Sufficient evidential matter has been made available to permit the issuance of an unqualified opinion. D. Management acknowledges that there are no material weaknesses in the internal control.

A

Misstatements discovered by the auditor were immaterial in the aggregate in prior years. Such misstatements should be A. Considered in the evaluation of audit findings in the current year. B. Disclosed by the client in the current-year financial statements. C. Retested during the current-year tests of controls. D. Removed from the prior-year summary because they were immaterial.

A -in determining whether identified (uncorrected) misstatements are material in the aggregate, the auditor should take into consideration the effects of relevant misstatements identified in a prior period, even if they were deemed immaterial in the prior period.

Which of the following is not required documentation for an audit, in accordance with generally accepted auditing standards? A. A flowchart or an internal control questionnaire that evaluates the effectiveness of the entity's internal control policies and procedures. B. A client engagement letter that summarizes the timing and details of the auditor's planned field work. C. An indication in the audit documentation that the accounting records agree or reconcile with the financial statements. D. The basis for the auditor's conclusions when the assessed level of control risk is at the maximum level for all financial statement assertions.

A -not required and also it's not used to evaluate effectiveness of IC but to document understanding

Which of the following would most likely be the result of ineffective internal control policies and procedures in the revenue cycle? A. Final authorization of credit memos by personnel in the sales department could permit an employee defalcation scheme. B. Fictitious transactions could be recorded, causing an understatement of revenues and an overstatement of receivables. C. Irregularities in recording transactions in the subsidiary accounts could result in a delay in goods shipped. D. Omission of shipping documents could go undetected, causing an understatement of inventory.

A - Employees could accept "kickbacks" from customers in exchange for authorizing credits against customer accounts.

In PCAOB AS Section 2110, "Identifying and Assessing Risks of Material Misstatement," the PCAOB states that the auditor should perform all of the following as risk assessment procedures except for A. Incorporating a degree of unpredictability in planned audit procedures. B. Obtaining an understanding of the company and its environment. C. Performing analytical procedures. D. Inquiring of the audit committee, management, and others within the company about the risks of material misstatement.

A - The auditor should incorporate a degree of unpredictability in planning audit procedures, but this is considered an "overall response" to the risks of material misstatement, not a "risk assessment procedure."

Regarding a nonissuer's compliance with laws and regulations, an auditor performing an audit of the entity's financial statements is responsible for A. Obtaining a general understanding of the legal and regulatory framework applicable to the entity and how the entity is complying with that framework. B. Preventing noncompliance with existing applicable laws and regulations that determine reported amounts and disclosures in the entity's financial statements. C. Determining whether an act performed by the entity being audited constitutes noncompliance with existing applicable laws and regulations. D. Ensuring that the entity's operations are conducted in accordance with the provisions of laws and regulations relevant to the entity's financial statements.

A - general understanding

Under GAAS, which of the following statements is correct concerning an auditor's required communication with an entity's audit committee? A. This communication should include disagreements with management about significant audit adjustments, whether satisfactorily resolved or unresolved. B. If matters are communicated orally, it is necessary to repeat the communication of recurring matters each year. C. If matters are communicated in writing, the report is required to be distributed to both the audit committee and management. D. This communication is required to occur before the auditor's report on the financial statements is issued.

A - resolution is irrelevant bc it's significant!

material weakness

A control deficiency such that there is a reasonable possibility that a material misstatement will not be prevented or detected on a timely basis

Transaction Cycle

A group of essentially homogeneous transactions

Tracing bills of lading to sales invoices provides evidence that A. Shipments to customers were invoiced. B. Shipments to customers were recorded as sales. C. Recorded sales were shipped. D. Invoiced sales were shipped.

A. Shipments to customers were invoiced. -note it's not B bc we only traced back to invoices

In evaluating the reasonableness of an entity's accounting estimates, an auditor normally would be concerned about assumptions that are A. Susceptible to bias. B. Consistent with prior periods. C. Insensitive to variations. D. Similar to industry guidelines.

A. Susceptible to bias.

A lawyer's response to an auditor's inquiry concerning litigation, claims, and assessments may be limited to matters that are considered individually or collectively material to the client's financial statements. Which parties should reach an understanding on the limits of materiality for this purpose? A. The auditor and the client's management. B. The client's audit committee and the lawyer. C. The client's management and the lawyer. D. The lawyer and the auditor.

A. The auditor and the client's management.

An auditor suspects that certain client employees are ordering merchandise for themselves over the Internet without recording the purchase or receipt of the merchandise. When vendors' invoices arrive, one of the employees approves the invoices for payment.After the invoices are paid, the employee destroys the invoices and the related vouchers. In gathering evidence regarding the fraud, the auditor would most likely select items for testing from the file of all A. Cash disbursements. B. Approved vouchers. C. Receiving reports. D. Vendors' invoices.

A. cash disbursements

understanding of internal control is part of A. permanent file B. current year files

A. permanent file

The work of internal auditors may affect the independent auditor's A. Procedures performed in obtaining an understanding of the internal control structure. B. Procedures performed in assessing the risk of material misstatement. C. Substantive procedures performed in gathering direct evidence.

All of the above

Disclosure of irregularities to parties other than a client's senior management and its audit committee or board of directors ordinarily is not part of an auditor's responsibility. However, to which of the following outside parties may a duty to disclose irregularities exist? A. To the SEC when the client reports an auditor change B. To a successor auditor when the successor makes appropriate inquiries C. To a government funding agency from which the client receives financial assistance

All of the above!

Auditor's specialist

An individual or organization possessing expertise in a field other than accounting or auditing, whose work in that field is used by the auditor to assist the auditor in obtaining sufficient appropriate audit evidence. (ex: valuation of financial instruments or environmental liabilities)

Management's specialist

An individual possessing expertise in a field other than accounting or auditing, whose work in that field is used by the entity to assist the entity in preparing the financial statements.

external confirmation

Audit evidence obtained as a direct written response from a third party

An auditor's decision either to apply analytical procedures as substantive tests or to perform tests of transactions and account balances usually is determined by the A. Availability of data aggregated at a high level. B. Relative effectiveness and efficiency of the tests. C. Timing of tests performed after the balance sheet date. D. Auditor's familiarity with industry trends.

