AUD Master
(No/An) accountant's report ordinarily accompanies the financial statements
No
(No/an) additional paragraph is required when an auditor decides to not take responsiblity of the other auditor. They (should/shouldn't) make reference to the other auditor,
No, should
When finished with the balance sheet and income statement and moving on to the SCF, which financial statement element are the auditors' particularly concnerd with?
Notes payable because financing and investing activities such as notes payable require disclosure
List and define the 8 steps of attributes sampling (used for test of controls
ODP SS PED OD'P' is an SS agent on PED steriods determine the Objectives of the test define the Deviation conditions, define the Populatoin determine the method of Selecting the sample determine the sample Size Perform the sampling plan Evaluate the simple results Document the sampling procedure
__________ requires that a separate paragraph be used to describe limitations of the usefulness of a presentation on projected financial statements
AT 301
Further audit procedures1
Additional procedures that are performed on the basis of auditors risk assessment procedures such as detailed tests of trnasaactions and more tests of controls
A material weakness that exists at year-end may result in what type of audit opinion when conducting an audit of a public company's internal control
Adverse
Securities should be properly controlled ______________ in order to prevent unauthorized usage
physically
For a review of a nonissuer, an accountant (is/is not) required to modify the standard review report regarding both the Inability to assess the risk of material misstatement due to fraud; and the Discovery of significant deficiencies in the design of the entity's internal control
is not
An accountant (is/is not) required to obtain a written management representation letter for compilation. An accountant (is/is not) required to obtain a management representation letter for a review.
is not, is
General accounting (as opposed to an accounting group associated with a specific function) serves as the
last check on accounting records; it has no connection to assets or transactions.
Prior income statement accounts are (more/less) likely to have continuing significance than are balance sheet account
less
Prior income statement accounts are (more/less) likely to have continuing significance than are balance sheet accounts and contingencies.
less
a review report indicates that a review is substiantially _________ in scope than an audit
less
substantive testing can be _____________ by more reliance on internal control, which is vetted by a _____________ of ______________
lessened, test, controls
as internal control is relied upon to a _______extent, substantive tests are relied upon to a _______ extent.
lesser, greater
An agreed-upon procedures report includes a statement of ___________ on the use of the report because it is intended solely for the use of _________ parties.
limitatoins, specified
The individual who signs checks should also be responsible for _________ them
mailing
(Management, the auditors) supply the audit inquiry letter to legal counsel
management
The objective of a compliation is to present in the form of financial statements information that is the presentation of __________________ (owners) without undertaking to express any ______________ on the statements
management, assurance
The auditor tests the quantity of materials charged to work in process by tracing these quantities to
material requisitions
unless stated otherwise, representations may be limited to those that are considered
material to the financial statements.
auditor's quantitative measurement of materiality with respect to segment information should be (related to just the segments levels/the financial statemetns as a whole
materiality based on the financial statemetns as a whole
an attorney may appropriately limit his response to
matters to which he has given substantive attention in the form of legal consultation or representation
An additional party (may/may not) be added as a specified party after the completion of the engagement
may
Assistance (may,may not) be provided by internal auditors providing both tests of controls and substantive procedures.
may
the professional standards indicate that analytical procedures are most effective when they are applied to plausible and predictable relationships, often involving ___________ _____________accounts
income statement
Judgments about inherent and control risk always are made by an _______________ ____________, as well as judgmeents about the _______________ of mistatsements, the ______________ of tests performed, and the _______________ of significant accounting estimates
independent auidtor, materiality, sufficiency, valuation
Auditors generally do not _________ a discussion on materiality, although they do occasionally _________ to such questions
inititate, respond
the professional standards indicate that tests of controls involve [4]
inquiry (interviews), inspection, observation, and reperformance.
cost of goods sold/average inventory represents the turnover of inventory and provides information related to
inventory valuation
A subsidiary is an example of a component but not its definition...components can also be
inventory, accounts receivable,
The vouchers payable department will not in general have access to unused prenumbered purchase orders and receiving reports; instead, they will match the vendor's invoice with the related _________ __________ to verify that the item has been received.
receiving report
The employee opening the mail should not also perform the ________ function of recording the checks
recordkeeping
When financial statements of a prior period are presented on a comparative basis with financial statements of the current period, the continuing auditor is responsible for updating the report on the previous financial statements (only if a qualified opinion was issued/regardless of the opinion previously issued)
regardless of the opinion previously issued.
