AUD Difficult Concepts/Questions Missed
ICFR reporting in the integrated audit report
"A company's IC over FR is a process designed to provide reasonable assurance regarding the reliability of FR and the preparation of financial statements for external purposes in accordance with GAAP" This is the required wording in the PCAOB integrated audit report
Sample size formula =
$ value population / Sampling interval
What would result in an unmodified opinion with an emphasis-of-matter paragraph?
*Only a justified change in accounting principle*
Recognized subsequent events
-Large AR balance written off in February due to bankruptcy
Comfort letters
-a review of interim Fin Info is required before issuance of a comfort letter -provide negative assurance regarding unaudited FS -addressed to the named underwriter -restricted as to use -negative assurance on unaudited fin info for the period from the last audit to the date of the registration of securities -does NOT include discussion of the limitations of an audit/auditor's responsibilities
Nonrecognized subsequent events
-company closed the purchase of a competitor in early January, and this event is considered significant
Procedures performed by IA can be used to (3)
1. help the external auditor understand IC 2. provide direct assistance to the external auditor by performing substantive tests 3. provide direct assistance to the external auditor by performing TOC
What should the auditor do with a change in depreciation method in regards to the audit report?
A change in depreciation method is a change in accounting estimate that is inseparable from a change in accounting principle
What kind of report would require restricted use language?
A report on a client's compliance with a regulatory requirement - assuming the report is prepared based on a FS audit of the complete FS. NOT NOT NOT -a report on a specified element where the element is prepared in accordance with tax basis -a report on examination of a Fin Forecast -report on FS prepared cash basis
Which of the following types of audit evidence is the least reliable? a. purchase order b. vendor's invoice c. bank statement obtained from the client d. canceled check
A. the PO is the least reliabl, as it is the only one on this list that is internal evidence Everything else is external evidence
It is probable that you will lose $350,000 due to a lawsuit, but insurance will definitely cover all of it. Do you accrue this loss in your FS? What about disclosures?
Accrue the whole $350,000 and provide a disclosure in the footnotes regarding the nature and amount of litigation The $350,000 should be accrued even though the amount will be covered by insurance. GAAP does not allow protential recovery amounts from insurance proceeds to be netted against amounts accrued for loss contingencies.
Information that materially affects the report and other persons' reliance on it is discovered (and confirmed by the auditor) What should the auditor do?
Advise the client to immediately disclose it and its impact on the FS. This could be done by -advise client to issue advised FS -advise client to make the necessary disclosures -provide notification that the auditor's report should not be relied upon if the effect on the FS CANNOT be determined timely
Where does the other matter paragraph go?
After the opinion and emphasis of matter
Major programs
All federal programs identified by the auditor through a risk-based process that will be audited as part of a single audit -auditor reports on compliance and on IC -subject to both general and specific compliance reqs -a program may be deemed to be major if the auditor has not met minimum audit guidelines in terms of the % of coverage of the audit
Reporting accountant
An accountant in public practice who prepares a written report on the application of accounting principles or on the type of opinion that may be rendered. -may NOT report on the application of accounting principles to a hypothetical transactions (a transaction not involving facts or circumstances of a specific entity
What best decribes the difference between an audit and a review of a nonpublic entity's annual FS?
An audit requires an understanding of IC, whereas a review does not.
You send an AR confirmation to the customer twice and it was returned by the post office with no forwarding address. What should you do?
Apply alternative procedures Verify by examining shipping documents (see if it was an actual AR) and subsequent cash collections (would show that this was in fact a valid AR at YE)
attribute sampling vs. variables sampling
Attribute sampling - primarily for IC testing for specific characteristics (errors) -often yes or no Variables sampling and PPS sampling - typically used in substantive testing of account balances -estimating the dollar value of the population
"Those charged with governance" =
BOD and Audit Committee
How to test the completeness of dividend income??
Choose a sample of companies in which the client owns stock, and review dividend records books (Moody's) to determine whether such companies declared dividends during the year under audit
Davis Compiled the FS for XYZ as of and for te YE Dec 31 Y7 that omitted substantially all disclosures req's by GAAP. Davis was asked again to compile for Y8, but to include all necessary disclosures this year. XYZ plans to prepare the Y8 FS in comparative form. What can Davis do?