B

An auditor's tests of controls for completeness for the revenue cycle usually include determining whether A. Each receivable is collected subsequent to the year-end. B. An invoice is prepared for each shipping document. C. Each invoice is supported by a customer purchase order. D. Each credit memo is properly approved.

B

An online sales order processing system would most likely have an advantage over a batch sales order processing system by A. Detecting errors in the data entry process more easily by the use of edit programs. B. Enabling shipment of customer orders to be initiated as soon as the orders are received. C. Recording more secure backup copies of the data base on magnetic tape files. D. Maintaining more accurate records of customer accounts and finished goods inventories.

B

During planning, an auditor of a nonissuer should communicate which of the following to those charged with governance at an entity? A. The auditor is responsible for preparing financial statements in conformity with the applicable financial reporting framework. B. The audit does not relieve management of its responsibilities for the financial statements. C. The auditor will express an opinion on the effectiveness of internal controls over compliance with laws and regulations. D. All audit findings will be communicated in writing to those charged with governance.

B

For all (non-trivial) factual misstatements identified by the auditor, the auditor should A. Request management to review their assumptions and methods used to develop a more appropriate accounting estimate. B. Communicate the matters to the appropriate level of management to request correction. C. Obtain an understanding of management's justification and modify the audit report to express an adverse opinion. D. Make the appropriate adjusting journal entries to correct the identified misstatements.

B

Which of the following components of internal control contributes most to a strong control environment? A. Controls are assessed through ongoing activities and evaluations. B. Management adheres to internal control policies. C. Duties are clearly defined and separated. D. Policy manuals provide a clear understanding of internal controls.

B

Which of the following is required documentation in an audit, in accordance with generally accepted auditing standards? A. A flowchart or narrative of the accounting system describing the recording and classification of transactions for financial reporting. B. An audit program setting forth in detail the procedures necessary to accomplish the engagement's objectives. C. A letter signed by the client acknowledging responsibility for preparing requested audit schedules by specific due dates. D. An internal control questionnaire identifying policies and procedures that assure specific objectives will be achieved.

B

Which of the following statements concerning audit evidence is correct? A. To be appropriate, audit evidence should be either persuasive or relevant, but need not be both. B. The measure of the validity of audit evidence lies in the auditor's judgment. C. The difficulty and expense of obtaining audit evidence concerning an account balance are a valid basis for omitting the test. D. A client's accounting data can be sufficient audit evidence to support the financial statements.

B

format of communication w/issuer's audit committee A. must be in writing B. May be written or oral (unless otherwise specified)

B

negative confirmation requests are best for A. large individual accounts B. many small, homogeneous items

B

the auditor's point estimate should include A. only the most likely outcome B. all reasonable outcomes C. all possible outcomes

B

While performing procedures in planning an audit, the auditor's comparison of expectations with recorded amounts yield unusual and unexpected relationships. The auditor should consider the results of the analytical procedures in which of the following? A. Determining planning materiality and acceptable error. B. Identifying the risks of material misstatement due to fraud. C. Identifying significant accounts D. Determining which controls to test.

B - A doesn't use analytical procedures -C is based on materiality and difficulty -D is based on what controls would be useful

An auditor has set the materiality level for the financial statements as a whole at $125,000. Which of the following misstatements would the auditor most likely consider material? A. The client did not record $47,000 in trade accounts payable at year end. B. The client did not disclose $45,000 of related party transactions in the footnotes. C. The client misclassified $42,000 of supplies expense as miscellaneous expense. D. The client's estimate of the allowance for doubtful accounts is $40,000 more than the auditor's estimate.

B - GAAP specifically requires disclosure of related parties and transactions with related parties

The safeguarding of inventory most likely includes A. Comparison of the information contained on the purchase requisitions, purchase orders, receiving reports, and vendors' invoices. B. Periodic reconciliation of detailed inventory records with the actual inventory on hand by taking a physical count. C. Analytical procedures for raw materials, goods in process, and finished goods that identify unusual transactions, theft, and obsolescence. D. Application of established overhead rates on the basis of direct labor hours or direct labor costs.

B -A is about authorization -C isn't strong enough alone -D isn't helpful

The objectives of the internal control structure for a production cycle are to provide assurance that transactions are properly executed and recorded, and that A. Production orders are prenumbered and signed by a supervisor. B. Custody of work in process and of finished goods is properly maintained. C. Independent internal verification of activity reports is established. D. Transfers to finished goods are documented by a completed production report and a quality control report.

B -Management's objectives in establishing and maintaining an internal control structure are to ensure that: 1) transactions are executed in accordance with management's general or specific authorization; 2) transactions are recorded as necessary to permit preparation of the financial statements in accordance with GAAP and to maintain accountability for assets; 3) access to assets is permitted only in accordance with management's authorization; and 4) the recorded accountability for assets is compared with the existing assets at reasonable intervals and differences are investigated and resolved. Ensuring that custody of work in process and of finished goods is properly maintained is an example of the third objective.

An auditor would be most likely to limit substantive audit tests of sales transactions when control risk is assessed as low for the existence or occurrence assertion concerning sales transactions and the auditor has already gathered evidence supporting A. Opening and closing inventory balances. B. Cash receipts and accounts receivable. C. Shipping and receiving activities. D. Cutoffs of sales and purchases.

B -inventory is more about purchases and cogs -receiving isn't related to sales -shipping proof isn't as strong as cash receipts -cutoff is about completeness

Which of the following statements is correct concerning analytical procedures used in planning an audit engagement? A. They often replace the tests of controls that are performed to assess control risk. B. They usually use financial and nonfinancial data aggregated at a high level. C. They usually involve the comparison of assertions developed by management to ratios calculated by an auditor. D. They are often used to develop an auditor's preliminary judgment about materiality.