Confirmation with the bond trustee represents externally generated evidence received directly by the auditor. Such evidence is considered very ____________________
reliable
Standard 5 requires only more than a ____________ ____________ of material mistatkement
remote likelihood
The prior year's opinion will _________ ________________ if the current year's audit report is modified due to a lack of consistency
require revision
review of audit working papers (and its documentation) are (required/not required)
required
List and define the steps of variables sampling (used in substantive testing) that decrease sample size
risk--incorrect acceptance, risk--incorrect rejection, tolerable mistatement (error)
What kind of sampling would be used to estimate a numerical measurement of a population, such as a dollar value
sampling for variables
Two examples of analytical procedures
scanning numbers for reasonableness, calculating ratios
"One of the main functions that an independent auditor serves is to ensure that appropriate accounting principles are being applied in the creation of the financial statements. That role is mentioned in the ____________ paragraph."
scope
It is not appropriate for the ___________ of the audit to be detailed in the notes to the financail statements
scope
A service auditor's report includes a description of the _________ and ____________ of the CPA's procedures
scope, nature
An inability to obtain the audited financial statements of a consolidated investee represents a _________ limitatoin, which results in either a _________ ___________ or a ___________ of ___________________
scope, qualified opinion, disclaimer of opinion
A specified elements, accounts or items report should include the opinion on the element/account/item ______________ from the disclaimer of opinion on the financial statement
seperately
Regarding meeting the requirements of federal programs, the materiality threshold is determined (seperately, in conjucntion with the whole) vis a vis the entire finnaical statements.
seperately
A compilation report (should be/ may be) included with compiled financial statements
should be
Review reports originally engaged as audits (should/should not) provide a separate paragraph disclosing this fact
should not
Three responses to detect management override
Appropriateness of JEs and adjustments, reviewing accounting estimates for biases, evaluating rationale for significant unusual transactions
Banned contingent fees for audit members (4)
Audits/Reviews/Prospective Compiliations - Involving Third Parties Tax Returns, CPA major task (1) for audits or reviews, (2) for compiliations involving third parties (3) examinations of propsective financial information (4) tax returns
financial statement preparation (nor, and, unlike a) compilation require(s) independence.
nor
An auditor need not insist that the client ____ ______ the restricted use report
not duplicate
A lack of comparibility due to a divergence between application of GAAP (or other reasons) (may/may not) force a CPA to refuse to report.
May
When the prior year's financial statements are not being presented, the CPA (is still required to/need not) refer to them or include the predecessor audtior's report
need not
Four control definciencies that the AICPA considers automatic significant deficiencies
" Controls over the selection and application of accounting principles that are in conformity with generally accepted accounting principles Antifraud programs and controls Controls over nonroutine and nonsystematic transactions Controls over the period-end financial reporting process"
Four control definciencies that the AICPA considers automatic significant deficiencies
" Controls over the selection and application of accounting principles that are in conformity with generally accepted accounting principles xAntifraud programs and controls xControls over nonroutine and nonsystematic transactions xControls over the period-end financial reporting process"
8 Steps in the consideration of fraud
(1) Staff discussion (brainstorm) of risk, (2) Other information needed to identify fraud risk - inquiries, consider audit procedures results, (3) Identify material fraud risks by type, magnitude, likelihood (4) Assess identified risks after considering programs and controls, (5) Respond to results of the assessment by changing procedures (6) Evaluate audit evidence throughout audit,(7) Communicate findings, (8) Document 4 STAGES 1,2,3 - In conjunction with Audit Plan Isolating the risks through brainstorm, other procedures and finally identifying them 4,5 - In conjunction with evaluation of internal control Assess risks considering controls/projgrams, change procedures 6 - In conjunction with audit Constantly Evaluate 7,8 - Conclusion of the audit Communicate overall findings & document
If incorrect other information (besides the financials) in a document containing audited statements is discovered, and the client refusts to change it, what are the three possible responses from the auditor
(1) an other-matter paragraph being added to a report with an unmodified opinion, (2) withholding the auditor's report or (3) withdrawing from the engagement
An auditor is engaged to report on selected financial data that are included in a client-prepared document containing audited financial statements. Under these circumstances, the report on the selected data should
Be limited to data derived from the entity's audited financial statements.
4 auditor responisibilites for reporting errors, fraud, illeagal acts
Change it, tell the audit committee, weigh telling the authorities, report when called upon legally (1) Modify audit report for remaining departures from GAAP or scope limitations (2) Report to audit committee (3) Consider notification to other parties in gov't cases, (4) Report in other circumstances - to successor auditor, subpeona
When examining a client's statement of cash flows for audit evidence, an auditor will rely primarily upon
Cross-referencing to balances and transactions reviewed in connection with the examination of the other financial statements.
A compoliation report includes a summary of findings (T/F)
F - its against the nature of such a report, which is merely a compilation of given inputs
A member in public practice shall not for a comission recommend or refer to a client any product or service, nor receive a comission
FYI
An accountant who is not independent is not precluded from issuing a report on a compilation of financial statements
FYI
adverse opinions are only appropriate for audits, not reviews.