Compiled FS that omit substantially all GAAP disclosures are NOT NOT NOT comparable to FS including them. The accountant should NOT issue a report in this situation.
Entities that _______ are required to receive an audit that complies with the provisions of the Single Audit Act
EXPEND more than $750,000 in federal financial assistance
Financial projections vs financial forecasts
Financial projections - "what if" FS -restricted use - could require further questions to understand Financial forecasts - the only reports appropriate for general use
Nonissuer - modified audit report What is the order of paragraphs?
Introductory Paragraph Basis for ____ Opinion Paragraph Opinon Paragraph Emphasis of Matter Paragraph Other Matter Paragraph
Dante, CPA, is auditing the FS of Crest Computing. PY Auditor is Kratzke & Kratzke. Crest Computing has decided to present comparative FS for the CY. Which statement is true about K&K's report?
K&K may reissue their support on the previous statements only after performing limited procedures to evaluate the continuing appropriateness of the report
When given details within the bank transfer schedule, what should you look for when identifying a misstatement of cash at the end of the year?
Look to see if the disbursement recorded in books and the deposit received in books have different years/periods If they are in different periods --> misstatement of cash.
Internal Control *Environment* Factors
Management's philosophy, and human resource policies
How to mandatory vacations affect fraud risk?
Mandatory vacations decrease the risk that the employees can hide and cover the fraud
In using the work of a specialist, an auditor of a NONissuer may refer to the specialist in the auditor's report if, as a result of the specialist's findings, the auditor
Modifies the opinion ONLY refer to the specialist's report if you modify the opinion
Does a justifieable change in accounting principle affect the unmodified opinion?
NO
Do compilations provide any level of assurance? Do reviews provide any level of assurance?
NO Reviews - limited, negative assurance
PCAOB - Explanatory paragraph - Supplementary Information
No paragraph needed unless -req'd info is omitted -material departures -auditor unable to complete procedures -unresolved doubts about conformance of req'd supplementary info
Do uncertainties and accounting changes require report modifications? Departures from GAAP require modification of the review report. Does inadequate disclosure require modification, why?
No, as long as disclosure is adequate Yes because inadequate disclosure IS a departure of GAAP in and of itself.
Inclusion of zero and negative balances PPS vs Classical Variables Sampling
PPS - requires special design considerations Classical Variables - nothing special
What documents should be sent to the AP department?
Purchase order, receiving report, vendor invoice NOT NOT NOT the sales order or signed check
Quince, CPA was asked to issue a review report on the BS of Henley Company, a NON-public company. Quince will not be reporting on Henley's IS, Statement of RE, or Statement of CFS. Can Henley issue the report? What are the restrictions?
Quince can issue the review report, as long as there are no restrictions on the scope of the review procedures 0 including inquiry and analytical procedures
Audit Report titles: nonissuer vs issuer
Report of Independent Auditor - NONissuer Report of Independent Registered Public Accounting Firm - Issuer
Which set of standards should a CPA firm apply in a review of MD&A?
SSAE - Statements on Standards for Attestation Engagements
What audit strategies should be applied to cash (lots of transactions) vs PPE (few transactions)?
Since there are many transactions affecting the cash account, it is more efficient to focus on the EB. Fixed Assets on the other hand, had only a few transactions, so it would make sense to simply audit the transactions that occurred, and then use them to adjust the beginning (audited) balance
OCBOA (Other Comprehensive Basis of Accounting) Financial Statements require
Special Purpose Frameworks Private companies do not necessarily have to comply with GAAP
Exception to the Contingent Fees rule
The AICPA allows *contingent fees* in tax matters that are based on the *results of judicial proceedings or the findings of gov't agencies (IRS)* But the CPA is NOT NOT NOT permitted to charge contingent fees for preparing an original or amended tax return or a tax refund.
In which situations should disagreements with MGMT and significant audit adjustments be communicated to those charged with governance?
The auditor should discuss with those charged with governance any significant disagreements with MGMT (whether or not satifactorily resolved) The auditor should also inform those charged with governance about significant adjustments arising from the audit, regardless of whether such adjustments were recorded by the client
What is the auditor's responsibility with respect to SASs?
The auditor should have sufficient knowledge of the sASs to identify relevant provisions, and should be prepared to justify any departures from such povisions. NO req to include SAS section and paragraph numbers
Why does the auditor sent letters of inquiry to the client's attorney? _____. Whose job is it to describe and evaluate litigation, claims, and assessments?