B -note: A is not true bc analytical procedures are not appropriate for assessing control risk and don't replace tests of control -D is not true bc the planning analytical procedures are not the ones used in determining materiality

timing of communication w/issuer's audit committee A. must be by the date of the auditor's report B. must be prior to issuing the auditor's report C. must be made on a timely basis

B (note nonissuers/private would be C-timely)

Which of the following is not an audit procedure that the independent auditor would perform concerning litigation, claims, and assessments? A. Obtain assurance from management that it has disclosed all unasserted claims that the lawyer has advised are probable of assertion and must be disclosed. B. Confirm directly with the client's lawyer that all claims have been recorded in the financial statements. C. Inquire about and discuss with management the policies and procedures adopted for identifying, evaluating, and accounting for litigation, claims, and assessments. D. Obtain from management a description and evaluation of litigation, claims, and assessments existing at the balance sheet date.

B - All claims do not require recording and the attorney would not have knowledge of what had been recorded in the financial statements.

Which of the following internal control procedures would an entity be most likely to use to assist in satisfying the completeness assertion related to long-term investments? A. Senior management verifies that securities in the bank safe deposit box are registered in the entity's name. B. The internal auditor compares the securities in the bank safe deposit box with recorded investments. C. The treasurer vouches the acquisition of securities by comparing brokers' advice with canceled checks. D. The controller compares the current market prices of recorded investments with the brokers' advices on file.

B - An internal control satisfying the completeness assertion would compare the securities on hand with those recorded to ensure that all recorded securities held were actually held.

An auditor would be least likely to initiate a discussion with a client's audit committee concerning A. The methods used to account for significant unusual transactions. B. The maximum dollar amount of misstatements that could exist without causing the financial statements to be materially misstated. C. Indications of fraud and illegal acts committed by a corporate officer that were discovered by the auditor. D. Disagreements with management as to accounting principles that were resolved during the current year's audit.

B - Required communications with the audit committee include significant accounting policies, management judgments and accounting estimates, significant audit adjustments, auditor responsibility for other information in documents containing audited financial statements, disagreements with management, consultations with other accountants, and difficulties encountered in performing the audit.

Mailing disbursement checks and remittance advices should be controlled by the employee who A. Matches the receiving reports, purchase orders, and vendors' invoices. B. Signs the checks last. C. Prepares the daily voucher summary. D. Agrees the check register to the daily check summary.

B - The check signer should also be responsible for mailing disbursement checks and remittance advices as these are all custodial functions.

While testing a sample of an audit client's bank reconciliations during the year under audit, an auditor notices that several immaterial deposits in transit did not clear the bank in a timely manner. The auditor suspects there may be fraud. Which of the following audit responses is most appropriate in this situation? A. Because the findings are not material, the auditor should project the errors to the population and consider the materiality of the projected misstatement in the auditor's concluding procedures. B. The auditor should consider the implications for the integrity of management or employees and the possible effect on other aspects of the audit. C. The auditor should focus on material misstatements and not consider these immaterial findings or potential errors further. D. The auditor should report the finding to the appropriate level of management immediately.

B - consider implications (D is almost true, it needs to be reported but not immediately)

Key Co. plans to present comparative financial statements for the years ended December 31, 2005, and 2006, respectively. Smith, CPA, audited Key's financial statements for both years and plans to report on the comparative financial statements on May 1, 2007. Key's current management team was not present until January 1, 2006. What period of time should be covered by Key's management representation letter? A. January 1, 2005, through December 31, 2006. B. January 1, 2005, through May 1, 2007. C. January 1, 2006, through December 31, 2006. D. January 1, 2006, through May 1, 2007.

B - earliest date covered in statements up to report date

For certain controls, such as segregation of duties, documentary evidence may not exist.An auditor would most likely test the procedures by A. Reperformance and corroboration. B. Observation and inquiry. C. Inspection and vouching. D. Confirmation and recomputation.

B - it lacks documentation

Which of the following presumptions does NOT relate to the appropriateness of audit evidence? A. The more effective the internal control structure, the more assurance it provides about the accounting data and financial statements. B. An auditor's opinion, to be economically useful, is formed within reasonable time and based on evidence obtained at a reasonable cost. C. Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity. D. The independent auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly.

B - that's actually related to the sufficiency of evidence

In a properly designed internal control structure, the same employee would most likely match vendors' invoices with receiving reports and also A. Post the detailed accounts payable records. B. Recompute the calculations on vendors' invoices. C. Reconcile the accounts payable ledger. D. Cancel vendors' invoices after payment.

B - they have authorization, which means they shouldn't touch the records or be able to cancel invoices, but B is just another part of the authorization process

When the operating effectiveness of a control is not evidenced by written documentation, an auditor should obtain evidence about the control's effectiveness by A. Mailing confirmations. B. Inquiry and other procedures such as observation. C. Analytical procedures. D. Recalculating the balance in related accounts.

B. Inquiry and other procedures such as observation.

Sound internal control procedures dictate that defective merchandise returned by customers should be presented initially to the A. Accounts receivable supervisor. B. Receiving clerk. C. Shipping department supervisor. D. Sales clerk.

B. Receiving clerk.

When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the A. Unpaid voucher. B. Debit memo. C. Vendor invoice. D. Credit memo.

B. debit memo

as management discretion increases, predictability tends to _____ A. increase B. decrease

B. decrease

which is more predictable when identifying relationships? A. balance sheet B. income statement

B. income statement -- BS is only a snapshot so it can throw it off

An auditor observed that a client mails monthly statements to customers. Subsequently, the auditor reviewed evidence of follow-up on the errors reported by the customers. This test of controls most likely was performed to support management's financial statement assertion(s) of A. Presentation and disclosure B. Rights and obligations

B. rights and obligations

When assessing control risk at below the maximum level, an auditor is required to document the auditor's understanding of the A. Entity's control activities that help ensure management directives are carried out. B. Entity's control environment factors that help the auditor plan the engagement.

