Auditing 403- Final Exam
reliable
worthy of trust
positive confirmations
Alternative Procedures are only used for what type of confirmation?
Preventative Controls
An example of this would be a safety deposit box.
Detective Controls
An example of this would be an alarm system in a house.
Unmodified Opinion
An opinion issued when the auditors conclude that the financial statements present the financial condition, results of operations, and cash flows in accordance with GAAP (until recently, known as an unqualified opinion).
Qualified Opinion
An opinion issued when the auditors conclude that, with the exception of one or more issue(s), the financial statements present the financial condition, results of operations, and cash flows in accordance with GAAP. They can be issued for material departures from GAAP and material scope limitations.
relevant reliable
Appropriate means the evidence is _____ and _____
IR x CR x DR RMM x DR Client Risk x DR
Audit Risk Formula
Liabilities Expenses
Auditors are worried about completeness for ______ and ______.
persuasive convincing
Auditors gather evidence that is ______, not ________.
sufficient, appropriate
Auditors need to gather ______ _______ evidence
Cash A/R Inventory
Auditors should get confirmations for: (3 items)
Adverse Opinion
The opinion issued when the auditors conclude that the financial statements do not present the financial condition, results of operations, and cash flows in accordance with GAAP.
Misappropriation of Assets (Employee Fraud)
The use of fraudulent means to take money or other property from an employer. It consists of three phases: (1) the fraudulent act, (2) the conversion of the money or property to the fraudster's use, and (3) the cover-up.
True
True/False External Auditing is required to sit for the CPA Exam.
Competency Objectivity
Two things auditors should observe when looking at internal auditors:
Variable Sampling
Type of sampling that has do do with Substantive Test of Details.
Attribute Sampling
Type of sampling that has to do with Test of Controls
1) Inspection of the Records and Documents (vouching, tracing, scanning) 2) Inspection of Tangible Assets 3) Observation 4) Inquiry 5) Confirmation 6) Recalculation (7) Reperformance 8) Analytical Procedures
Types of Ways to Gather Evidence: (8)
large
A _____ number of errors are anticipated for positive confirmations.
small
A ______ number of accounts are involved for positive confirmations
Disclaimer of Opinion
A report issued when auditors don't express an opinion on the fairness of the entity's financial statement. This is issued for pervasive going-concern uncertainties, pervasive scope limitations, situations in which auditors are associated with (but did not audit) financial statements, and situations in which the auditors are not independent.
Embezzlement
A type of fraud involving employees or nonemployees wrongfully taking money or property entrusted to their care, custody, and control, often accompanied by false accounting entries and other forms of lying and cover-up
Client Risk
Besides risk of Material Misstatement, Inherent Risk and Control risk is also called:
fraud
Between fraud and error, it his harder to find misstatements from:
Occurrence Assertion
Between occurrence assertion and cutoff assertion, which on would be more worrisome to an auditor.
Negative Confirmation
Confirmation where a large number of small balances is involved
Positive Confirmations
Confirmation where a small number of accounts are involved and large number of errors are anticipated.
Sampling Risk and Nonsampling Risk
Detection Risk is made up of:
Compilation
Engagement(s) that does not require auditor to be independent.
Reviews Audits
Engagement(s) that is an assurance service?
Compilations Reviews Audits
Engagement(s) that is an attestation service?
Audit
Engagement(s) that requires auditor to understand internal controls
Review Audit
Engagement(s) that requires auditors to be independent:
management
Financial Statements are the responsibility of:
low
For negative confirmations, the combines assessed level of inherent and control risk is _____.
Occurrence Assertion
Fraudulent entries have to do with which assertion?
Adverse Opinion
If departure from GAAP is material and pervasive, what opinion is issued?
Qualified Opinion
If departure from GAAP is material but not pervasive, what opinion is issued?
Unmodified Opinoin
If departure from GAAP is not material, what opinion is issued?
Unmodified Opinion
If scope limitation is material but alternative procedures are available, what opinion is issued?
Disclaimer of Opinion
If scope limitation is material, no alternative procedures are available, and it is pervasive, what opinion is issued?
Qualified Opinion
If scope limitation is material, no alternative procedures are available, but it is not pervasive, what opinion is issued?
Unmodified Opinion
If scope limitation is not material, what opinion is issued?
deviation
If there is missing item, that should be classified as a(n):
cutoff
If you see that revenues are recorded too early, that is a _____ issue.
Revenue
In the planning stage, Analytical procedures have to be done on what account?
