Auditing CPA Exam

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The explanatory paragraph (issuer) (1. does/2. does not) require a heading

Which of the following elements should be included in the Aud. Rep. when FS are prepared on the regulatory for general use basis? 1. Description of purpose 2. Emphasis of matter paragraph alerting readers about the preparation 3. Other matter paragraph restricting the use

Which of the following procedures would provide an auditor with evidence about whether an entity's internal control activities are suitably designed to prevent or detect material misstatements? 1. Observing the entity's personnel applying the activities 2. Reperforming the activities for a sample of transactions 3. Vouching a sample of transactions directly related to the activity 4. Performing analytical procedures using data aggregated at a high level

1 Reperforming provides evidence about operating effectiveness Vouching and analytical procedures don't teach about the design

Which of the following are considered control environment factors? 1. Assignment of authority and responsibility 2. Detection risk 3. Integrity and ethical values

1 & 3

During planning, the auditor is required to: - obtain knowledge of the client's business and industry - develop the audit strategy - Develop the audit plan - Perform risk assessment procedures to obtain an understanding of the entity and its environment, including its internal control, sufficient to assess the risks of material misstatement and design further audit procedures

1 2 3 & 4

a significant engagement deficiency exists when:

1 team failed to obtain sufficient appropriate evidence 2 engagement team reached an inappropriate overall conclusion 3 engagement report is not appropriate 4 Firm is not independent

Which of the following subsequent event audit procedures should be performed during an audit? 1. Review of post balance transactions 2 Review management's representation letter 3. Perform a search for unrecorded liabilities 4. Review client bank reconciliations 5. Make inquiries of management regarding any unusual adjustments that may have been made in the months of January and February 6. Review the minutes of a 1/10 year 2 stockholder meeting 7. Review cash disbursement procedures for proper segregation of duties 8. Examine the latest interim financial statements 9. Perform inventory test counts

1, 2, 5, 6,8

An auditor obtains knowledge about a new client's business and its industry in order to 1. Understand the events and transactions that may have an effect on the client's financial statements 2. Develop an attitude of professional skepticism concerning management's FS assertions

If a subsequent event occurs after the report date but prior to the release dat, resulting in management's revision of the FS of a nonissuer, then the auditor may do an of the following except: 1. Maintain the OG date and state that the opinion is limited to the FS as they existed prior to the SE 2. Include an additional date in the audit report that is limited to the revision of the FS 3. Perform audit procedures necessary to obtain assurance about the revised financial statements 4. Revise the date of the audit report to reflect the necessity of additional audit procedures

The auditor should consider certain factors in assessing the efficiency and effectiveness of analytical procedures as compared to tests of details. In determining whether and to what extent analytical procedures should be used, which of the following should the auditor consider? 1. The nature of the assertions tested 2. Explanations provided by the client 3. Interrelationships of financial information 4. Nonfinancial information that may affect financial information

1. also: plausibility and predictability of data relationship availability and reliability of data precision of the expectation

What are the two exceptions that can inhibit internal control from preventing or detecting fraud

1. Collusion 2. Management Override - also human error, but unintentional

Control environment factors include:

1. Communication and enforcement of integrity and ethical values. 2. Commitment to competence. 3. Participation of those charged with governance. 4. Management's philosophy and operating style. 5. Organizational structure. 6. Assignment of authority, responsibility, and accountability. 7. Human resource policies and practices.

What are the five components of internal control?

1. Control Environment 2. Risk Assessment 3. Information and Communication 4. Monitoring 5. Existing Control Activities

Generally Accepted Govt. Auditing Standards (GAGAS) 1. Section Reference 2. Issuing Company 3. Applies to

1. GAGAS 2. Governmental Accountability Office 3. financial or performance audits of govt organizations, programs, activities, and entities that receive govt funds

If inventory held offsite IS significant, the auditor should: If it is not, then:

1. Observe 2. Confirm

What are the reporting requirements for an emphasis of matter paragraph?

1. Use the heading "emphasis of matter" (or another appropriate heading) 2. Describe the matter being emphasized and the location of the relevant disclosures in the FS 3. Indicate the opinion is not modified in respect to this matter

In order to obtain reasonable assurance, the auditor must:

1. plan the work and properly supervise assistants 2. determine and apply appropriate materiality levels 3. identify and assess risks of material misstatement 4. obtain sufficient and appropriate evidence

The engagement partner is responsible for:

1. planning the audit 2. supervising the work of engagement team members 3. compliance with relevant auditing standards

If an auditor finds that the titles used in an OCBOA FS are improper, he should: 1. Issue a special statutory basis report that clearly disclaims any opinion 2. Disclose any reservations in a basis for modification paragraph and qualify the opinion

When companies use IT extensively, evidence may be available only in electronic form. What is an auditor's best course of action in such situations? 1. Use audit software to perform analytical procedures 2. Use generalized audit software to extract evidence from client databases 3. Perform limited tests of controls over electronic data 4. Assess the control risk as high

Which of the following best represents a key control for ensuring sales are properly authorized when assessing control risks for sales? 1. Copies of approved sales orders sent to the shipping, billing, and accounting departments 2. Sales orders are sent to the credit department for approval

Which of the following factors is most relevant when an auditor considers the client's organizational structure in the context of control risk? 1. Physical proximity of the acct function to upper mgmt 2. The suitability of the client's lines of reporting 3. Mgmt's attitude toward information processing and acct departments 4. The org.s reporting process

Which of the following reporting options is least likely with regard to supp info required by GAAP? 1. Disclaimer of opinion on supp info 2. Auditor's report on FS includes both an opinion on Supp info and statement restricting use of the report

Which of the following would be a relevant item in determining whether internal controls are operating as designed? 1. Anticipated results documented in budgets 2. Client records documenting the use of EDP programs 3. Confirmation of receivables verifying acct balances

In obtaining an understanding of a manufacturing entity's internal control concerning inventory balances and auditor most likely would: 1 Perform test counts during the entity's physical count 2. Review the entity's description of inventory controls 3. Analyze inventory turnover stats to identify slow-moving and obsolete items 4. Analyze monthly production reports to identify variances

2 all the others are substantive procedures performed after obtaining an understanding

When assessing an internal auditor's objectivity, the independent auditor should: 1. Review the IAs current audit plan, including the NET 2. Examine their workpapers 3. Ascertain the organization level to which the IA reports 4. All of the above

A company's inventory turnover ratio increased substantially although sales and inventory amounts were essentially unchanged. What could explain the change? 1. COGS decreased 2. AR turnover increased 3. Gross profit percentage decreased 4. Asset turnover increased

3 Inventory turnover = COGS/Average inventory

Which of the following ratios would and engagement partner most likely consider in the overall review stage of an audit and why? 1. Total liabilities/net sales 2. AR/Inventory 3. COGS/Average Inventory 4. Current assets/Quick assets

3 Inventory turnover is a measure of how quickly inventory is sold which can be used as an indicator of enterprise performance. In general, higher inventory turnover, the better their performance.

Which of the following best describes what is meant by the term generally accepted auditing standards? 1. Rules acknowledged by the acct profession because of universal application 2. Pronouncements issued by the ASB 3. Measures the quality of the auditor's performance

Days in Accounts Receivable

365/accounts receivable turnover

How long do you keep work papers for: SAS rules PCAOB Rules

5 years 7 years

Significant Component

A component identified by the group engagement team (i) that is of individual financial significance to the group, or (ii) that, due to its specific nature or circumstances, is likely to include significant risks of material misstatement of the group financial statements. Dollar or Risk

If a company does engage an auditor to include KAMs, what should be communicated about each?