To corroborate information furnished by MGMT It is MGMT's job to describe and evaluate litigation, claims, and assessments. While the client's attorney should provide a professional opinion regarding such matters, the primary purpose of the attorney's letter is to corroborate MGMT representations.
Sampling Interval formula =
Tolerable misstatement / Reliability factor
Lapping
WIthholding current receipts of cash or checks and not recording them. The unrecorded receipts are covered by applying a subsequent receipt to the previously unrecorded account.
Effect of modifications to the Audit Report on the FS
When the auditor expresses a qualified opinion on the FS -- qualified opinion on the supplementary info When the auditor expresses adverse on the FS -- adverse opinion on the supplementary info
Do auditors need to inform that that their communicatation does NOT relieve MGMT of their responsibilities?
YES YES YES add this in the 1st paragraph
Can you issue a qualified opinion for an unjustified accounting change?
Yes
The payroll department, which computes and records payroll information, also prepares the paychecks. Is this proper segregation of duties?
Yes, this is ok. These functions are all part of recordkeeping. The paychecks do not constitute cash until they are signed. The treasurer signs and distributes paychecks, as well as holds any unclaimed checks, as these are custodial functions Approving timesheets is an authorization function, which should be separated from the custody of assets (the payroll checks)
Improper disclosure of a going concern situation is ______, thus ______
a GAAP violation, a qualified or adverse opinion should be issued
A change in accounting principle that is inseparable from a change in estimate should be accounted for as _________
a change in ESTIMATE
Confirmations ___ be based on single transactions rather than the entire balance
may
Subsequent event audit procedures that should be performed
-review of post balance transactions -review mgmt rep letter -make inquiries of mgmt regarding any unusual adjustments made in Jan or Feb -review of the minutes of a stockholders meeting that took place in Jan -Examine the latest interim FS
Under gov't auditing standards, when CR has been assessed at the max level for assertions related to computerized information systems that materially impact the FS, the auditor should documents
-the basis for assessing CR at the maximum -the planned audit procedures designed to reduce audit risk NOT MGMT's acknowledgment of the assessed risk
What are the six elements of Quality Control?
1. Human Resources 2. Engagement/client acceptance and continuance 3. Leadership responsibilities 4. Performance of the engagement 5. Monitoring 6. Ethical requirements
5 Conditions for reporting on supplementary information
1. Information was derived from or relates directly to the info used to prepare the FS 2. The info relates to the same period as the FS 3. The FS were audited and the auditor issued an auditor's report 4. Neither an adverse opinion nor a disclaimer of opinion was issued on the FS 5. The supplementary information will accompany the audited FS Also need to obtain an agreement of MGMT that it acknowledges and understands its responsibilities No responsibility for auditor to consider subsequent events with regard to supplementary info
SEC & GASB required procedures for supplementary information
1. Inquire of MGMT 2. Look for consistency with MGMT's responses 3. Obtain written MGMT representations
Positive Assurance is provided on the following reports (3)
1. a report on a specified account in a FS 2. A report on other comprehensive basis of accounting FS 3. A report on financial presentation to comply with contractual agreements or regulatory reqs
Any report issued on significant deficiencies noted during an audit should (3):
1. indicate that the purpose of the audit was to report on the FS and not provide assurance on IC 2. include the definition of significant deficiencies 3. include a restriction on the use of the report
In determining the sample size for a TOC, the auditor should consider:
1. rate of deviations 2. allowable risk of assessing CR too low 3. Tolerable deviation risk NOT NOT NOT Population size
NONISSUER - Other matter -Supplementary Information Components include:
1. req'd supplementary info is included/omitted and auditor has done the required procedures 2. if some of the req'd info is missing and some is in the prescribed guidelines 3. The auditor has identified material departures 4. Auditor not able to complete the req'd procedures 5. unresolved doubts about conformance of req'd Supplementary Info
To which outside parties may a duty to disclose irregularities exist?