Professional Skepticism
Includes a questioning mind and critical assessment for the facts.
CEO
Internal Audit department report administratively to:
Audit Committee of the Board of Directors
Internal Audit department report functionally to:
Audit Review
Management Representation Letter is required for what type of engagement(s)
last
Management letter should be obtained when?
Sufficient
Means enough evidence
Other Information: 1) Look at Handout with different Assertions and Audit Procedures 2) Understand how to do correcting Journal Entries
Other Information: 1) Look at Handout with different Assertions and Audit Procedures 2) Understand how to do correcting Journal Entries
Nonpublic Entities
Paragraph titles are used for which type of Audit report {Nonpublic Entities;Public Entities}
Questioning Mind Critical Assessment
Professional Skepticism includes a _______ ______ and ______ ______ of the facts.
Competency
Professional designations like CIA and CPA help to prove _______ of internal auditors?
PCAOB
Public entities report according to the:
Completeness (1st) Cutoff (2nd)
Reason you look at subsequent cash disbursements is for:
Allocation
Refers to the appropriate percentage of an asset or liability balance being recorded on the income statement in accordance with GAAP.
Accuracy
Refers to the appropriate recording of the transaction involving these items.
Board of Directors
Report for public and nonpublic entities are addressed to:
Bachelor's Degree CPA Exam Experience State Certificate and License
Requirements to become a CPA:
Control Risk and Inherent Risk
Risk of Material Misstatement is made up of:
Unqualified Opinion
SEC only accepts what opinion:
inverse
Sample size has an ________ relationship with sampling risk
Audits
Sampling is done for which engagement(s)?
Details
Test of ____ is usually made up of 2/3 statistical and 1/3 nonstatistical sampling
Controls
Test of _____ is equally divided between statistical and nonstatistical sampling?
Binary (Yes/No)
Test of controls has what type of response?
Introductory Paragraph Management's Responsibility Section Auditor's Responsibility Section Opinion Paragraph
What are the 4 parts of a nonpublic entity report?
Introductory Paragraph Scope Paragraph Opinion Paragraph Internal Control Paragraph
What are the 4 parts of a public entity report?
Rights and Obligations
What assertion does this deal with: Are related legal responsibilities identified?
Valuation
What assertion does this deal with: Are the accounts valued correctly?
Understandability
What assertion does this deal with: Are the disclosures comprehensible to users.
Cutoff
What assertion does this deal with: Are transactions at the beginning or en of a period included in the proper period?
Existence an Occurrence
What assertion does this deal with: Did the recorded sale transaction really occur?
Existence and Occurrence
What assertion does this deal with: Do the assets listed really exist?
Rights an Obligations
What assertion does this deal with: Does the company really own the assets?
Completeness
What assertion does this deal with: Does the financial statement contain all necessary components (including footnotes)?
Classification
What assertion does this deal with: Were all transactions recorded in the correct accounts?
Completeness
What assertion does this deal with: Were all transactions recorded?
Planning, Completion
What stages are you required to do analytical procedures?
Repair an Maintenance Legal Expense
What two accounts should you look at 100% of:
Inquiry and observartion
What two types of investigation techniques need to be corroborated:
Negative
What type of assurance is given for a Review
Positive
What type of assurance is given for an Audit
Independent
What word is seen in the title of both public and nonpublic entity reports.
Chief Audit Executive
What's the title of the person in charge of the Internal Audit department?
Date you have gathered sufficient, appropriate evidence
When is the report issued for both public and nonpublic entities.
Existence
When looking at assets, which assertion is tested?
Completeness
When looking at liabilities, which assertion is tested?
disaggregated
When performing analytical procedures on revenue, the information should be:
State Board of Accountancy (State Board of CPA's of Louisiana)
Who issues the CPA license:
See why they have litigation against them
Why would auditors look at 100% of legal expense
large small
With negative confirmation, a ____ number of ______ balances are involved.
classification
With repair an maintenance, auditors are worried about what assertion.
Planning Training Supervision
You can reduce nonsampling risk through proper:
Errors and Fraud
You have same responsibility to find misstatement from ______ and ______.
Tracing
_____ is used to test completeness assertion.
Vouching
______ is used to test occurrence assertion
Analytical Procedure
_______ _______ is when you compare one number to another
sufficiency
_______ relates to evidence quantity
relevance
________ pertains to management assertion we are testing
appropriateness
________ relates to evidence quality
Objectivity
____________ can be proven by seeing who internal auditors are reporting to administratively and functionally.