FYI
An emphasis-of-a-matter refers to something included in the financial statements. An other-matter refers to an issue that is not addressed in the financial statements.
FYI - Review
reviews, in contrast to audits of financial statements, are not made in accordance with _________but rather with
GAAS, AICPA SARS
In any audit, the AICPA's generally accepted auditing standards must be followed to the extent they are pertinent. In addition, the __________________________________________________ must also be adhered to.
General Accounting Office Standards for Audit of Governmental Organizations, Programs, Activities, and Functions
Descripe what the group auditor should do in cases where a component auditor's report is modified in any way
If the opi n ion of the component auditor is modified or the report includes an emphasis-of-matter or other-matter paragraph, the group aud itor should determine the effect on the aud itor's report on the group financial statements. When appropriate, the group aud itor should modify the opinion on the group financial statements, or include an emphasis-of-matter or other-matter paragraph in the aud itor's report.
When an auditor makes reference to the report of another auditor (an/no) additional paragraph is added to the report
no
When making a review of interim financial information the auditor's work consists primarily of
Making inquiries and performing analytical procedures concerning significant accounting matters.
Both disclaimers and adverse opinions are used:
Only when a condition is highly material.
Audit programs areas of emphais, i.e. financial statement attributes - PERCV
Presentation and Disclosure; Existence and Occurrence; Rights and obligations; Completeness and cutoff; Valuaton, allocation, and accuracy
Unless clearly immaterial, a change in accounting principle, including a change in accounting estimate inseparable from a change in accounting principle, will result in
an emphasis of a matter paragraph to alert readers of the statements
financial statements that follow such a special purpose financial reporting framework as cash basis result in an audit report with ___ ________ _________
an emphasis-of-matter paragraph.
While the audit is performed in accordiance with PCAOB standards, the financial statements follow __________________
US GAAP
___________ is the most likely product for attest engagements in which a CPA assesses a client's commercial Internet site for predefined crietria such as online privacy
WebTrust
In the event of an _________ opinion, the opinin paragraph should include a direct reference to a separate paragraph disclosing the basis for the opinion.\
adverse
When management has properly disclosed an instance of material noncompliance, an opinion should be either ____________ or ____________
adverse or qualified
Weak internal control will not in general result in an ____________ opinion, rather if extremely weak a __________ of opinion is more likely
adverse, disclaimer
Accepting a contingent fee is (allowable/not allowable) when representing a client in na examination by a state or income tax return board
allowable
Ongoing monitoring involves assessing the _________ and _________ of controls on a ___________ basis and taking necessary corrective actions
design, operation, timely
What is necessary to audit balances in an on-line EDP system in an environment of destructive updating
a well-documented audit trail
Statements on Standards for Attestation Engagements apply to many forms of subject matter, including:
a. Historical or prospective performance or condition (e.g., prospective financial statements) b. Physical characteristics (e.g., narrative descriptions, square footage of facilities) c. Historical events (e.g., price of goods at a certain date) d. Analyses (e.g., breakeven analyses) e. Systems and processes (e.g., internal control) f. Behavior (e.g., corporate governance, compliance with laws and regulations, human resource practices)
Statements on Standards for Attestation Engagements apply to many forms of subject matter, including:
a. Historical or prospective performance or condition (e.g., prospective financial statements) b. Physical characteristics (e.g., narrative descriptions, square footage of facilities) c. Historical events (e.g., price of goods at a certain date) d. Analyses (e.g., breakeven analyses) e. Systems and processes (e.g., internal control) f. Behavior (e.g., corporate governance, compliance with laws and regulations, human resource practices)
Reviews consist primarily of inquiry and analytical procedures and do not generally include confirmatoin of __________ ____________
accounts receivable
lead schedules serve to
accumulate similar or related information before it is transferred to the working trial balance
the testing of internal controls is only extended when there is a possibility of
achieving a low overall assessment of control risk. If internal control seems risky, there is no risk to continue doing more testing because no time can be saved. -
integrated test facility describes tests of controls through utilization of
actual or dummy transactions
Independence is not required in consulting services unless_______ services are performed
attest
Both significant _________ _________and management's ______________ with other accountants about significant accounting matters should be communicated to an audit committee.
audit adjustment, consultation
AU-C 920 indicates that the independent accountant is an expert in ______________ and _____________.
auditing and accounting
Only (management, auditor) signs the audit report
auditor
The hiring of personnell is an __________ fucntion while the distribution of checks is a _______________ function.