1. to the SEC when the client reports an auditor change 2. to a successor auditor when the successor makes appropriate inquiries 3. to a gov't funding agency from which the client receives financial assistance
Audit evidence is obtained by the auditor when performing all of the following, EXCEPT when: a. Completing a risk assessment b. Reviewing the previous audit c. Performing substantive procedures d. Determining the sample size
4. Determining the sample size After the sample size is selected, THEN the auditor will gather audit evidence by performing substantive procedures, TOC, and other audit procedures
Kiting
A fraudulent cash scheme to overstate cash assets at year end by showing the same cash in two different bank accounts using an interbank transfer. Detect with a *bank transfer schedule*
Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments? a. Treasurer b. AP c. AR d. Credit
A. Treasurer AP is incorrect bc they are involved in expenditure cycle - not revenue cycle AR is incorrect bs its an improper segregation of duties Credit is correct - improper segregation - non-existent customers could have credit authorized and then have their accts written off
Which if the following procedures would an auditor be least likely to use in an effort to obtain evidence regarding subsequent events? a. investigating personnel changes which occurred after YE b. making inquiry of MGMT about unusual adjustments after YE c. Obtaining lists of litigation for review with the client's reviews d. reading minutes of BOD meetings and reading interim FS
A. investigating personnel changes which occurred after YE
A CPA belongs to a social tennis club that is an attest client as was required to acquire a pro rata share of the club's equity securities. Is this ok
Because the club membership is essentially a social matter, the equity or debt ownership would not be considered to be a direct financial interest. Thus, independence is not considered impaired.
Betches, CPA is auditing the FS of Megastar Multimedia and has discovered both a material inconsistency and a material misstatement of fact in Megastar's annual report. The MM of fact is unrelated to FS data. Betches believes both the FS and the audit report are correct. What should the auditor do first to respond to this situation.
Betches should request that the annual report be revised to eliminate BOTH the material inconsistency and the MM of fact. Betches may choose to add an other-matter paragraph to the audit report if MGMT refuses to take appropriate corrective action. Betches could also request that the audit report be removed.
An analysis of which of the following accounts would best aid in verifying that all fixed assets have been capitalized? a. cash b. property tax expense c. repairs and maintenance d. Depreciation expense
C. Repairs and maintenance This account is generally analyzed to test for completeness of asset additions. The auditor is looking for items recorded as repairs or maintenance that would more properly have been capitalized as a betterment of an asset an analysis of depreciation expense would NOT identify fixed assets that were not properly capitalized, since no depreciation would be included for items not already classified as assets
When MGMT does NOT provide reasonable justification that a change in accounting principle is preferable and it presents comparative FS, the auditor should express a qualified opinion __________
Each year that the FS INITIALLY reflecting the change are presented
Omission of the statement of CFs and refusal to disclose a significant related party transaction are examples of _____ but they do not ______
GAAP violations, constitute a limitation on the scope of the audit
Do review engagements have opinions?
NO NO NO If the auditor finds a problemo - withdraw!
Is IFRS another country's principles/other country framework?
NO NO NO it is considered to be generally accepted accounting principles
Do the registered firms need to provide a copy of the firm's QC policies and procedures to MGMT/audit committee?
NO, but they do need to provide a written statement regarding independence
Is the PCAOB a subsidiary of the SEC?
No, but it is subject to oversight of the SEC
Do AR confirmations provide reliable evidence about valuation?
No, just because a respondent confirms that they owe a certain amt, does not mean that they have the intent or the ability to pay it
On Jan 10 Y3, a primary customer declared bankruptcy. Thus, the client has to write off a material AR that had been included in the Y2 BS. A note was also added to the Y2 FS to discuss the impact of losing the customer. Audit report dated Jan 24 Y3 ----- Issued Feb 12 Y3. Do we need to do dual dating? Why or Why not? ___________
No. Since the change occurred prior to the ORIGINAL DATE of the report, there is no need for dual dating
An auditor notes that RE includes an amount appropriated in accordance with a loan covenant. Which procedures would the auditor use to audit RE? a. trace dividend declarations to appropriate authorization by MGMT b. Analyze the RE acct since the last audit c. Use a standard bank confirmation to confirm the amount appropriated
Only B This should be fairly easy to do, since there are not many direct entries to RE A is false because dividends should be approved by the BoD, not my MGMT C is false because appropriations represent restrictions on the amount that can be paid as dividends, not a segregation of actual cash funds, so the bank would be unable to confirm appropriation amounts
Which of the following entity-level controls is specifically identified in the professional standards as a control of importance that should be evaluated? a. Monitoring of controls b. Period end financial reporting controls c. Centralized processing controls d. Risk-management policies
Period-end financial reporting controls
Projected Error Formula
Recorded Amt - Audit Amt = Tainting percentage * Sample Interval = Projected Error If recorded amt > sample interval ----> forget about the tainting percentage* sample interval The actual difference is used as your projected error
All of the following would be associated with fraud risk in the revenue cycle, except for a. Materially understating the allowance for uncollectibles b. Failure to record sales (product) returns by customers on a timely basis c. Recording revenue on trial sales after the consignment period to the customer expires d. Holding the company's books open past the close of the accounting period
Recording revenue on a "trial sales" products issued on a consignment basis should only be done after the consignment period expires. Before the consignment period expires, the customer has the right to return the product to the company without any obligation. There is no fraud risk under Scenario C.