A description why it was important how it was addressed in the audit

Audit Evidence Hierarchy

AEIOU Auditor knows External evidence Internal evidence Oral evidence U know it!

Which piece of authoritative literature would tell you what changes can be made after the report release date?

AU-C 230.A26

Which section of authoritative literature advises the auditor on what to do if material misstatements are found after the auditor is discharged?

AU-C 560.A18

Assertion: Valuation, Allocation, Accuracy

Account balances, transactions, and disclosures are recorded and described fairly and measured at appropriate amounts, and any resulting valuation or allocation adjustments are appropriately recroded

In testing the existence assertion for an asset, an auditor works from the:

Accounting records to the supporting evidence

Examples of common accounting estimates that could lead to material misstatement

Accts Receivable - bad debts Obsolete Inventory PP&E - life and salvage value

Component Auditor

An auditor who performs work on the financial information of a component that will be used as audit evidence for the group audit. A component auditor may be part of the group engagement partner's firm, a network firm of the group engagement partner's firm, or another firm.

Why would an auditor use unaudited information from internal quarterly reports to develop expectations during the analytical procedures used in the planning stage?

Analytical procedures involve the comparison of recorded amounts to independent expectations, and financial data is needed for those procedures

How does the auditor document his understanding of internal control?

Any one of the following: Flowchart Internal Control Questionnaire or Checklists Narrative Documentation from the client, including copies of manuals and organizational charts

What type of information is the income statement (required by SEC and GAAP)

Basic Financial Statements Apply audit procedures

Relevant assertions for transactions and events

Completeness, cutoff, accuracy, classification, occurrence, presentation

If the updated opinion differs from the previous opinion. the auditors should disclose the reason(s) in a separate explanatory paragraph preceding the opinion paragraph. The explanatory paragraph should disclose the:

Date of previous report Opinion previously issued Reason for the prior opinion Changes that have occurred Statement that the opinion is different DORCS

The scope of the audit relate to the ___ in NET

E - Extent

Days in Inventory

Ending Inventory / (COGS/365)

It is okay if the component auditor is not independent as long as the group engagement team using their work is.

False

Risk assessments are required in all _________ audits

Financial statement

An adverse opinion is a __________problem

GAAP

The auditor must be independent of an auditee unless:

GAAS provides otherwise the auditor is required by law or regulation to report on the FS

Ethical Requirements (ASB QCS)

Independence encompasses impartiality at least annually all firm personnel should confirm their independence in writing Independence requirements must be properly communicated

If the auditor concludes the supp. info. is materially misstated in relation to the FS as a whole and management refuses to revise the info the auditor should:

Modify the opinion on the supplementary info and describe the misstatement If a separate report is being issued on the supp. info., withhold the report

NET

Nature Extent Timing

Factors that determine the focus of the audit relate to the ___ in NET

Nature - N

What is the decision tree for audit opinions?

No material misstatements - unqualified/unmodified material GAAP - except for material GAAS - except for Very material GAAP - adverse Very material GAAS - disclaimer fraudulent/deceptive - withdraw

What are the modifications to the audit report paragraphs for an issuer when a disclaimer of opinion is expressed?

Opinion - engaged to audit, disclaimer Additional paragraph - yes Basis for Opinion - omit certain sentences

OCBOA

Other Comprehensive Basis of Accounting cash, tax, and regulatory

What type of information is the names of the CEO

Other info Read Info

Auditor May Conduct Audit in Accordance with both GAAS and:

PCAOB ISAs (International Standards on Auditing) GAGAS auditing standards of a specific jurisdiction or ountry

Which citation in the professional standards has guidance for disclosing information of other auditor's used in the report?

PCAOB AS 3101.20

Engagement Partner is responsible for

Planning, supervising, and compliance.

What are the control activities in a strong system of internal control? PAID TIPS

Prenumbering of documents Authorization of transactions Independent checks to maintain asset accountability Documentation (papertrail) Timely and Appropriate Financial reporting reviews (comparison of actual and forecasted amounts) Information processing controls Physical controls for safeguarding assets Segregation of Duties

Should indicates

Presumptively mandatory requirement

Audit risk equals

RMMxDetection Risk RMM= Inherent RiskxControl Risk RMM exists independent of the FS audit RMM is assessed by the auditor DR is controlled by the auditor by changing the NET

What type of info are the quarterly results (required by SEC but not GAAP)

Required supp. info Limited Procedures

Test of Details

Substantive tests that concentrate on the details of items contained in the account balance and disclosure.

SOAP

Summary of adjustments processed

Who do you address the audit report to?

The owners (not management)

How might an auditor obtain an understanding of the client's business?

Tour Client Facilities Review the financial information Obtain an understanding of the client accounting Inquire of client personnel

What is the definition of pervasive?

Very material not confined to specific accounts/element/item if confined, it represents a substantial proportion of the FS are disclosures fundamental to the users' understanding of the FS

In what circumstances would an auditor be prohibited from communicating kams in the auditor report?

When the auditor expresses an adverse or disclaims an opinion unless such reporting is required by law or regulation

When an independent CPA is associated with the financial statements of an issuer but has not audited or reviewed such statements, the appropriate form of report to be issued must include a(n) a. disclaimer of opinion b. report on pro forma FS c. unaudited association report d. regulation S-X exemption what

Tax Basis

a basis of accounting that the entity uses to file its income tax return for the period covered by the financial statements

Cash Basis

a basis of accounting that the entity uses to record cash receipts and disbursements and modifications of the cash basis having substantial support, such as recording depreciation on fixed assets

Assertion: Existence and Occurrence

account balances exist and transactions have occurred

If the auditor becomes aware of information after the issuance of the auditor report, the auditor should

advise the client to issue revised financial statements/ make the necessary disclosures/ provide notification that the FS and AR cannot be relied upon

An inquiry letter sent to client's legal counsel would be sent:

after balance sheet date

Assertion: Completeness

all assets, liabilities, and equity have been recored-nothing is missing-its complete.