authorization, custody
A __________ ___________ system ensures that cash is honestly handled before it gets into the system - most other controls happen after it is already received at the company
bank lockbox
when there is a departure from US GAAP, the financial statements are not fairly presented and the extra paragraph is placed
before the opinion paragraph
AT 601 does not allow the CPA to perform a review over ____________
compliance
inadequate disclosure (does, does not) require report modification on an interim financial statement
does
An accountant's report on a review of pro forma financial information must include a reference to the financial statements from which the ________ _________ _________ is __________________ and a statement as to whether such _____________ ____________ were _____________ or ______________
historical financial information, derived, financial statements, audited, reviewed
Nonsamping risk is "_________" type error
human
Assurance Services Executive Committee was established to
identify, develop, and communicate new assurance opportunities to CPAs
no statement of inherent risk limitation is included
in a service auditor's report
A control deficiency that is more than a __________ deficiency is a ___________ weakness, which leads to an ________ opinion on internal control
signifianct, material, adverse
_
sufficinecy
Going concern issues alone do not affect an unmodified opinion. However, if the auditor concludes that ____________________________________, a qualified or adverse opinion should be issued.
the entity's disclosures regarding its ability to continue as a going concern are inadequate, misleading, or depart from U.S. GAAP
The effectiveness of specific application controls is often dependent on the existence of effective
general controls over all computer activities
"If only the report of the successor auditor is to appear with the comparative financial statements, several pieces of information about the previous report for Year One must be disclosed in the introductory paragraph. This information identifies..."
" the previous statements, gives the date of the previous report, indicates the type of opinion rendered, and if that opinion was not a standard unqualified opinion, the reason is explained."
Name and describe the 3 paragraphs changed to the audit report when another audit firm is utilized and referred to
"1 - The introductory paragraph indicates that principal auditors did not audit a portion of the consolidated statements and indicates the size of that portion by specifying the amount of assets and revenues audited by the other firm. 2 - The scope paragraph is changed to indicate that the principal auditor's audit and the report of the other auditors provided a reasonable basis for opinion. 3 - The opinion paragraph indicates that the opinion being rendered is based on the principal auditor's audit and the report of the other auditors.
When developing an expectation when performing analytical procedures, the auditor should attempt to identify plausible relationships. These expectations may be derived from
"1. The information itself in prior periods. 2 Anticipated results such as budgets and forecasts. 3 Relationships among elements of financial information within the period. 4 Industry information. 5 Relevant nonfinancial information"
Going concern minemonic
"ADMITS FINE...test with Analytical Procedures Debt/Loan Agreements review Minutes of Stockholder/Board Meeting Inquiry of legal counsel Third party confirmation of financial support Subsequent events review FINE - conditions that may indicate a problem Financial Difficulties Internal matters - labor difficulties Negative financial trends External matters - legal, legistlation"
Change in audit opinion mnemonic
"Date of previous report Opinoin issued Reason for prior opinion Changes that have occurred Statement of update"
AUDIT LETTER:
"Management is Responislbe for MR DIM: M anagement R reports D esign I mplementation M aintenance of Internal Control Auditors are responsible for REPPORTS CRAME R esponsible for E xpressin an opionion, in so doing Performing prodcedures to obtain audit evidence evaluating to Obtain Risks of material misstatement thereby they Test internal control and ultimately present financi Statements Controls: Reasonableness of Accounting estimates made by Managmenet Evaluation of statements as a whole"
Subsequent events review crieteria
"Post-balance sheet transactions review Representation letter from management obtained Inquiry Minutes of stockholder meeting reviewed Examining final interim statement"
With regard to interpretive publications regarding SAS's, an auditor should:
"a. Consider the g uidance provided by these publications i n performing an audit. b. Be able to explain any departures, and how compliance with standards was otherwise achieved."
"the predecessor auditor should read through these statements looking for...
"any inconsistencies with their final audit year figures that might indicate the original opinion needs to be changed."
When an audit opinion is qualified for any reason, the explanatory paragraph is placed
"between the scope paragraph and the opinion paragraph."
"Changes in the number of accounts written off as uncollectible can mean that the amount of bad debts has ____________________________ or that the company ___________________________. These procedures help the auditor to ensure that the amount of bad accounts has been properly taken care of in the reporting of accounts receivable."
"changed from past years, has failed to write off accounts that it expects to be uncollectible"
"If the departure from US GAAP can be _______, the auditor should issue an ___________ opinion. "
"justified, unqualified. (The auditor may choose to add an explanatory paragraph after the opinion paragraph to provide information about the issue and the auditor's decision.)"
The final sentence in the scope paragraph explains that
"the auditor believes that the audit has provided a reasonable basis for the opinion that is being rendered."