Both!

Which of the following matters is an auditor required to communicate to an entity's audit committee (or those charged with governance)? A. Disagreements with management about matters significant to the entity's financial statements that have been satisfactorily resolved. B. The auditor's views about qualitative aspects of the entity's significant accounting practices, including accounting policies, accounting estimates, and financial statement disclosures.

Both!

Which of the following matters is an auditor required to communicate to an entity's audit committee (or those charged with governance)? A. significant audit adjustments B. changes in significant accounting policies

Both!

Should an auditor communicate the following matters to an audit committee (or those charged with governance) of a public entity? A. Significant audit adjustments recorded by the entity B. Management's consultation with other accountants about significant accounting matters

Both!! it does include other accountants if it's significant

After obtaining an understanding of the internal control structure and assessing control risk of an entity, an auditor decided not to perform tests of controls. The auditor most likely decided that... A. The available evidential matter obtained through tests of controls would not support an increased level of control risk. B. A reduction in the assessed level of control risk is justified for certain financial statement assertions. C. It would be inefficient to perform tests of controls that would not result in a reduction in planned substantive tests. D. The assessed level of inherent risk exceeded the assessed level of control risk.

C

An auditor decides to perform substantive tests on a client's property and equipment balance as of an interim date. The auditor has not obtained evidence about the operating effectiveness of relevant controls. What additional work must be performed to extend the audit conclusions from the interim date to the balance sheet date? A. Tests of controls for the period between the beginning of the fiscal year and the interim date. B. Tests of controls for the period between the interim date and the balance sheet date. C. Substantive procedures for the period between the interim date and the balance sheet date. D. Analytical comparison of the current-year interim balance with the prior-year interim balance.

C

The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of the A. Factors that raise doubts about the auditability of the financial statements. B. Operating effectiveness of internal control policies and procedures. C. Risk that material misstatements exist in the financial statements. D. Possibility that the nature and extent of substantive tests may be reduced.

C

What is an auditor's primary method to corroborate information on litigation, claims, and assessments? A. Examining legal invoices sent by the client's attorney. B. Verifying attorney-client privilege through interviews. C. Reviewing the response from the client's lawyer to a letter of audit inquiry. D. Reviewing the written representation letter obtained from management.

C

When companies use information technology (IT) extensively, evidence may be available only in electronic form. What is an auditor's best course of action in such situations? A. Assess the control risk as high. B. Use audit software to perform analytical procedures. C. Use generalized audit software to extract evidence from client databases. D. Perform limited tests of controls over electronic data.

C

Which of the following is a management assertion regarding account balances at the period end? A. Transactions and events that have been recorded have occurred and pertain to the entity. B. Transactions and events have been recorded in the proper accounts. C. The entity holds or controls the rights to assets, and liabilities are obligations of the entity. D. Amounts and other data related to transactions and events have been recorded appropriately.

C

Which of the following tends to be most predictable for purposes of analytical procedures applied as substantive tests? A. Relationships involving balance sheet accounts B. Transactions subject to management discretion C. Relationships involving income statement accounts D. Data subject to audit testing in the prior year

C

which of the following is an analytical procedure that an auditor most likely would perform during the final review stage of an audit? A. comparing each indiv expense acct balance w/ the relevant budgeted amounts and investigating any significant variations B. testing the effectiveness of internal control procedures that appear to be suitably designed to prevent or detect material misstatements C. reading the FS and considering whether there's any unusual or unexpected balances that were not previously identified D. calculating each indiv expense acct balance as a % of total entity expenses and comparing the results w/ industry averages

C

The PCAOB identifies each of the following as a financial statement assertion to be addressed by the auditor except for A. Existence or occurrence. B. Completeness. C. Cutoff. D. Presentation and disclosure.

C -cutoff is a bit redundant if you're already covering existence and completeness

Which of the following statements ordinarily is correct concerning the content of audit documentation? A. Whenever possible, the auditor's staff, not the entity's employees, should prepare schedules and analyses. B. It is preferable to have negative figures indicated in red figures instead of parentheses to emphasize amounts being subtracted. C. It is appropriate to use calculator tapes with names or explanations on the tapes, rather than writing separate lists into the audit documentation. D. The analysis of asset accounts and their related expense or income accounts should not appear on the same working paper.

C -if work is clearly evident, the faster option is preferred

An auditor is not required to document A. Identified material misstatements that have been corrected by management. B. The basis for the auditor's determination of materiality levels used. C. Senior management's awareness of (and agreement with) the tolerable misstatement specified by the auditor for material elements of the financial statements. D. The auditor's conclusion as to whether any misstatements that management chose not to correct are, in fact, material.

C -in fact they should specifically not tell mngt this information

Which of the following procedures is considered a test of controls? A. An auditor reviews the entity's check register for unrecorded liabilities. B. An auditor evaluates whether a general journal entry was recorded at the proper amount. C. An auditor interviews and observes appropriate personnel to determine segregation of duties. D. An auditor reviews the audit documentation to ensure proper sign-off.

C - A and B are substantive procedures and D is just an administrative procedure

Which of the following types of audit evidence is the most persuasive? A. Prenumbered client purchase order forms. B. Client work sheets supporting cost allocations. C. Bank statements obtained from the client. D. Client representation letter.

C - Greater reliability (and thus, persuasiveness) is achieved from evidence obtained from sources outside the entity, even when that evidence is obtained from the client.

Which of the following internal control procedures would most likely deter lapping of collections from customers? A. Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash summaries. B. Authorization of write-offs of uncollectible accounts by a supervisor independent of credit approval. C. Segregation of duties between receiving cash and posting the accounts receivable ledger. D. Supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries.

C - Lapping is best prevented by separating custody from recording

When there are numerous property and equipment transactions during the year, an auditor who plans to assess control risk at a low level usually performs A. Tests of controls and extensive tests of property and equipment balances at the end of the year. B. Analytical procedures for current year property and equipment transactions. C. Tests of controls and limited tests of current year property and equipment transactions. D. Analytical procedures for property and equipment balances at the end of the year.