Analytical procedures are more likely to be used on accounts that (are/are not) subject to mgmt discretion

are not

The primary evidence regarding year-end cash balances in the financial statements is documented in the:

bank reconciliations

The independent external auditor (can/cannot) share with the internal auditor any of the responsibility for audit decisions, judgments, or assessments made as part of the audit or any of the responsibility for issuing the report.

cannot

CAAT

computer assisted audit techniques auditung through the computer

The auditor _________ states that they have obtaines sufficient evidence, and __________that there has been consistent application of accounting principles. a. implicitly, implicitly b. explicitly, explicitly c. implicitly, explicitly d. explicitly, implicitly

The auditor's active responsibility stops on the

date of the auditor's report

Audit evidence concerning proper segregation of duties ordinarily is best obtained by:

direct personal observation of the employees who apply the control activities *especially if activities do not leave an audit trail

When an independent CPA is associated with the financial statements of an issuer but has not audited or reviewed such statements, the appropriate form of report to be issued must include a(n)

disclaimer of opinion

What advantage does regression analysis have over trend analysis, ratio analysis, and nonstatistical predictive modeling?

provides direct and quantitative measures of the precision of the expectation

SOX applies to

publicly held companies and their auditors

The nature and extent of planning activities that are necessary depend on the ______ the entity

size and complexity auditor's previous experience with the company changes in circumstances occurring during the audit

The NET depends on:

size and complexity of the entity nature of the work assigned assessed risks of MM qualifications of assistants

Reporting Objectives, audit timing, and required communications relate to the __ in NET

timing

Nonissuers can choose whether to disclose key audit matters with auditors, unlike issuers and critical audit matters

true

Planning materiality is usually based on factors such as annualized revenue or prior period financial results

true

Positive confirmations provide more assurance than negative confirmations

true

T/F Many audit firms are hired to perform tax services in addition to audit services

true

The RMM exists independently of the financial statement audit

true

Audit documentation should include

who performed the work the date completed who reviewed it the date reviewed

If adjustments or disclosures are made after the original date of the auditor's report, the auditor may ________________ to extend responsibility for only that particular subsequent event

dual date

What should be included in the unmodified opinion paragraph of a nonissuer?

entity under audit title of each financial statement and reference to the notes dates or periods covered by the FS statement that the FS have been audited statement that the FS present fairly in all material respects in accordance with the applicable framework the applicable framework and its origin

GAAS and QCS are synonymous

false 1 - conduct of each individual on an engagement 2 - conduct of all professional firm activities as a whole

Work papers belong to the client

false auditor

A treasurer would often reconcile items to the monthly bank statement

false - should be a person with no other cash related duties

The auditor's report date shows the _____________ date of auditor responsibility

final

The internal audit function is a part of the

monitoring component of IC

The audit committe of the client's board of directors is responsible for the selection and appointment of the independent external auditor and for reviewing the

nature and scope of the engagement

For which of the following adjustments may an independent auditor share responsibilities with an entity's internal auditor who is assessed to be BOTH objective and competent? 1. Assessment of inherent risk 2. Assessment of control risk

neither

Accounts Receivable Turnover

net credit sales/average net accounts receivable

GAAP is related to the ___________section GAAS is related to the ___________section

opinion basis for opinion

When issuing a qualified opinion, the auditor modifies the:

opinion and basis for opinion section

Financial statement audit

opinion rendered only on the fairness of the financial statements; only allowed for non-issuers

Management override of controls is an example of the _________ of the fraud triangle

opportunity

Fraud Triangle

opportunity, pressure, rationalization

An auditor generally tests the segregation of duties related to inventory by

personal inquiry and observation

Analytical procedures are required during

planning stage and final review stage

Internal controls need to be checked to ensure they are still

present and functioning

Industry factors such as a competitive environment often contribute to the _______ to commit fraud

pressure

Regulatory factors such as laws and regulations often contribute to the ___________ to commit fraud

pressure

Control risk is the assessment of whether internal controls will

prevent or detect fraud or error

Required contents of audit engagement letter

- objective and scope of the audit - responsibilities of the auditor - responsibilities of management (FS + IC) - statement that due to inherent limitations of IC there are unavoidable risks that material misstatement may not be detected - identification of reporting framework - reference to expected form and content of any reports

If a company's current ratio was 1.5:1 and their quick ratio .5:1, explain how you would analyze the change in each ratio if they used $200,000 to pay their accounts payable

Because cash and accounts payable are included in both the numerator and the denominator of both ratios, you have to consider the percentage being reduced. For the current ratio, assets is larger. Therefore, a $200,000 reduction in cash and AP would have a greater reduction in liabilities, increasing the overall ratio. For the quick ratio, liabilities are larger. Therefore, the reduction will decrease assets at a greater percentage, decreasing the ratio.

Which component of internal control includes the development of personnel manuals documenting employee promotion and training policies?

Control Environment

What do information processing controls ensure?

that transactions are valid, properly authorized, and completely and accurately recorded.

Verification of encrypted digital certificates used to monitor the authorization of transactions would be used in:

all computerized systems

The auditor would consider the square footage of selling space during the _____________________ of the audit?

analytical procedures in the planning phase (relevant nonfinancial data that could have a relationship to financial data)

Which four overarching conditions lead to misstatements in the FS?

appropriateness of acct policies application of acct policies appropriateness of FS presentation appropriateness/adequacy of disclosures in FS

The inability to perform a specific procedure is not a limitation on the scope of the audit if the auditor is able to obtain sufficient appropriate audit evidence by performing alternative procedures

true

An engagement quality control review is performed (nonissuer)

when required by the firm's policies and procedures and should be completed before the engagement partner releases the audit report

For each CAM identified, the audit report should include:

(I) Identification of the CAM (P)description of the principal considerations (A)description of how it was addressed (D)Reference to relevant FS accounts or disclosures

Auditor Responsibilities

- Expressing an opinion - Professional skepticism - Complying with ethical requirements - Professional judgement - Obtaining sufficient, appropriate evidence - Complying with GAAS (the attest function - the opinion)

A principal advantage of statistical methods of attribute sampling over nonstatistical sampling is that they provide a scientific basis for planning the: 1. Sample size 2. Risk of overreliance 3. Tolerable rate 4. Expected population deviation rate

An auditor of a nonissuer must conduct the audit in accordance with: 1. ASB standards 2. PCAOB standards either 1 or 2 both 1 and 2 1 2

Analytical procedures used in planning an audit should focus on: 1. Enhancing the auditor's understanding of the client's business 2. Identifying material weaknesses in internal control 3. Testing individual account balances that depend on accounting estimates 4. Evaluating the adequacy of evidence gathered concerning unusual balances

Confirmation of accounts receivable that have been categorized initially by an auditor as "exceptions" most likely could be due to: 1. payments mailed to the client that have not been recorded 2. Accounts receivable that have been classified as uncollectible 3. Responses that were mailed rather than faxed to the auditor 4. Customers who have credit or zero balances with the client

If a U.S. auditor is reporting on financial statements of a nonissuer prepared in accordance with a financial reporting framework generally accepted in another country and intended for use only outside the U.S., then the auditor: 1. Should report using either a US form of report or the report form and conent of the other country as long as the requirements for the report have been met 2. Is required to use the report form and content of the other country provided that in similar circumstances such a report would be issued by auditors in that country

If management prescribes how the auditor should respond to supp. info, the auditor most likely would: 1. Reword the form/ attach a separate report 2. withdraw 3. restrict use of the report

The purpose of applying analytical procedures in the overall review stage of an audit includes assisting the auditor in all the following except: 1. Enhancing the understanding of the client's business 2. Evaluating the going concern 3. Assessing conclusions reached 4. Evaluating the overall financial statement presentation

Tone at the top is part of which COSO component? 1) control environment 2) risk assessment 3) control activities 4) monitoring 5) information and communication

When obtaining an understanding of an entity's internal control, an auditor should concentrate on the substance of the controls rather than their form: 1. Mgmt may establish appropriate procedures but NOT enforce compliance with them 2. Mgmt. may implement procedures whose costs exceed their benefits 3. The procedures may be operating effectively effectively but may not be documented

Which of the following cannot be performed using a generalized audit software package? 1. observe inventory 2. select sample items of inventory 3. recalculate balances in inventory reports 4. analyze data resulting from inventory

Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events? 1. Investigate changes in capital stock recorded after year end 2. inquire about payroll checks that were recorded before but cashed after year end 3. review tax returns prepared by management after year end 4. Determine whether inventory ordered before the year end was included in the physical count

Which of the following provides the most authoritative guidance for the audit of a nonissuer? 1 General guidance by SAS 2. Journal of Accountancy 3. Specific guidance by SAS 4. AICPA guide in the client's industry

Which of the following situations most likely represents the highest risk of a material misstatement arising from misappropriations of assets? 1. A large number of bearer bonds on hand 2. A large number of transactions processed in a short period of time

Which statement most accurately describes the differences between an internal and external audit plan? 1. The internal audit plan is more detailed and covers more areas than the external plan 2. The internal audit plan is less detailed and covers fewer areas than the external plan 3. The internal and external audit plan are substantially the same and cover the same general areas

An auditor most likely would limit substantive tests of sales transactions when control risk is assessed as low for the occurrence assertion concerning sales transactions and the auditor has already gathered evidence supporting: 1. Cash receipts and accounts receivable 2. Opening and closing inventory balances

1 2 provides limited evidence of occurrence of purchases and the COGS, but not of sales

Analytical procedures used in planning an audit should focus on: 1. Enhancing the auditor's understanding of the client's business 2. Identifying material weaknesses in internal control

1 The focus of analytical procedures is rarely to identify material weaknesses in internal control

Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence? 1. Payroll expense 2. Acct receivable 3. Advertising expense 4. Accounts payable

1 number of employees and pay rates

Which of the following would not be considered part of the client's information system? 1. Sale of investment securities by an external broker and authorized by the client 2. Prep. of the client's financial statements by an outside acct organization 3. Initiation of the client's weekly payroll transactions by a payroll processing organization 4. Processing of the client's accounting transactions by an electronic data processing service center

1 services performed by 3rd parties are separate if the service is limited to transactions specifically authorized by the client

An auditor most likely would introduce test data into a computerized payroll system to test internal controls related to the: 1. Discovery of invalid employee ID numbers 2. Early cashing of payroll checks by employees 3. Proper approval of OT by supervisors 4. Existence of unclaimed payroll checks held by supervisors

1 the others do not involve the client's computer system and therefore cannot be tested using test data

Which paragraphs that are modified in an audit report when a 1 qualified 2 adverse opinion is issued due to financial misstatement issues

1 Opinion section "Except for" and add an additional paragraph. Basis for Opinion is standard 2. "Do not present fairly" and add an additional paragraph. Basis for opinion is standard

The work of internal auditors may affect the independent auditor's: 1. Procedures performed in obtaining an understanding of internal control 2. Procedures performed in assessing the risk of material misstatement 3. Substantive procedures performed in gathering direct evidence

1, 2, and 3

Which of the following elements should be included in the Aud. Rep. when FS are prepared on the regulatory (not for general use) and contractual basis? 1. Description of purpose 2. Emphasis of matter paragraph alerting readers about the preparation 3. Other matter paragraph restricting the use

1,2,3

An emphasis of matter paragraph must be included when:

1. A change in reporting entity that materially affects FS presentation 2. Justified change in Accounting principle that materially affects the FS 3. Facts are subsequently discovered that change the auditor's opinion 4. The FS are prepared in accordance with a special purpose framework

What statements should be included in the auditor's report in an other-matter paragraph (nonissuer) or explanatory paragraph (issuer) when comparative financial statements are presented the the prior auditor's report is not reissued?

1. A statement that the FS of the PP were audited by a predecessor 2. The type of modification expressed by the predecessor auditor. If the opinion was modified, include the reasons 3. The nature of any emphasis of matter, other matter, or explanatory paragraphs included in the predecessor's report 4. Date of the predecessor's report

Statements on Standards for Accounting and Review Services SSARS 1. Section Reference 2. Standard Setting Body 3. Applies to

1. AR-C 2. AICPA 3. provides guidance for unaudited financial statements or unaudited financial info/forecasts for non-issuers

Statements on Standards for Attestation Engagements (SSAE) 1. Section Reference 2. Standard Setting Body 3. Applies to

1. AT-C 2. AICPA 3. provides guidance for attestation. Examination, review, or agreed upon procedures to report on a subject that is the responsibility of another party

Statements on Auditing Standards (SASs) section reference: Issuing Body: Applies to:

1. AU-C 2. AICPA ASB 3. Audits of annual historical financial statements, special reports, and interim statements for non-issuers Bottom line - standards for private companies

What 3 key items are included in management's responsibility?

1. An explanation that management is responsible for the preparation and fair presentation of the financial statements 2. A statement that this responsibility includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of FS that are free from material misstatement, whether due to fraud or error 3. When required, the evaluation of whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern

If an auditor is obtaining an understanding of an issuer's information and communication component of internal control, which of the following factors should the auditor assess? 1. The classes of transactions in the issuer's operations that are significant to the issuer's financial statements. 2. The oversight responsibility over financial reporting and internal control by the board or audit committee. 3. The philosophy and operating style of management to promote effective internal control financial reporting 4. The integrity and ethical values of top management

1. C 2. IC - control environment 3. IC - control environment 4. IC - Control environment

Which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorded? 1. The billing department supervisor matches prenumbered shipping documents with entries in the sales journal 2. The acct dept supervisor independently reconciles the AR ledger to the AR control acct monthly 3. The acct dept supervisor controls the mailing of monthly statements to customers and investigates any differences reported by customers

1. C - selecting prenumbered shipping docs and matching them with entries in the sales journal is a control that would help ensure that all credit sales transactions are recorded 2. W - this ensures that AR in the general ledger is properly recorded, but would not help identify unrecorded credit sales 3. W - Ineffective because customers likely would not complain if not billed 4. W - Controls the risk of bad debts, not proper recording of credit sales

Analytical procedures used in the planning phase of an audit should focus on: 1. Enhancing the auditor's understanding of the transactions and events that have occurred since the last audit 2. Identifying internal control activities that could reduce the assessed level of control risk 3. Documenting the risk factors relating to susceptibility of assets to misappropriation

1. Correct 2. IC. Related to assessing risk but not the performance of analytical procedures 3. IC. Important planning procedure but not related to performance of analytical procedures

List the features of a report on the application of the requirements of an applicable financial reporting framework.

1. Description of engagement, entity, and transaction 2. Reference to the AICPA standards 3. Description of the appropriate application of the requirements of the applicable financial reporting framework to the specific transaction or type of report 4. Preparers are responsible for proper accounting 5. Differences in facts, circumstances, or assumptions may change the report 6. Restricted use paragraph

What are the stages of the auditing process?

1. Engagement Acceptance 2. Assess Risk/Plan Response 3. Perform Procedures/Obtain Evidence 4. Form Conclusions (subsequent events are here) 5. Report

Management Responsibility

1. Financial Statements 2. Internal control 3. providing auditor with access to the information/persons necessary to complete the audit

In order to form an opinion on the financial statements, the auditor should take into consideration:

1. Has sufficient evidence been gathered? 2. Were uncorrected misstatements material (both individually and in the aggregate)? 3. Were the FS prepared in accordance with GAAP? further considerations: were accounting policies adequately disclosed? Were those policies consistent? Were estimates reasonable? Adequate disclosures? Are the financial statements a fair representation? Are they relevant, reliable, comparable, and understandable?