Regarding using the work of another firm, the principal auditor must ______________________________________________ and ______________________________
"verify professional reputatoin of other auditor, Verify the independence of other auditor from audit client"
3 auditor responsiblities for detecting errors, fraud, direct effect illeagal acts
(1) Assess risk of mistatement, (2) Based on assessment, design audit to provide reasonable assurance of detection of material misstastments, (3) Excercise due care in planning, performing, and evaluating results of audit procecdures, and proper degree of professional skepticism to achieve reasonable assurance of detection
5 Ways Covered Members' Independence can be impaired - applies to members immediate family except in special circumstances
(1) Financial interest in client, (2) Estate execturoship has financial interest in client, (3) Loan to or from client, director or >10% sharholder, (4) Immediate family or joint group acting together own 5% or more, (5) management-level employment, trustee 1/2/4 They or their estate, their family, or a group of theirs own it 3/5 Other Relationship They have a loan or are a trustee/amanager
An other matter paragraph should be added to the successor's report and it should indicate what 4 elements
(1) Financial statements of prior period were audited by another auditor, (2) date of predecessors report, (3) type of report issued by predecessor, (4) substantive reaons for any modified reports
Name the two possible circumstances justifying departure from the GASB
(1) New legislation, (2) New form of business transaction
3 Abilities/Roles that are Key positions (Audited Entity)
(1) Primary responsiblity for significant accounting fucntions that support material components of financial statemtns, (2) primary responsiblity for preparation of financial statements, (3) Ability to influence financial statements
A covered member can be which 5 people/entities
1/2/3 Direct working relationship 4/5 Executive (1) On attest engagement team (2) in position to influence attest engagement (3) 10+ hours per year nonattest services (4) Partner in the attest office (5) the firm
3 Areas in segregation of duties
Authorization, recordkeeping, custodianship
"An emphasis-of-matter paragraph is required in the following circumstances: (4 of them)"
DJSS Doubt about going concern Justified, material change in accounting principal must ....be disclosed Subsequently discovered facts approved the audit financial Statements are prepared in a special purpose ......framework
An auditor applies analytical procedures near the completion of the audit, when completion appears close, in order to
Determine whether additional audit evidence may be needed or if the audit is now complete
An integrated test facility is a method of testing programmed controls by creating a small subsystem within the regular EDP system. ____________________________ are introduced into a system together with actual transactions.
Dummy files and records are appended to existing client files and fictitious test transactions, specifically coded to correspond with the dummy files and records,
A computer-assisted audit technique effective in a continuous auditing environment
Embedded audit modules
the issuance of payroll checks for individuals who either never did work for the firm or who did work for the firm and have resigned may be detected by
having the paymaster deliver unclaimed payroll checks to another department, i.e. internal audit
the specialist's findings are only referred to when they
differ from management's representations.
Indicators of material weaknesses in audit of internal control
Internal Control are FRMR employees if they can't get their shit right. (1) identification of Fraud, regardless of materiality (2) Restatement of previously issued financial statements (3) identification by auditor of Material misstatement that internal control wouldn't have caught (4) ineffective oversight of external Reporting by internal control
Professional judgment is necessary regarding which major cateogires
MA NEED Materiality Audit risk Nature, extent and timing of audit procedures Evidence - Evaluating whether sufficient, appropriate, ......evidence has been obtained Evaluating management's judgments in applying the applicable financial reporting framework Drawing conclusions based on the audit evidence obtained
A review of the entity's descriptionss of inventory policies and procedures will help the auditor to obtain the necessary understanding about the design of relevant policies, procedures, and reports and wehterh they have been properly _______ by the entity
implemented
Each page of a financial statement preparation engagement should disclaim
No assurance is provided on these financial statement
Service auditors may issue either of two types of reports: whether controls have been ___________, and whether they properly control operating effectiveness
implemented
operational audits attempt to _______ ________ and ________ _________ through the introduction of controls.
improve operations, reduce waste
"Statements on Quality Control Standards (SQCS) are issued by the Auditing Standards Board to provideg uidance with respect to qual ity contro l . The SQCS are outl ined in Section _______ of the AICPAProfessional Standards."