C - The assessment of control risk at a low level requires that the auditor provide the basis for reducing the assessment. The basis is provided by performing tests of controls and documenting the results which support a lowered control risk assessment. In turn, the low control risk assessment enables the auditor to reduce the amount of substantive testing in that area, thus limiting the testing of current year property and equipment transactions.

Sound internal control procedures dictate that, immediately upon receiving checks from customers by mail, a responsible employee should A. Add the checks to the daily cash summary. B. Verify that each check is supported by a prenumbered sales invoice. C. Prepare a duplicate listing of checks received. D. Record the checks in the cash receipts journal.

C - aka make a remittance

During the audit of a new client, the auditor determined that management had given illegal bribes to municipal officials during the year under audit and for several prior years. The auditor notified the client's board of directors, but the board decided to take no action because the amounts involved were immaterial to the financial statements. Under these circumstances, the auditor should A. Add an explanatory paragraph emphasizing that certain matters, while not affecting the unqualified opinion, require disclosure. B. Report the illegal bribes to the municipal official at least one level above those persons who received the bribes. C. Consider withdrawing from the audit engagement and disassociating from future relationships with the client. D. Issue an "except for" qualified opinion or an adverse opinion with a separate paragraph that explains the circumstances.

C - consider withdrawing

Equipment acquisitions that are misclassified as maintenance expense would most likely be detected by an internal control procedure that provides for A. Segregation of duties of employees in the accounts payable department. B. Independent verification of invoices for disbursements recorded as equipment acquisitions. C. Investigation of variances within a formal budgeting system. D. Authorization by the board of directors of significant equipment acquisitions.

C - equip is $$$ so it would cause a variance

Which of the following ratios would an engagement partner most likely consider in the overall review stage of an audit? A. Total liabilities/net sales. B. Accounts receivable/inventory. C. Cost of goods sold/average inventory. D. Current assets/quick assets.

C - inventory turnover," which is a traditional ratio that is useful in evaluating whether inventory might be slow-moving

PCAOB's auditing standards specifically identify each of the following terms as a category of "specialist" potentially relevant to an audit engagement, except for A. auditor-engaged specialist. B. company's specialist. C. auditor's specialist. D. auditor-employed specialist.

C - it is not one of the 3

An auditor who uses the work of a specialist may refer to the specialist in the auditor's report if the A. Auditor believes that the specialist's findings are reasonable in the circumstances. B. Specialist's findings support the related assertions in the financial statements. C. Auditor modifies the report because of the difference between the client's and the specialist's valuations of an asset. D. Specialist's findings provide the auditor with greater assurance of reliability about management's representations.

C - reference to the specialist may be made if it can help explain a modified opinion

Under PCAOB auditing standards, the auditor should communicate all of the following matters to an issuer's audit committee at the beginning of the audit engagement EXCEPT for A. Significant issues that the auditor discussed with management in connection with the auditor's appointment/retention. B. The terms of the engagement, including the objectives of the audit and the parties' respective responsibilities. C. The qualitative aspects of the entity's significant accounting policies, including any indications of management bias. D. An overview of the audit strategy and timing of the audit, along with any significant risks identified by the auditor.

C - that's more of an end of the audit thing

Which of the following statements in an attorney's legal letter requires further investigation? A. "We believe that the plaintiff's case against the company is without merit." B. "We are of the opinion that this action will not result in any liability to the company." C. "It is our opinion that the company will be able to assert meritorious defenses to this action." D. "It is our opinion that the possible liability to the company in this proceeding is nominal in amount."

C - the others mean the likelihood is remote but we should investigate what meritorious means

The primary source of information to be reported about litigation, claims, and assessments is the A. Client's lawyer. B. Court records. C. Client's management. D. Independent auditor.

C. Client's management.

An auditor would consider a cashier's job description to contain compatible duties if the cashier receives remittances from the mailroom and also prepares the A. Prelist of individual checks. B. Monthly bank reconciliation. C. Daily deposit slip. D. Remittance advices.

C. Daily deposit slip.

Control risk should be assessed in terms of A. Specific control procedures. B. Types of potential irregularities. C. Financial statement assertions. D. Control environment factors.

C. Financial statement assertions.

Which of the following internal control procedures would most likely prevent direct labor hours from being charged to manufacturing overhead? A. Periodic independent counts of work in process for comparison to recorded amounts. B. Comparison of daily journal entries with approved production orders. C. Use of time tickets to record actual labor worked on production orders. D. Reconciliation of work-in-process inventory with periodic cost budgets.

C. Use of time tickets to record actual labor worked on production orders.

which needs to be communicated in writing to management w/in 60 days after the report release date? A. significant deficiencies B. material weaknesses C. both D. neither

C. both

Which type of fraud involving senior management should be reported to those charged with governance? A. immaterial B. material C. both D. neither

C. both (b/c senior mngt is involved)

Which of the following would not be considered an analytical procedure? A. Converting dollar amounts of income statement account balances to percentages of net sales for comparison with industry averages B. Developing the current year's expected net sales based on the sales trend of similar entities within the same industry C. Projecting a deviation rate by comparing the results of a statistical sample with the actual population characteristics D. Estimating the current year's expected expenses based on the prior year's expenses and the current year's budget

C. this is a thing better done by test of controls

inventory turnover

COGS / avg inventory

After assessing control risk at below the maximum level, an auditor desires to seek a further reduction in the assessed level of control risk. At this time, the auditor would consider whether A. It would be efficient to obtain an understanding of the entity's accounting system. B. The entity's internal control structure policies and procedures have been placed in operation. C. The entity's internal control structure policies and procedures pertain to any financial statement assertions. D. Additional evidential matter sufficient to support a further reduction is likely to be available.

D

An auditor's primary consideration regarding an entity's internal control structure policies and procedures is whether they A. Prevent management override. B. Relate to the control environment. C. Reflect management's philosophy and operating style. D. Affect the financial statement assertions.