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 (HELPME)

What should be included in the emphasis of matters paragraph included in a special purpose framework?

1. Indicate that the FS are prepared in accordance with a special purpose framework 2. Refer to the note to the FS that describes that framework 3. State that the special purpose framework is a basis of acct other than GAAP 4. State that the FS may not be suitable for any purpose other than stated purpose

Which procedures should an auditor perform on required supp. info?

1. Inquire of mngmt about the methods used to prepare the required supp. info, including whether it was prepared in accordance with prescribed guidance, whether there were changes in the methods used from prior years and reasons for those changes, and whether there were any significant assumptions underlying the measurement or presentation of the required information 2. Determine if the supplementary information is consistent with management's responses, audited FS, and other knowledge 3. Obtain written management representations regarding the required supp info

PCAOB AS Section Reference: Issuing Company: Applies to:

1. PCAOB AS 2. Public Company Accounting Oversight Board 3. Issuers; audits of historical FS, special reports, and interim statements

What segregation would the client ideally have related to the sales cycle?

1. Preparation of the order 2. Credit approval 3. Shipment 4. Billing 5. Accounting (4 and 5 may be consolidated)

When changing auditors and the prior year audit repor is reissued, the prior CPA should:

1. Read the statements for the current period 2. Compare the statements audited with the current period statements 3. Obtain a letter of representation from the successor auditor 4. Inquire of and obtain a letter of rep. from management at/near the date of reissuance 5. Date the report as appropriate - unrevised: original date -revised: dual date

Which procedure would be most effective for each of the following purposes? 1. Determine the mathematical accuracy of the extended cost amount on an invoice sent to a customer 2. Determine whether the aging categories on the aged accounts payable trial balance are accurate 3. To test whether the amount of FICA tax withheld from an employee's paycheck is appropriate 4. To test the operating effectiveness of bank reconciliation control

1. Recalculation 2. Vouching or inspection 3. Recalculation 4. Reperformance

The entity's objectives may be divided into three categories:

1. Reliability of financial reporting 2. Effectiveness and efficiency of operations 3. Compliance with applicable laws and regulations

Audits are performed in transaction cycles, including:

1. Revenue (sales revenues, receivables, and cash receipts) 2. Expenditures (purchases, payables, cash disbursements) 3. Cash (cash receipts and disbursements) 4. Inventory (perpetual inventory, physical counts, manufacturing costs) 5. Investments 6. Other transaction cycles

What is the hierarchy for guidance to an audit?

1. SAS/PCAOB 2. Interpretive Publications 3. Other publications

What are the 3 overarching inherent limitations to achieving absolute assurance in an audit?

1. The Nature of Financial Reporting (judgment by management/ estimates) 2. The Nature of Audit Procedures (fraud, error, incomplete info) 3. Timeliness of Financial Reporting + Balance Between Cost and Benefit

The component auditor should not be referenced in the audit report unless:

1. The component auditor has performed an audit in accordance with the relevant requirements of GAAS or the PCAOB(when required) AND 2. The component auditor's report is not restricted use

Conditions for reporting n supplementary information:

1. The info 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 info will accompany the audited FS or the audited FS will be made readily available by the entity PCAOB includes the additional requirements: fairly stated accumulated misstatements on the supplemental info

PCAOB standards states that the relevance of audit evidence depends on:

1. The timing of the audit procedure 2. Whether the procedure is designed to test for an over or understatement 3. Whether the procedure is designed to directly test an assertion

Two common reasons for confirmation exceptions:

1. Timing Differences 2. Misstatements

What are the two objectives of engagements to report on supplementary information?

1. To evaluate the presentation of the supp. info in relation to the FS as a whole 2. To report on whether the supp. info. is fairly stated, in all material respects, in relation to the FS as a whole

The auditor's report should not be dated earlier than the date on which the auditor has obtained sufficient appropriate evidence. This should include evidence that what three things have occurred?

1. audit documentation has been reviewed 2. financial statements have been prepared 3. management has taken responsibility for the FS

Modifications to the auditor's opinion occurs when:

1. auditor concludes that FS are materially misstated 2. unable to obtain sufficient appropriate evidence

Communication of CAMS is not required for:

1. brokers and dealers reporting under Exchange Act Rule 17a-5 2. Investment companies registered under the investment Company Act of 1940 (unless they have elected to be regulated as business development companies) 3. employee stock purchase, savings, and similar plans 4. Emerging growth companies

For an unmodified/unqualified (clean) opinion that needs disclosure of additional communications, what terms do (1) issuers and (2) nonissuers use?

1. explanatory 2. emphasis-of-matter or other-matter

Objectives of the audit of internal control over financial reporting

1. express an opinion on the effectiveness of the company's internal control over financial reporting 2. Plan and perform the audit to obtain appropriate evidence that is sufficient to obtain reasonable assurance about whether material weaknesses exist.

The nature and extent of a firm's quality control policies and procedures depend on:

1. firm size 2. organizational structure 3. The nature and complexity of its practice 4. the degree of operating autonomy allowed its personnel and individual offices 5. cost-benefit considerations

The preparation and fair presentation of the financial statements requires:

1. identification of the applicable framework 2. preparation and fair presentation of the FS in accordance with the framework 3. Inclusion of an adequate description of the framework in the FS

The current auditor should make oral or written inquiries of the predecessor including:

1. information that might bear on mgmt. integrity 2. disagreements w/ mgmt. over acct principles, auditing procedures, or other similarly sig. matters 3. the predecessor's understanding as to the reasons for the change of auditors 4. communication to mgmt, the audit committee, and those charged with governance regarding fraud, noncompliance with laws and regulations, and matters relating to internal control 5. the predecessor's understanding of the nature of the entity's relationships and sig. unusual transactions

Objectives of a financial statement audit

1. obtain reasonable assurance that FS is free of material misstatement 2. to report on the financial statements

What are the considerations if during an audit the client asks to step back the scope to a review or compilation?

1. reason for the request, especially if there are scope limitations 2. the effort required 3. estimated additional cost The change must be justified and is not allowed if change is due to auditors getting close to finding fraud

In determining CAMs, what factors should be considered?

1. risks of material misstatement 2. areas of significant judgment or estimation 3. Nature and timing of unusual transactions 4. Degree of subjectivity in applying audit procedures 5. Extent of specialized skill or knowledge regarding a matter

In identifying significant accounts, the auditor may consider:

1. size and composition of the account 2. exposure to loss in the account 3. accounting and reporting complexities 4. related party transactions 5. changes from PP

Audit documentation should be prepared wiht enough detail that an experienced auditor with no connection to the client can understand:

1. the NET of the procedures performed 2. Results and evidence obtained 3. Significant findings or issues that arose during the audit 4. The conclusions reached and significant judgments made

The auditor should agree in writing with the specialist regarding:

1. the nature, scope, and objectives of the work 2. roles and responsibilities of the auditor and the specialist 3. the need of the specialist to observe confidentiality

When accepting an engagement to audit FS prepared in accordance with the framework of another country, the auditor should obtain an understanding of:

1. the purpose of the framework 2. whether it is a fair presentation framework 3. intended users 4. steps taken by management to ensure the framework is acceptable 5. the legal responsibilities involved

When the prior year's financial statements were not audited but were reviewed, the auditor should include what in an other matter or explanatory paragraph?