A control can be relied upon when (formula!): _________
Sample deviation rate + allowance for sampling risk <= Tolerable deviation rate
An auditor makes use of a specialist who has a contractual relationship with the client. Is this acceptable? ______
This is acceptable, but the auditor must consider the risk that the specialist's objectivity might be impaired, in which case the auditor may need to perform additional procedures NOT a violation of GAAS
imprest
a fund used by a business for small items of expenditure and restored to a fixed amount periodically
Assessment of fraud risk is not required, but obtaining a representation letter from MGMT is required in _________. Additionally, analytical review procedures are req'd, but communication with the predecessor is not
a review of annual FS
A report issued on significant deficiencies in IC noted during a FS audit of a non-issuer should NOT contain ____
a statement of compliance with laws and regulations However, it SHOULD contain -definition of material weakness -indication that the purpose of the audit was to report on the FS -a restriction on the use of the report
MGMT's written representation to the auditor in connection with a gov't audit would most likely include __________
a statement that MGMT has disclosed any communications from grantors concerning possible noncompliance Should include a statement that MGMT believes the entity has complied with all compliance reqs. This is + assurance. MGMT will assert that they have disclosed all known noncompliance or positively state that there was no such noncompliance. MGMT representations do not provide negative assurance.
A special report on FS prepared on the cash basis of accounting should include:
a statement that the audit was conducted in accordance with GAAS
A reduction in control risk, all else remaining the same, would lead to ______ in the allowed level of detection risk
an increase
The auditor's primary concern with related party transactions is that they _______.
are properly disclosed in accordance with GAAP related party transactions are generally assumed to NOT be arms length transactions bc it is impossible to tell exactly if the same transaction would occur under objective circumstances
The risk that the sample contains proportionately fewer errors/deviations than exist in the class as a whole is the risk of _________________________
assessing CR too low
MGMT philosophy and operating style most likely would have a significant influence on an entity's control environment when: a. Those charged with governance actively oversee the FR process b. MGMT is dominated by one individual c. Accurate MGMT job descriptions delineate specific duties d. The internal auditor reports directly to management
b. MGMT is dominated by one individual MGMT philosophy and op style encompass (1) approach to taking and monitoring business risks (2) attitutes and actions toward FR (3) attitutes toward info processing and accounting functions and personnel These characteristics are more likely to have a signif influence on the control environment when MGMT is dominated by one individual The IA function is part of the monitoring component of IC, NOT part of the control environment. If IA reports directly to MGMT, this would reduct objectivty and perhaps make the monitoring function less effective, but it would have minimal impact on the control environment
When performing analytical substantive procedures as the primary means to test a FS assertion, the auditor must document all of the following with the exception of which item? a. any additional procedures performed in response to significant unexplained variance b. A comparison of the results obtained from the CY audit to the PY audit c. The auditor's expectation d. Results of the comparison of the expectation to the client's recorded amounts
b. a comparison of the results obtained from the CY audit to the PY audit the focus of the documentation should be the CY audit The documentation should also include 1. the factors considered in the development of the expectation 2. The results of any audit procedures performed in connection with significant unexplained variance
Tracing is a method of testing for ______
completeness
The conflict of interest provisions of SOX Title II apply only to CEO, CFO, Controller, or Chief Accounting Officer, NOT to an internal auditor, thus the __________ period does NOT apply to an internal auditor
cool-off
GAAP requires that PPE be stated at _______ Adverse opinion is required when the auditor finds that ___
cost - depreciation serious GAAP problems (departures from GAAP) exist
Which of the following statements is ordinarily correct about the sample size in statistical sampling when testing controls? a. the expected population deviation rate has little effect on determining the sample size b. As the population size doubles, the sample size should also double c. As the tolerable deviation rate increases, the sample size should also increase d. the population size has little effect on the sample size
d. the population size does indeed have little effect on the sample size Population size is not an issue in determining a sample size, provided the population is reltively large (greater than 5K items) The expected population deviation rate will have a DIRECT impact on the sample size. Although the population size may have a direct relationship with the sample size, it generally willNOIT be in EXACT proportion. As the tolerable deviation rate increases, the sample size will decrease
A practitioner's report on agreed-upon procedures contains a ________ opinion on the subject matter. _______ assurance is provided in an agreed-upon procedures engagement.