QC
The three types of audit opinions
Qualified - except for qualification, adverse - not fairly presented, disclaimer - not sufficient evidence
Variables = (Quantities/Error Rate), Attributes = (Quantities, Error Rate)
Quantities, Error Rate
Three conditions present when individuals commit fraud
incentive/pressure, opportunity, attitude/rationalization
"When the auditor does not concur with a change in methods, it is viewed as a departure from US GAAP. (T/F)"
T
An agreed upon procedures report includes a summary of findings (T/F)
T
T/F Often it will not be possible to get replies from all accounts to which confirmations are sent, and this is ok
T
The GAS yellow book requires a separate report on internal control (T/F)
T
Under certain conditions an accountant is required to update the review report on interim financial information (T/F)
T - The accountant can be required to update under certain conditions
T/F Having a large number of bonds or t-bills or stock certificates on hand represents a high risk of mistatement arising from misappropriations of assets
TRUE
When a contingency is resolved immediately subsequent to the issuance of a report which was qualified with respect to the contingency, the auditor should
Take no action regarding the event
the inquiries included in a review ordinarily (include, do not include) those on actions taken at board of directors meetings.
include
Stratified sampling is a technique of breaking the population down into subpopulatons and applying _______________________________________________
different sample selections to different subpopulations
"When the auditor wants to draw the reader's attention to information without qualifying the opinion in any way, the explanatory paragraph is placed "
directly following the opinion paragraph.
If, after discussions with management, an accountant who has prepared financial statements knows that the financial statements include a material departure from GAAP that management will not allow correction of, the accountant should
disclose the material misstatement on the face of the financial statements or in a note to the financial statements
A review report (does/does not) provide limited assurance that the financial statements are failry presented
does not
inconsistent accounting principle application )does, does not) require report modification on an interim financial statement
does not
The specified party in an agreed upon procedures report (does/does not) take respnosiblity for the procedures performed
does not - the auditor must take such responsiblitiy
parallel simulation and controlled reprocessing are likely to be more effective in an environment that (involves, does not involve) continuous auditing
does not involve
Including a list of items or invoices that constitute the account balance makes it ________for the potential respondent to reply
easier
Incompatible duties may generally be divided among indiviudals in such a manner as to ensure _____ _______ _______
effective internal control
When the accountant is preparing a standard compliation report on prospective financial statements, AT 301 requires that the accountant ___________________________________________________
include a statement that the prospective results may not be achieved
Detection risk relates to the ____________ of the auditors procedures; inherent risk relates to the likelihoood of __________ _____________, and control risk relates to the likelihood that a material mistatement will not be __________ or _________ on a timely basis by internal control.
effectiveness, material mistatement, prevented, detected
Colloquial description of the consistency reporting goal
ensure that changes in accounting principals haven't made it so that you can't accurately compare financial statements, and require appropriate reporting if they have done so
Give the phrase that must be used in the case of a qualified opinion due to inadequate discloser on the part of the audited entity
except for the omission of the information discussed in the opinion paragraph
List and define the elements of variables sampling (used in substantive testing) that increase sample size with an increased allowance, i.e. a positive relationship
expected misstatement(error), population, variation (standard deviation)
The attestation standards explicitly exclude ________ _________ _________, but include the ___________ of a ___________ __________; note that in most areas compliations are not included in attestation standard coverage, but in the area of prospective finnacial statement (forecasts as well as projections) coverage is included.
expert witness work, compliatoin, financial projection
AUC-915 indicates that the report must include a statement that any difference in __________, __________, and _________ presented may change the report, as well as various other disclosures
facts, circumstances, assumptions
the bond trust indenture will generally include loan information which will affert both _________ _______ _________ and __________ _______
financial statement presentation, accompanying disclosures.
the attestation professional standards indicate that while financial (projections/forecasts) are appropriate for general use, financial (projections/forecasts) [which include a hypothetical assumption, often on a proposed transaction] are limited-use documents.
forecasts, projections
In a comfort letter auditors provide an opinion as to whether the audited financial statements comply in _______ with the accounting requirements of the SEC.
form
"FYI review - In a test of controls, the auditor wants to know how a system is designed AND anticipate potential problems that may take place."
fyi
A scope limitation will affect the year's ___________ _____________ and thereby affect the current year's results of operations and cash flows.
beginning balances
Use of __________ sampling, which picks a consecutive block of transactions, is easy but the least desirable of all techniques
block
Companies frequently require that direct borrowings on notes payable be authorized by the _________ _____ ______________
board of directiors
If the analyst is not independent, the CPA firm (can/cannot) make use of the information provided by the specialist
can - but should consider carefully
The individual who controls the signing of checks should __________ the invoices after payment
cancel
When an auditor has previously expressed a qualified or an adverse opinion on financial statements of a prior period and those financial statements have been restated, the auditor's updated report is (changed/unchanged)
changed
The supporting documentation should be canceled by the ___________________ and not the ___________________.
check signer (usually the treasurer), check signer (usually the treasurer)
A lack of indepdendent ___________ is a risk factor that relates to misstatements arising from misappropriation of assets
checks
If an engagement is terminated prior to completion, the member is required to return only
client records
How might an auditor detect unrecorded payables
comparing payments made after the balance sheet date with the accounts payable trial balance may reveal year-end payables that were not properly recorded as of year-end.