1. the service that was performed in the prior period (review/compilation) 2. the date of the Prior report 3. a description of any material modificatoins 4. A statement that the service is less in scope than an audit 5. A statement that no opinion or assurance is expressed on those FS

A former client requests a predecessor auditor to reissue the prior-year's audit report in connection with the issuance of comparative financial statements by the client. What is the predecessor auditor's responsibility? 1. Consult w/ the client's legal counsel to determine available remedies 2. Read the current report, compare it to the previous report, and obtain a letter of rep. from the successor auditor 3. Audit the current FS 4. Review the previous report and make the necessary changes

An auditor expressed a qualified opinion on the prior year's financial statements due to lack of disclosure. Those FS are properly restated and presented in comparative form. The updated report on the prior year FS should: 1. Express an unmodified opinion on the restated PY FS 2. Be accompanied by the auditor's original report on the PY FS 3. Continue to express a qualified opinion on PY FS

An auditor identifies a business risk associated with plans for a new product line. What should the auditor do as a result? 1. Analyze the newly identified risk in conjunction with the economic circumstances related exclusively to the new product line and consider whether there is an immediate consequence for the RMM for affected classes of transactions 2. Analyze the newly identified risk in conjunction with other known business risks and consider whether there is an immediate consequence for the RMM at various levels of the audit

An auditor of a nonissuer exercising professional skepticism with respect to the risks of material misstatement due to fraud will most appropriately 1 authenticate documents to use as audit evidence 2 Consider the reliability of the information to be used as audit evidence

An auditor who discovers that a client's employees have paid small bribes to public officials most likely would withdraw from the engagement if the: 1. Client receives financial assistance from a federal govt agency 2. Employees' actions affect the auditor's ability to rely on mgmts representations 3. Audit evidence that is necessary to prove that the acts of noncompliance with laws and regulations were committed does not exist

An auditor would likely disclaim an opinion due to: 1. inadequate disclosure of material information 2. Mgmt's refusal to furnish a client rep letter

An auditor's report on financial statements prepared on the cash receipts and disbursements basis of accounting should include all of the following except: 1. a reference to the note to the FS describing cash receipts and disbursements basis of acct 2. A statement that the auditor is responsible for determining that the cash receipts and disbursements basis of acct is acceptable 3. An opinion as to whether the FS are fairly presented 4. A statement that the audit was conducted in accordance with auditing standards generally accepted in America

As part of understanding the internal control, an auditor is not required to: 1. identify the types of potential misstatements that may occur 2. Obtain knowledge about the operating effectiveness of internal control 3. Ascertain whether internal controls have been implemented 4. Consider factors that affect the risk of material misstatement

If an auditor is unable to determine whether management's estimate of the effects of future events is reasonable, and those effects are believed to be material, he or she should express: 1. a qualified or adverse opinion 2. a qualified or disclaimer of opinion

The auditor's responsibility section (1. should/2. should not) be changed when the primary auditor does not want to take responsibility for an associated auditor

When an entity changes its method of accounting for income taxes, which has a material effect on comparability, the auditor should refer to the change in an emphasis of matter paragraph added to the auditor's report. The paragraph should identify the nature of the change and: 1. Describe the cumulative effect of the change on the FS 2. Refer to the financial statement note that discusses the change in detail

Which of the following elements should be included in the Aud. Rep. when FS are prepared on the cash or tax basis? 1. Description of purpose 2. Emphasis of matter paragraph alerting readers about the preparation 3. Other matter paragraph restricting the use

Which of the following should the auditor of a nonissuer do when reporting on supp. info. that is required by a designated acct standard setter, presented with basic financial statements? 1. Include an emphasis of matter paragraph that references the required supp. info 2. Include a separate report section that references the required supp info

emphasis of matter paragraphs are for ____________ companies explanatory paragraphs are for __________________ companies 1. public; private 2. private; public

In assessing control risk, an auditor ordinarily selects from a variety of techniques including: 1. Confirmation 2. Reperformance 3. Verificaiton 4. Analytical Procedures

2 used to evaluate the effectiveness of the operation

When an auditor tests the internal controls of a computerized accounting system, which of the following is true of the test data approach? 1. Test data are coded to a dummy subsidiary so they can be extracted fron the system under the actual operating conditions 2. Test data are processed with the client's computer and the results are compared with the auditor's predetermined results 3. Test data programs need not be tailor-made by the auditor for each client's computer applications

2 (1 is an integrated test facility)

Analytical procedures in the overall review stage of an audit suggest that several accounts have unexpected relationships. The results of these procedures most likely would indicate that: 1. The communication with those charged with governance should be revised 2. Additional tests of details are required 3. Internal control activities are not operating effectively 4. Irregularities exist among the relevant account balances

2 1,3,4 - it CAN mean this, but does not necessarily mean this

In obtaining an understanding of an entity's internal control, an auditor is required to obtain knowledge about the: 1. Operating effectiveness of controls 2. Design of controls 3. Whether they have been implemented

2 & 3

Objectives of an entity include which of the following: 1. Information and Communication Systems 2. Reliable Financial Reporting 3. Effective and Efficient Operations

2 & 3 1 is a component of internal control, not an objective

Which of the following would not be considered an analytical procedure? 1. Developing the CYs expected net sales based on the sales trend of similar entities within the same industry 2. Projecting a deviation rate by comparing the results of a statistical sample with the actual population characteristics

2 - procedure used in statistical sampling

When assessing the competence of the IA, an ind. CPA should obtain info about: 1. IAs preliminary assessment of control risk 2. Quality of IAs working paper documentation 3. Org. level to which IA reports 4. All of the above

On receiving a client's bank cutoff statement, an auditor most likely will trace: 1. Checks dated after year-end listed in the cutoff statement to the year-end outstanding checklist 2. Prior year checks listed in the cutoff statement to the year-end outstanding checklist 3. Deposits in transit listed in the cutoff statement to the year-end bank reconciliation 4. Deposits recorded in the cash receipts journal after year-end to the cutoff statement

2. The auditor should obtain bank cutoff statements that include transactions for 10 to 15 days after year end. The outstanding checks and deposits in transit at year-end on the bank reconciliation should agree with the info in the bank cutoff statement

When an entity reissues financial statements, the entity (1 should/2 should not) recognize events that occurred between the date of OG FS were issued and the reissued dates (1 unless/2 even if) an adjustment is required by GAAP or other regulations

2; 1

An auditor would least likely use computer software to: 1. Construct parallel simulations 2. Access client data files 3. Assess EDP control risk 4. Prepare spreadsheets

When applying analytical procedures during an audit, which of the following is the best approach for developing expectations? 1. Considering unaudited account balances and ratios to calculate what adjusted balances should be 2. Considering the pattern of several unusual changes w/o trying to explain what caused them 3. Identifying reasonable explanations for unexpected differences before talking to mgmt 4. Comparing client data w/ client-determined expected results to reduce tests of account balances

Which of the following circumstances would NOT raise concerns regarding management's philosophy and operating style? 1. Management consumed with meeting the budget 2. Management dominated by one person. 3. Separation within the organization between the audit committee and executive employees 4. Management compensation contingent on financial performance

Which of the following factors is most relevant when an auditor considers the client's organizational structure in the context of control risk? 1. Management's attitude towards information processing and accounting departments 2. The organization's recruiting and hiring process 3. The suitability of the client's lines of reporting 4. Physical proximity of the accounting function to upper management