disclaimer; no
Subsequent event: disposal of business segment, a strike, or stock issuances after YE could require _________
disclosure. NO FS adjustments
Reissuance of FS - subsequent events
do NOT recognize events between OG issue date and reissue date
Ordinarily, audit planning_______ require an understanding of the control activities related to each account balance, transaction class, and disclosure component in the FS or to every assertion relevant to them
does not
Subsequent events: GAAP requires FS adjustment for
events that occurred after YE, but before the FS were ISSUED
You pick a sample of invoices to determine if shipping docs were prepared. This tests the assertion of
existence
Under US GAAS, the group engagement partner makes reference in the audit report to the work of the component auditor when __________-
he/she is unable to review the component auditor's documentation This is because he/she is unable to be satisfied concerning the work performed by the component auditor if he/she is unable to review it Even if the component auditor has an excellent reputation, the group engagement partner must see the work to be able to assume responsibility for it
Blank confirmations provide ____, but the downside is that _____
improved reliability; response rates are lower
Acceptability of a Change in Accounting Principle If it is: 1. Newly adopted - in accordance with applicable FR framework 2. Method of accounting for the change is acceptable 3. the disclosures are appropriate and adequate 4 the entity has justified that the alternative accounting principle is preferable What should the auditor do? ____________
include an emphasis of matter (explanatory) paragraph
The implementation of controls to detect fraud ____ the auditor's responsibility.
is NOT it is MGMT's responsibility
While it is true that obtaining an understanding of IC is not required in a review of annual FS, confirmation of AR ____________
is an audit procedure that is NOT req'd in a review engagement *Note: obtaining an understanding of IC is req'd in a review of interim FS when the annual FS are audited.*
When an accountant determines that a change in the scope of an engagement from an audit to a review *is appropriate*, the accountant would ____________
issue a review report and would not refer to the original engagement, any procedures performed as part of the engagement, or any scope limitation
Assuming no other material misstatements are found, an independent auditor determines that supplementary information is not fairly stated relative to the basic FS taken as a whole. In this instance, the independent auditor should ________
issue an unmodified opinion and add an other-matter paragraph to describe the auditor's position on the supplementary information
integrated audits may be performed for non-issuers, but ______
it is not required
A company reclassifying its internal production facilities to held for sale would result in a decrease in net fixed assets because long lived assets classified as held for sale are presented separately from other assets. On the BS, _______
items held for sale are presented as their own line item.
It is important that the auditor __________ confirmations requests and responses
mail and receive
Overdue audit fees only impair independence if they are overdue by _______
more than one year
A report on compliance with contractual or regulatory requirements related to audited FS is provided with ________ assurance
negative
If the effect of a change in accounting principle is immaterial, ______
no revision to the audit report is necessary
If client refuses to proceed with disclosures for subsequent events, the auditor should ____
notify each member of the BoD of the refusal and the fact that the auditor will take additional steps to prevent further reliance on the auditor's report and the FS DAR them to fix it Disassociate Alert agencies Relying parties - notify
When an auditor has expressed an adverse opinion or disclaimer of opinion on the FS, the auditor shoould issue a report on compliance ___________
only when instances of noncompliance are identified. Negative assurance is NOT provided in this report
Special Reports = OCBOA reports, reports on specified elements, accounts, or items; and reports on special purpose financial presentations to comply with contractual agreements or regulatory provision These reports provide _____ assurance
positive
Failure to make the BOD minutes available is a scope limitation sufficient to _______
preclude an unmodified opinion
SSARS should be used for
preparation, compilation, or review of historical FS for nonissuers preparation, compilations, and reviews of unaudited FS engagements to prepare, compile review, specified elements, accounts or items of a nonissuers FS Also for preparation and compilations of pro forma and prospective financial information
The auditor reports on the financial statements "taken as a whole" which applies to all FS presented. Since the auditor's report is generally dated as of the completion of fieldwork for the most recent audit, it is implied that ________
previous reports (PY) would be updated update the previous opinion for any changes that have occurred
Subsequent event evaluation period Public companies vs Other entities
public companies: - through issue date other - through FS are available to be issued (correct form and format)
An unjustified change in accounting principle leads to a _____ opinion. A change in estimate leads to __________.