D

Assessing control risk at below the maximum level most likely awould involve A. Performing more extensive substantive tests with larger sample sizes than originally planned. B. Reducing inherent risk for most of the assertions relevant to significant account balances. C. Changing the timing of substantive tests by omitting interim-date testing and performing the tests at year end. D. Identifying specific internal control structure policies and procedures relevant to specific assertions.

D

If a nonissuer refuses to give permission to the auditor to communicate with its external legal counsel, then the auditor should modify which of the following? A. The audit plan B. The management representation letter C. The attorney's letter of inquiry D. The opinion in the auditor's report

D

The objective of tests of details of transactions performed as tests of controls is to A. Monitor the design and use of entity documents such as prenumbered shipping forms. B. Determine whether internal control structure policies and procedures have been placed in operation. C. Detect material misstatements in the account balances of the financial statements. D. Evaluate whether internal control structure procedures operated effectively.

D

Which of the following is the best way to compensate for the lack of adequate segregation of duties in a small organization? A. Disclosing lack of segregation of duties to the external auditors during the annual review. B. Replacing personnel every three or four years. C. Requiring accountants to pass a yearly background check. D. Allowing for greater management oversight of incompatible activities.

D

Which of the following procedures would an auditor most likely perform during an audit engagement's overall review stage in formulating an opinion on an entity's financial statements? A. Obtain assurance from the entity's attorney that all material litigation has been disclosed in the financial statements. B. Verify the clerical accuracy of the entity's proof of cash and its bank cutoff statement. C. Determine whether inadequate provisions for the safeguarding of assets have been corrected. D. Consider whether the results of audit procedures affect the assessment of the risk of material misstatement due to fraud.

D

Which of the following procedures would an auditor ordinarily perform first in evaluating management's accounting estimates for reasonableness? A. Develop independent expectations of management's estimates. B. Consider the appropriateness of the key factors or assumptions used in preparing the estimates. C. Test the calculations used by management in developing the estimates. D. Obtain an understanding of how management developed its estimates.

D

Which of the following statements about internal control structure is correct? A. A properly maintained internal control structure reasonably ensures that collusion among employees cannot occur. B. The establishment and maintenance of the internal control structure are important responsibilities of the internal auditor. C. An exceptionally strong internal control structure is enough for the auditor to eliminate substantive tests on a significant account balance. D. The cost-benefit relationship is a primary criterion that should be considered in designing an internal control structure.

D

Which of the following statements reflects an auditor's responsibility for detecting errors and irregularities? A. An auditor is responsible for detecting employee errors and simple fraud, but not for discovering irregularities involving employee collusion or management override. B. An auditor should plan the audit to detect errors and irregularities that are caused by departures from GAAP. C. An auditor is not responsible for detecting errors and irregularities unless the application of GAAS would result in such detection. D. An auditor should design the audit to provide reasonable assurance of detecting errors and irregularities that are material to the financial statements.

D

Which of the following ultimately determines the sufficiency and appropriateness of audit evidence to support the auditor's conclusions? A. Professional requirements. B. Professional standards. C. Professional experience. D. Professional judgment.

D

As part of obtaining an understanding of internal control, an auditor is NOT required to A. consider factors that affect the risk of material misstatement B. ascertain whether internal control policies and procedures have been placed in operation C. Identify the types of potential misstatements that can occur D. obtain knowledge about the operating effectiveness of internal controls

D -This is only for seeing if we want to rely on the internal controls which is not required every time

In assessing the competence and objectivity of an entity's internal auditor, an independent auditor would be least likely to consider information obtained from A. Discussions with management personnel. B. External quality reviews of the internal auditor's activities. C. Previous experience with the internal auditor. D. The results of analytical procedures.

D -analy procedures wouldn't provide evidence which would aid the independent auditor in assessing the competence and objectivity of the internal auditors, they just find unusual transactions

Using microcomputers in auditing may affect the methods used to review the work of staff assistants because A. The audit field work standards for supervision may differ. B. Documenting the supervisory review may require the assistance of consulting services personnel. C. Supervisory personnel may not have an understanding of the capabilities and limitations of microcomputers. D. Working paper documentation may not contain readily observable details of calculations.

D -the formulas are hidden in cells

Which of the following procedures would most likely NOT be an internal control procedure designed to reduce the risk of errors in the billing process? A. Comparing control totals for shipping documents with corresponding totals for sales invoices. B. Using computer programmed controls on the pricing and mathematical accuracy of sales invoices. C. Matching shipping documents with approved sales orders before invoice preparation. D. Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger.

D -you could make a mistake in the invoice and post that same mistake to the ledger and this wouldn't catch it

Which of the following audit techniques most likely would provide an auditor with the most assurance about the effectiveness of the operation of an internal control procedure? A. Confirmation with outside parties. B. Inquiry of client personnel. C. Recomputation of account balance amounts. D. Observation of client personnel.

D - A and C are substantive controls and D is stronger than B

Which of the following statements concerning evidential matter is correct? A. Competent evidence supporting management's assertions should be convincing rather than merely persuasive. B. An effective internal control structure contributes little to the reliability of the evidence created within the entity. C. The cost of obtaining evidence is not an important consideration to an auditor in deciding what evidence should be obtained. D. A client's accounting data cannot be considered sufficient audit evidence to support the financial statements.

D - The auditor must test the accounting data in order to develop persuasive evidence

The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the A. Evidence to be gathered to provide a sufficient basis for the auditor's opinion. B. Procedures to be undertaken to discover litigation, claims, and assessments. C. Pending legal matters to be included in the inquiry of the client's attorney. D. Timing of inventory observation procedures to be performed.

D - bc he auditor would need to be informed as to the timing of, and procedures related to, the physical inventory-taking by the client

Which of the following procedures would provide the most reliable audit evidence? A. Inquiries of the client's internal audit staff held in private. B. Inspection of prenumbered client purchase orders filed in the vouchers payable department. C. Analytical procedures performed by the auditor on the entity's trial balance. D. Inspection of bank statements obtained directly from the client's financial institution.