Which of the following is a management control method that most likely could improve management's ability to supervise company activities effectively? 1. Monitoring compliance with internal control requirements imposed by regulatory bodies 2. Limiting direct access to assets by physical segregation and protective devices 3. Establishing budgets and forecasts to identify variances from expectations 4. Supporting employees with the resources necessary to discharge their responsibilities

Which of the following is not true regarding an engagement with a reporting accountant to provide a written report on the application of the requirements of an applicable financial reporting framework? 1. The reporting accountant's written report on the application of the requirements of an App. Fin. Rep. Frame. should include identification of the specific entity involved 2. The RA's WR on the app of the PFRF should include a paragraph restricting use of the report 3. A RA is prohibited from providing a report on the app of the req. of an AFRF to a proposed future transaction involving the facts and circumstances of a specific entity 4. A RA is prohibited from reporting on the application of the req.s of an AFRF to a transaction not involving the facts and circumstances of a specific entity

Which of the following can be achieved using generalized audit software? 1. Assessing the likelihood of fraud based on input fraud risk factors 2. Determining the acceptable risk level for substantive testing of account balances 3. Filtering data based on accounts receivable data recording 4. Detecting transactions that may be suspicious due to alteration of data input

3 1 & 2 - these are subjective assessments and must be made by the auditor

Which of the following controls is least likely to be relevant to a financial statement audit? 1. Generation of production statistics used to evaluate variances 2. Policies that relate to compliance with income tax regulations 3. Procedures that prevent the excess use of materials in production 4. Use of computer passwords to limit access to data files

3 Procedures to reduce inefficiency on the production line relate to operational objectives and not necessarily to financial reporting objectives

An auditor should obtain knowledge of a client's info and comms. system in order to understand each of the following except: 1. How transactions are initiated, processed, and reported. 2. The means used by an entity to communicate financial reporting roles to its staff 3. The means used by an entity to ensure that management directives are carried out 4. The process used to prepare financial statements

3. - ensuring mgmt directives are carried out are a part of control activities

In a parallel simulation, actual client data are reprocessed using an auditor software program. An advantage of using parallel simulation instead of performing tests of controls without a computer is that: 1. The client's computer personnel do not know when the data are being tested 2. There is no risk of creating potentially material errors in the client's data 3. The test includes all types of transaction errors and exceptions that may be encountered 4. The size of the sample can be greatly expanded at relatively little additional cost

Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events? 1. Trace info from shipping docs to sales invoices and sales journal transactions 2. Verify inventory pledged under loan agreements by confirming the details with financial institutions 3. Compare the FS being reported on with those of the prior year 4. Inquire about the current status of transactions that were recorded on the basis of preliminary data

Which of the following events that occurred after ta client's year end but before the audit report date would require disclosure in the notes to the FS but no adjustment to the FS? 1. Negotiations have resulted in compensation adjustments for union employees retroactive to the fourth quarter 2. A loss is reported on uncollectible accts of an acknowledged distressed customer 3. A fixed asset used in operations is sold at a substantial profit 4. New convertible bonds are issued to expand the product line

4 1 and 3 would require adjustment 2 would not be recognized

Which of the following procedures would least likely result in the discovery of possible noncompliance with laws and regulations? 1. Making inquiries of mgmt or legal counsel 2. Reading the minutes of the BOD meetings 3. Performing tests of details of transactions 4. Reviewing an internal control questionnaire

4 Relays the policies and procedures, but does not provide any information about transactions or events that have occurred

An auditor's primary consideration regarding an entity's internal control is whether the controls: 1. Reflect management's philosophy and operating style 2. Relate to the control environment 3. Prevent management override 4. Affect the financial statement assertions

In confirming accounts receivable in PYs, an auditor uncovered many differences between recorded balances and confirmation replies. These differences were resolved and were not misstatements. In defining the sampling unit for CY, the auditor would most likely choose: 1. Customers with credit balances 2. Small acct balances 3. Individual overdue balances 4. Individual invoices

4. Because of the significant discrepancies on past confirmations, the auditor would most likely choose to use individual invoices in the CY audit. Depending on the accounting system, these invoices could provide more confirmation detail including individual transactions instead of a balance at a point in time. By confirming individual transaction details on the individual invoices, there should be fewer discrepancies

The phrase "U.S. generally accepted accounting principles" is an accounting term that: 1. Includes broad guidelines of general application 2. Is included in the audit report to indicate the audit has been conducted in accordance to GAAS 3. Provides a measure of conventions, rules, and procedures governed by the AICPA 4. Encompasses the conventions, rules, and procedures necessary to define US Accepted Accounting Practice at the time

4. Encompasses the conventions, rules, and procedures necessary to define US Accepted Accounting Practice at the time

Controlled Reprocessing

A form of parallel simulation where the auditor uses an archived copy of the program in question or writes a program (generally the auditor's own control copy) to reprocess transactions. The results are then compared to the results from the normal processing run.

Other-Matter Paragraphs (Nonissuers)

A paragraph included in the auditors' report that refers to a matter other than those presented or disclosed in the financial statements that, in the auditors' judgment, is relevant to users' understanding of the audit, the auditors' responsibilities, or the auditors' report.

Generalized Audit Software Packages (GASPs)

Allow the auditor to perform tests of controls and substantive tests directly on the client's system.

integrated audit

An audit of both financial statements and internal control over financial reporting, provided by the external auditor. Required for public companies.

If an accounting change has no material effect on the financial statements in the current year, but the change is reasonably certain to have a material effect in later years, the change should be: A. Referred to in the auditor's report for the current year. B. Disclosed in the notes to the financial statements of the current year. C. Disclosed in the notes to the financial statements and referred to in the auditor's report for the current year. D. Treated as a subsequent event.

Matters giving rise to a qualified opinion or when substantial doubt exists should not be included in key audit matters but rather in:

Basis for opinion or going concern section

The AICPIA has issues what 2 guidelines?

Code of Professional Conduct for members of the AICPA Statements on Quality Control Standards provides guidance to CPA firms that provide auditing, attestation, accounting, and review services

CRIME

Control environment Risk assessment Information Monitoring Exiting Control Activities

What are disclosures related to inventory that should be in the FS notes?

Cost method/valuation method Raw materials, WIP, finished goods balances consigned inventory significant losses warranty obligations

The Engagement Partner should review these areas on a timely basis during the audit to allow for resolution before the date of the auditor's report:

Critical areas of judgment Significant risks (always rev recognition and management override) Other areas considered important

What is changed in the audit report when the auditor disclaims an opinion? (issuer)

Disclaimer of Opinion Section - were engaged to audit instead of have audited; reference paragraph describing reasons; statement they were not able to obtain sufficient evidence; disclaimer Additional paragraph - all reasons for the disclaimer and any reservations regarding GAAP Basis for DO - eliminate sentence taking responsibility to express the opinion on FS and the paragraph regarding GAAS compliance CAM omitted

What is the auditor's responsibility with respect to information that is presented in a document containing the audited FS?

Discuss w/ management Obtain written acknowledgment Read to insure consistency Reference the other info in the auditor report

If management does not include the management and discussion section (required by the SEC but not GAAP) and refuses to add it after discussion, how does this affect the opinion?

It doesn't, just add an explanatory paragraph

What is the difference between the auditor's specialist and management's specialist?