If a sprecified element is, or is based upon, an entity's net income or stockholders' equity, the CPA should have audited the ____________ ___________ ____________ in order to express an opinion on the element.
complete financial statements
All material weaknesses are _________ ________, but not all [same answer] are material weaknessess
control deficincies
the audit committee, integrity and ethical values, and organization structure are all included in the _____ _________
control environment
Projections are meant for "limited use" and not to be boradly distributed to groups such as _____________ __________________
current stockholders or all employees
The payroll accounting department has a recording responsibility and as such it should not have
custody of unclaimed payroll checks (custody of an asset)
an improper cutoff of sales at the end of the year that overstates year-end sales and receivables will ______________ the A/R turnover ratio since that ratio is ordinarily far greater than 1. That is, increasing the numerator and denominator of a ratio that is greater than one by the same amount will _____________ the ratio (e.g., 3/2 = 1.5 ? 4/3 = 1.3)
decrease, decrease
Walk-throughs are effective procedures for evaluating both the __________ ________ of controls and wether those controls have been ___________ in ____________.
design effecitveness, placed, operation
When an account's projected amount exceeds the sampling interval, the projected error equals the _________________
mistatement
Communications to governing bodies must include significant ______________ discovered, even if corrected by management
mistatements
A material weakness is dertermined by wehtehr there is a ________________________________________ likelihood of material loss occurring due to the control deficiency; the actual loss identified need not be ___________.
more than a remote, material
a compilation report (must, must not) indicate any material departure from generally accepted accounting principles.
must
When an auditor hires a specialist to corroborate and they are reasonably close, (no, a) report modification is needed
no
When an extra paragraph is added at the end of the audit report to emphasize a matter of importance, (a/no) related change is made in the wording of any of the other three paragraphs
no
By their nature, accounts payable may be understated due to ______________.
nonrecording
A disclaimer should be provided on ___________ __________ since the CPA is only expressing an opinion on whether controls have been implemented
operating effectiveness
When management does not provide appropriate justification for a change in accounting principle a (disclaimer of opinion/other) is appropriate
other
A ___________ control prevents errors or fraud from occuring
preventive
An agreed-upon procedures report provides a summary of _______ ___________ and ______________, not limited assurance
procedures performed, findnings
The General Accounting Office's 'yellow book' suggests that in addition to finnacial statements, an audit may include consideratoin of (1) ___________ ______________, (2) ___________ with _____________ and ______________, and (3) ______________ and __________________
program results, compliance, laws, regulations, economy, efficiency
An auditor will observe the entity's personnell applying internal control procedures to determine whether controls have been ______ __________
properly implemented
A sample of canceled checks should be selected and compared with the approved vouchers, a prenumbered ____________ _________ and prenbumbered __________________ ____________. A canceled check that does not have such support may have been unauthorized.
purchase order, receiving report
Purchasing agent has authority to _____, not authority __________________
purchase, to initiate purchases
When management refuses to make essential written representations, the auditor may issue a ______________ opinion or ____________.
qualified opinion or disclaimer; adverse can't be because you don't have any representation to express and adverse opinion over
AU-C 806 states that under circumstances of noncompliance with a material effect on the program via the Single Audit act, an auditor should express a ____________________ opinion (s)
qualified or adverse
AU-C 806 states that under circumstances of noncompliance with a material effect on the program via the Single Audit act, an auditor should express a ________or ___________opinion (s)
qualified or adverse
Departures from GAAP result in either a ___________ or _______ opinon
qualified, adverse
Omissions of required information leads to either a _________ or _________ opinion depending on the severity
qualified, adverse
When the client's financial statements materially depart from GAAP either a _____ or ________ opinion is appropriate depending on the ___________ ______ _______ ________________
qualified, adverse, magnitude of the mistatement
PCAOB Standard 5 indicates that either a __________ opinion or _____________ opinion is appropriate when a circumstance-caused scope limitation results in inability to evaluate internal control for a significant account involved in the audit
qualified, disclaimer
Scope limitations result in either a __________ or ______________ opinion depending on severity
qualified, disclaimer
A scopre limitation may reuqire the auditor to either ________ or __________ the opinion
qualify, disclaim
SSARS indicate that a predecessor should perform which three tasks before beginning the audit:
read the statements, compare them with those previously issued and those of the current period, and obtain a letter from the successor relating to the statements.
control is best established by having all merchandise enter the system through
receiving
"When t h e auditor expresses an adverse opinion or a disclaimer o f opinion on t h e financial statements as a whole, the auditor's report (should/ should not) also include an unmodified opinion on a single financial statement or one or more specific elements, accounts, or items of a financial statement."
should not - Issuing such an unmodified opinion in these circumstances would contradict the adverse opinion or the disclaimer of opinion on the financial statements as a whole.