D - direct from 3rd party is muy strong

In testing controls over cash disbursements, an auditor would be most likely to determine that the person who signs checks also A. Reviews the monthly bank reconciliation. B. Returns the checks to accounts payable. C. Is denied access to the supporting documents. D. Is responsible for mailing the checks.

D - having the signer mail the checks eliminates the opportunity for the check preparer or others with conflicting duties to modify and/or divert the checks before mailing

Before applying principal substantive tests to an entity's accounts receivable at an interim date, an auditor should: A. Consider the likelihood of assessing the risk of incorrect rejection too low. B. Project sampling risk at the maximum for tests covering the remaining period. C. Ascertain that accounts receivable are immaterial to the financial statements. D. Assess the difficulty in controlling the incremental audit risk.

D - i.e., the risk that material misstatements will not be detected due to the early testing at interim.

Which of the following questions would an auditor most likely include on an internal control questionnaire for notes payable? A. Are assets that collateralize notes payable critically needed for the entity's continued existence? B. Are two or more authorized signatures required on checks that repay notes payable? C. Are the proceeds from notes payable used for the purchase of noncurrent assets? D. Are direct borrowings on notes payable authorized by the board of directors?

D - it's about authorization

Analytical procedures used in planning an audit should focus on identifying A. Material weaknesses in the internal control structure. B. The predictability of financial data from individual transactions. C. The various assertions that are embodied in the financial statements. D. Areas that may represent specific risks relevant to the audit.

D - it's about helping you understand the client

Which of the following auditor concerns most likely could be so serious that the auditor concludes that a financial statement audit cannot be performed? A. Management fails to modify prescribed internal controls for changes in information technology. B. Internal control activities requiring segregation of duties are rarely monitored by management. C. Management is dominated by one person who is also the majority stockholder. D.There is a substantial risk of intentional misapplication of accounting principles.

D - note that it says intentional

An auditor would most likely be concerned with internal control structure policies and procedures that provide reasonable assurance about the A. Efficiency of management's decision-making process. B. Appropriate prices the entity should charge for its products. C. Methods of assigning production tasks to employees. D. Entity's ability to process and summarize financial data.

D - remember it's all about those financial statements

Which of the following factors would most likely influence an auditor's determination of the auditability of an entity's financial statements? A. The complexity of the accounting system. B. The existence of related party transactions. C. The adequacy of the accounting records. D. The operating effectiveness of control procedures.

D - the lack of adequate accounting records is a scope limitation which could prevent the auditor from obtaining sufficient evidence to render an opinion.

Which of the following questions would most likely be included in an internal control questionnaire concerning the completeness assertion for purchases? A. Is an authorized purchase order required before the receiving department can accept a shipment or the vouchers payable department can record a voucher? B. Are purchase requisitions prenumbered and independently matched with vendor invoices? C. Is the unpaid voucher file periodically reconciled with inventory records by an employee who does not have access to purchase requisitions? D. Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for?

D - the standard control for completeness is controlling prenumbered forms

A primary objective of analytical procedures used in the final review stage of an audit is to A. Identify account balances that represent specific risks relevant to the audit. B. Gather evidence from tests of details to corroborate financial statement assertions. C. Detect fraud that may cause the financial statements to be misstated. D. Assist the auditor in evaluating the overall financial statement presentation.

D. -A is planning and B and C are middle testing

If an auditor of an issuer examines purchase orders obtained from the issuer to verify proper authorization of transactions, then the auditor is conducting A. A reperformance. B. A confirmation. C. An observation. D. An inspection.

D. An inspection.

In planning an audit of certain accounts, an auditor may conclude that specific procedures used to obtain an understanding of an entity's internal control structure need not be included because of the auditor's judgments about materiality and assessments of A. Control risk. B. Detection risk. C. Sampling risk. D. Inherent risk.

D. Inherent risk.

In evaluating an entity's accounting estimates, one of an auditor's main objective is to determine whether the estimates are A. Not subject to bias. B. Consistent with industry guidelines. C. Based on objective assumptions. D. Reasonable in the circumstances.

D. Reasonable in the circumstances.

Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments? A. Accounts receivable. B. Credit. C. Accounts payable. D. Treasurer.

D. Treasurer - The accounts receivable department maintains the accounts receivable records; the credit department approves credit for customers. Neither, therefore, is a good candidate for authorizing write-offs. Assigning the accounts payable department doesn't make sense. This leaves the treasurer

What assurance does the auditor provide that errors, irregularities (fraud), and direct effect illegal acts that are material to the financial statements will be detected? Errors, Irregularities, Direct effect illegal acts A. Limited, Negative, Limited B. Limited, Limited, Reasonable C. Limited, Limited, Reasonable D. Reasonable, Reasonable, Reasonable

D. all only reasonable

In a well-designed internal control structure, employees in the same department most likely would approve purchase orders, and also A. Reconcile the open invoice file. B. Inspect goods upon receipt. C. Authorize requisitions of goods. D. Negotiate terms with vendors.