qualified or adverse a unmodified opinion, *no* emphasis-of-matter paragraph needed.
A written client representation letter should include representations that may affect ____________
recognition, measurement, and disclosure This inlcudes MGMT's plans to discontinue a line of business NOT -make an public offering of CS -terminate an employee pension plan -settle an outstanding lawsuit
An auditor usually determines whether dividend income from publicly held investments is reasonable by computing the amounts that should have been received by referring to ___________
records produced by investment services
Negative assurance is provided in ______
reports on compliance with aspects of contractual agreements or regulatory requirements related to audited FS
When a single item is changed in the FS after the OG date of the auditor's report, the auditor would likely ____________
return to examine this one event and then dual date his or her report
SSARS explicitly excludes
services involving preparing FS in conjunction with litigation services that involve regulatory proceedings Processing pmts and maintaining depr schedules are bookkeeping services that therefore do not need to comply with SSARS
In testing controls over cash disbursements, an auditor would most likely determine that the person who signs the check also ______
stamps, perforates, or otherwise cancels supporting documents. This prevents duplicate pmts of vendor invoices since cancellation occurs immediately after the check is signed. The person who signs the checks should have access to the supporting documents, as they must be cancelled after pmt.
One of the primary benefits of using generalized audit software is ______________
the ability to access client data stored in computer files without having a detailed understanding of the client's hardware and software features.
Registered firms must report to _______ the critical accounting policies and practices used. They also must report to ________ any _________ discussed with management
the audit committee, the audit committee, alternative accounting treatments
The auditor may assume that the controls are operating effectively at the service organization if ____________
the auditor at that service org provides a report on controls placed in operation and tests of operating effectiveness, and if this report supports a reduction in the assessed level of control risk.
What should the auditor do if they become aware of any information relating to subsequent events before the report release date? ____
the auditor should consider whether it is necessary to adjust the FS or related disclosures.
The likelihood of assessing control risk too high is the risk that the sample selected to test controls does NOT support _____
the auditor's planned assessed level of control risk when the true operating effectiveness of IC justifies such an assessment
PPS Sampling - Dollar unit sampling
the sampling unit is defined as an indivudla dollar in a population. Once a dollar is selected, the entire account containing that dollar is audited This is a hybrid method -automatically emphasizes larger items by stratifying the sample Zero balances require special design considerations Sampling interval = Tolerable mistatement/reliability factor Sample SIZE = Recorded amount of the population / Sampling interval
Segregation of duties generally refers to ________
the separation of authorization, recordkeeping, and custody
In planning the audit, the auditor should consider materiality for the FS as a whole in terms of _________
the smallest aggregate level of misstatement that could be material to ANY ONE of the FS, bc the FS are interrelated
Events occurring after the BS date may provide audit evidence regarding YE FV measurements, but the auditor is only responsible for evaluating such events if ______
they occur prior to the date of the auditor's report The auditor would not continue to review subsequent events once the audit has been completed
The auditor will normally not add an emphasis of matter paragraph for ______. An exception is if the uncertainty is "unusually important"
uncertainties that are appropriately accounted for (accrued or disclosed)
An uncertainty may result in (yes or no for each) a. An unmodified opinion b. A qualified opinion c. An adverse opinion d. A disclaimer of opinion
yes, yes, yes, yes. for a-d An uncertainty may result in an unmodified opinion if MGMT's analysis is supported and properly recorded or disclosed An uncertainty for which the auditor is unable to obtain sufficient audit evidence would result in either a qualified or a disclaimer of opinion If the FS are materially misstated due to improper accounting for the uncertainty, a qualified or adverse opinion would result