______ ________ need to be communicated to those charged with governance over the audited entity
significant adjustments
An auditor's standard report includes assessing ____________ ____________ made by management
significant estimates
REQUIRED ELEMENT OF SCOPE PARAGRAPH: An audit includes assessing ________ _________ ________ ___ _________
significant estimates made by management.
An integrated test facility is a method of testing the effectiveness of programmed controls by creating a ________ _________ within the regular ______ system
small subsystem, EDP
The preparation of a duplicate listing of checks received provides the company with a ______ ________ of all checks received that day
source document
Failure to include the ____________ _____ ____________ ______ results in a _________ opinion
statement of cash flows, qualified
AT 101 indicates that an unmodified report may ordinarily refer to that assertion or to the _________________________________________________
subject matter to which the assertion relates
Confirmation of balances of accounts receivable will provide a test of ending account balance and is therefore a detail test of a balance, a type of
substantive test.
Tests of controls are required only when ___________ _________ alone are not sufficient to audit particular assertions
substantive tests
The Foreign Corrput practices Act makes payment of bribes to foreign officials illeagal and requires publicly hled companies to maintain systems of internal control _________________ to provide __________ _____________ that internal control objectives are met
sufficient, reasonable assurances
A __________ control supplements a basic underlying control
supplemental
flowchart prepared during the consideration of internal control is a _______________ _____________ of a system of sequential processes
symbolic representation
Inspection of documents is a form of a _________ of _________, and such ________ are used to obtain __________ __________ that controls are in use and operating effectively
test, controls, tests, reasonable assurance
projecting a deviation rate is part of a ________ of _______rather than an ________ ____________
test,controls, analytical procedure
Examining approval of cash disbursements and comparing signatures on checks with authorized signers are examples of
tests of controls
the auditors, not the client must maintain control over the mailing of the confirmations so as to assure
that the confirmations are actually mailed to the financial institution.
The risk of incorrect rejection is the risk that the sample supports the conclusion that the recorded account balance is materially mistated when ________________________________
the account is not misstated
when an auditor becomes aware of information which relates to financial statements previously reported on by him/her and which existed at the date of the report, but which was not known to the auditor at the date of the report, inquiries are required if
the additional information is of such a nature and from such a source that s/he would have investigated it had it come to his/her attention during the examination
Government Auditing Standards require that when a governing body fails to make a required report on acts the auditors should communicate the matter to.................
the external body specified in the law or regulation
An auditor with a fully secured loan at a client is only permitted to conduct the audit when
the loan was obtained before the engagement began and if thus grandfathered in
a compilation report (of any kind of future, projected or forecast) includes a caveat that
the prospective results of the financial forecast may not be achieved.
when the previous year was audited and a separate paragraph is being added to the review report, that paragraph should include
the reasons for the qualified opinion (as well as the date of the previous report and an indication that no auditing procedures were performed after that date).
the professional standards require that disagreements with management that should be communicated to those charged with governance include
those relating to estimates, the scope of the audit, application of accounting principles, the wording of the audit report, and other matters.
"the internal audit team and its leadership should not report directly to any person inside of the organization but rather "
to the board of directors or its audit committee.
A successor auditor's inquiries of the predecessor auditor should include questions regarding the predecessor's
understanding as to the reasons for the change in auditors.
Omission of required supplementary information leads to an _______________________________
unmodified opinion with explanatory paragraph
Going concern issues are either severe or not -- they result in eitehr a ________ or ________ opinion
unmodified with expalnatory or disclaimer of opinion
cost of goods sold/average inventory represents the turnover of inventory and provides information related to inventory _________.
valuation
analyzing inventory turnover (Cost of goods sold / Inventory) will indicate slow-moving and obsolete items since those items will have
very low (or zero) turnover rates
Tracing a transaction from origination through the company's information systems until it is reflected in the company's financial report is a ____________
walk-through
It generally (will/will not) be reasonable to determine whether a particular transaction was consummated on terms equivalent to those with unrelated parties
will not
the decision whether or not to dual date the report is based upon the auditor's ____________ ____ _________ __________ __________
willingness to extend audit procedures.
when an auditor performing a compilation believes that modification of the standard compilation report is not adequate to indicate the financial statements' deficiencies, the auditor should
withdraw from the compilation and provide no further services with respect to the financial statements.
Whenever a CPA believes that modification of the standard report is not adequate to indicate the deficiencies in the financial statements, he or she should ____________________________and ______________________________
withdraw from the review engagement , provide no further services with respect to those financial services.
Standard 5 requires an adverse audit report when a mterial weakness exists at ________-____________
year-end
A high assessed level of control risk may result in changing the timing of substantive tests to _________________ rather than at an _________________
year-end, interim date