D. negotiate

xml

Extensible Markup Language

vouchers payable system

Keeps track of individual transactions without summarizing amounts owed in total to individual vendors (unlike accounts payable system)

mdb

Microsoft Access Database

For which of the following judgments may an independent auditor share responsibility with an entity's internal auditor who is assessed to be both competent and objective? A. Materiality of misstatements B. Evaluation of accounting estimates

Neither!!! No judgment calls!

receivable turnover

Net Credit Sales/Average Net Receivables

which steps require use of analytical procedures

Planning, tests of revenue, and final review

acronym and meaning for internal controls

SCARE -Segregation of duties -Controls (physical) -Authorization -Reviews -EDP/IT

SQL

Structured Query Language

deficiency in operation

The control is designed well, but is not operating as designed (either from authority or competence lacking)

on what level should the auditor assess the risk of material misstatement due to fraud

both the financial statement level and the assertion level

control deficiency

a deficiency in the design or operation of controls that does not prevent or detect and correct misstatements on a timely basis

deficiency in design

a needed control is either missing or flawed

who approves invoices for payment

accounting department

who matches the remittance list to the bank deposit

accounts receivable

if client is using a going concern basis of accounting but that' not appropriate...

adverse opinion

debit memo

advises accounting that the vendor invoice should not be paid in full due to returned goods

what do you do if substantive procedures don't provide enough evidence

also perform tests of controls

Management's point estimate

amount selected by management for recognition as an accounting estimate

Auditor's point estimate or auditor's range

amount, or range of amounts, derived from audit evidence

who should account for returns

an independent clerk from shipping/receiving

evaluations of information through analysis of relationships among data

analytical procedures

subsequent event range

b/w date of FS and the date of the auditor's report

When an auditor assesses control risk below the maximum level, the auditor is required to document the auditor's A. Basis for concluding that control risk is below the maximum level B. Understanding of the entity's internal control structure elements

both

biggest concern for related party transactions

disclosure (substance over legal form)

who receives the actual money from checks to the company and prepares the bank deposit

cashier

.csv

comma separated values

true or false: auditors should also perform procedures to identify all noncompliance with the law done by the client

false, only those that may be material to the financial statements

true or false: you cannot add or delete any audit documentation after the documentation completion date

false, they can add with explanation but not delete

auditor objective regarding going concern

conclude if there's substantial doubt about their going concern (and make sure they use the going concern basis)

what kind of language is not allowed regarding going concern in the audit report

conditional language (ex: unless they do this there's substantial doubt...)

significant deficiency

control deficiency less severer than material weakness but important enough to merit attention

working capital

current assets - current liabilities

.db or .dbf

database files

Analytical procedures are particularly more effecting in detecting what, as compared with other procedures?

detecting omissions of transactions

what is the date of the auditor's report if there was an event between fieldwork but before the report and it is a disclosure

dual date or later date (if you want to be responsible for up to that period)

what is the date of the auditor's report if there was an event between fieldwork but before the report and it is an adjustment with an accompanying disclosure

dual date or later date (if you want to be responsible for up to that period)

ADAs may be used for A. risk assessments B. substantive purposes

either

management objective regarding going concern

evaluate if there's substantial doubt about going concern (and use going concern basis in accounting)

ETL

extract, transform, and load

true or false: inquiry alone can be sufficient to evaluate control

false

true or false: checks should be opened by someone who does accounting recordkeeping

false! They should NOT

when should an unasserted claim be disclosed?

if it's at least reasonably possible

.tip, .bmp, .png, .jpg

image files

if substantial doubt of going concern but using going concern accounting is appropriate...

include emphasis of matter paragraph

times interest earned

income before interest expense and income taxes/interest expense

what should you do if management won't sign their rep letter?

it's a scope limitation, so disclaim an opinion or withdrawal

Current cash to debt ratio

net cash from operations/ average current liabilities

Cash Debt Coverage Ratio

net cash provided by operating activities/average total liabilities

EPS

net income - preferred dividends / weighted average common shares outstanding

rate of return on assets

net income/average total assets

profit margin on sales ratio

net income/net sales

asset turnover

net sales/average total assets

a wholly substantive audit approach would mean how much reliance on internal control

none (it's at max level)

what do you do if you find fraud that is immatterial and not involving senior management

notify the appropriate level of mngt

if going concern disclosures are inadequate...

qualified/adverse opinion

if you can't get sufficient evidence for going concer...

qualified/disclaimer opinion

incremental audit risk

risk that material misstatements won't be detected due to early testing at an interim date

significant risk

risks the auditor believes requires special audit consideration

credit approval to customers should NOT granted by who bc they might get a commission

sales staff

date of management rep letter

same date as auditor's report (and so it covers up to that date)

what do you do when there's no response to a positive confirmation request

send another, then another, then alternative procedures

purchase requisition

sent to the purchasing dpt by whoever needs materials

when should the lawyer's letter be timed

so that it's dated as close to the date of the auditor's report as is practicable

When obtaining an understanding of an entity's internal control procedures, an auditor should concentrate on the ________ of the procedures, rather than their ______

substance, form

estimation uncertainty

susceptibility of an accounting estimate to an inherent lack of precision in its measurement

who should sign the management rep letter

the CEO and CFO (or who has responsibility for financial and operating matters)

where should important inquiries done during the audit be documented

the Management Representations Letter at the end of fieldwork

who is management rep letters addressed to

the auditor

Projected Misstatements

the auditor's best estimate of misstatements in populations, as suggested by sampling

While internal auditors can never be fully independent, a greater level of relative independence is obtained when they report to...

the board of directors or the audit committee.

the date of the auditor's report should not be earlier than...

the end of sufficient fieldwork

payroll cycle

time cards/salary --> paychecks --> journal --> ledger

who prepares, signs, and mails checks

treasurer

true or false: a nonresponse by the lawyer would likely lead to a disclaimer of opinion

true

true or false: audit team members are Required to have a brainstorming session to consider areas of possible fraud

true

true or false: auditors aren't responsible for authenticating an entity's documents for the audit

true

true or false: receiving department gets a copy of the Purchase Order

true

true or false: using a specialist does NOT reduce the auditor's responsibility for the final opinion

true

true or false: you cannot assess control risk so low that substantive testing is omitted entirely

true

true or false: auditors can use specialists related to the client

true, just evaluate if it will affect their judgement

true or false: the auditor should NOT ever issue a written communication about internal control deficiencies stating that no significant deficiencies were identified

true, we want to make sure they understand we weren't looking for deficiencies, but we could have stumbled upon some (but they can say no material weaknesses were identified)

mp4 or .avi

video files

following a transaction from inception through the entity's accounting system until the transaction is recorded in the entity's general ledger

walkthrough

what is the date of the auditor's report if there was an event between fieldwork but before the report and it is an adjustment

whenever they had sufficient fieldwork the second time