MS cannot be independent and therefore cannot make any judgments

COVER U

Management assertions of financial statements: Completeness cutOff Valuation allocation and accuracy, Existence and occurrence, Rights and obligations, Understandability and classification The NET that the auditor uses to COVER U

What is the most authoritative language in accounting standards?

Must or is required

When there is a change in materiality, there should be a change in:

NET

What are the modifications to the audit report paragraphs for a nonissuer when a disclaimer of opinion is expressed?

Opinion - engaged to audit, no opinion Basis - amend to describe Mgmt Resp. - standard Aud. Resp. - content limited KAM - do not include

In determining whether transactions have been recorded, the direction of the audit testing should be from the:

Original source documents completeness assertion - trace forward

For what three main reasons might an auditor disclaim an opinion?

Pervasive inability to obtain sufficient evidence lack of independence (always disclaim unless required by law or regulation) Going concern Uncertainty

What is the COSO internal control framework?

Pyramid 1. Monitor (top) 2. Control activities 3. Risk assessment 4. Control Environment (base) Information and communication form the sides

What are the reporting options for FS prepared in accordance with a financial reporting framework generally accepted in another country when the FS will be distributed outside the US only?

Report form of the other country or the report sent out in the ISAs US style report modified to refer to the financial framework generally accepted in another country

What are the most authoritative guidelines?

SAS nonissuers PCAOB AS issuers

What are the reporting options for FS prepared in accordance with a financial reporting framework generally accepted in another country when the FS will also be distributed in the US?

Standard US report with an emphasis of matter paragraph that: identifies the financial reporting framework refers to the note in the FS describing the framework indicates the framework differs from GAAP

What should be n the second paragraph in the basis for opinion section in the unqualified audit opinion

Statement that the audit was conducted in accordance with the standards of the PCAOB Statement that PCAOB standards require that the auditor plan and perform the audit to obtain reasonable assurance about the FS being free from material misstatement due to error or fraud Statement that the auditor believes the audit provides a reasonable basis for the given opinion

Where do you disclose the use of multiple sets of standards?

The Basis of Opinion

Leadership (ASB Quality Control System (QCS))

The firm's leadership bears ultimate responsbility for the firm's QCS

When would you do the substantive only approach?

There are no strong controls to rely on The cost outweighs the benefit

What should be major considerations in client acceptance?

Timing Ability to Staff (experience and availability) Independence Integrity of Client Management Group Audits

Basic elements of the clean independent audit report

Title Addressee Auditor's Opinion Basis for Opinion Going Concern (when applicable) Key Audit Matters (Private company/AICPA) Critical Audit Matters (Public Company/PCAOB) Management Responsibility Auditor's Responsibility Other Info (when applicable) Other reporting Responsibilities Signature of Auditor Auditor's Address Date of the Auditor's Report

What is the order of the audit report of a nonissuer?

Title Addressee Auditor's Opinion Basis for Opinion Management Responsibilities Auditor Responsibilities Signatures and dates - when applicable there could also be going concern paragraphs, KAMs, other information, and other reporting responsibilities

negative confirmation

a form sent to a customer by auditors requesting that the customer respond only if the balance shown on it is incorrect

positive confirmation

a letter sent to a customer by auditors requesting that the customer respond whether the balance shown on it is correct or not

PCAOB standards require an engagement quality review and concurring approval of audit report issuance for

all audits of issuers and for each engagement to review the interim financial statements

An auditor would assess management's plan to repurchase stock when

assessing control risk and considering appropriate disclosure

The auditor would consider the turnover of personnel in the acct dpt. and the objectivity of audit committee members when

assessing control risk and risk of fraud

What activities are included in monitoring?

assessing info derived from external parties assessing the quality of internal control improving controls not operating effectively using information from customer complaints

Overall fraud risk should address

assigning personnel level of supervision evaluating management's selection and application of accounting principles determining the level of unpredictability

If the group audit team makes no reference of the component auditor, they effectively

assume the responsibility of the component auditor's work

In most audits of issuers, how many CAMs will an auditor normally identify?

at least one

For audits of issuers, the auditor must agree to the terms of the engagement with the _______________ in an engagement letter

audit committee

Test of Controls

audit procedures to test the effectiveness of controls in support of a reduced assessed control risk

What publications are interpretive rather than authoritative?

auditing interpretations of GAAS exhibits to GAAS auditing guidance in AICPA Audit and Accounting Guides AICPA Auditing Statements of Position (SOP)

Use of Other-Matters Paragraphs required when:

auditor includes an alert that restricts the use of the auditor's report The FS of PP were auditored by a different auditor and their report was not reissued The FS from the PP were not audited and are issued with the audited statements Restrict the use of the audited statements in accordance with a contractual or regulatory basis

Client's internal control should separate what three functions?

authorization record keeping custody of related assets

A CPA's report on audited financial statements under US auditing standards would be inappropriate if it referred to: a. Evaluating the appropriateness of acct policies used b. The CPAs assessment of sampling risk factors c. Management's responsibility for the FS d. significant estimates made by management

In which of the following sections of an auditor's report for a nonissuer does the auditor communicate the nature of the engagement and the specific financial statements covered by the audit? a. scope b. opinion c. basis for opinion d. emphasis-of-matter

PCAOB AS applies to the _______________ section

basis for opinion

Audit documentation/Working papers should provide:

basis for the auditor's report and conclusion evidence the audit was done in accordance with GAAS

What does the diamond sign mean in a flow chart?

big decisions

Auditor's must be independent in:

both fact and appearance

Tests of controls are required when

business is using IT and no documentation outside of the IT system exists evidence is obtained in an electronic form

response encompassing specific audit procedures

changing the NET

Work papers may not be disclosed without

client's permission or court order

For each matter that was ______________ and _______________, the auditor must document whether it was determined to be a CAM and the basis for the determination

communicated or required to be communicated to the audit committee relates to accounts or disclosures that are material to the FS *When no CAMs are present, first describe the above then state none were found

Basis for Opinion section includes

conducted in accordance to GAAS professional judgment and skepticism identify and assess risks obtain an understanding of internal control evaluate the appropriateness of acct policies used substantial evidence has been obtained (this used to be the scope paragraph)

If the client is unwilling to agree to allow the current auditor to communicate with the predecessor auditor, the auditor should

consider withdrawing

When exam questions indicate that the financial statements are false, fraudulent, deceptive, or misleading, that management refuses to correct them, and that modification of the CPA's report is not sufficient to correct the item, the CPA should:

consider withdrawing from the engagement

The auditor should document key elements of the understanding of the entity and its environment, including each of the five components of internal control. The five components include:

control activities control environment risk assessment info and comms monitoring

Participation of those charged with governance, assignment of authority, responsibility, and accountability, & HR practices are part of the

control environment

The suitability of the client's lines of reporting is an important part of the organizational structure, which in turn is a key component of the _______________________

control environment

Substance over form concept as related to internal controls:

controls may appear on the surface to exist but in reality are not operating effectively

What are the 3 types of fraud?

corruption, asset misappropriation, financial statement fraud

What two documents are most likely to be generated by a revenue cycle application?

credit memos and sales invoices

Which of the following items is included in an unmodified opinion audit report? a. The procedures selected depend on management's approval b. We conducted the audit in accordance with GAAP c. We believe that the audit evidence obtained is sufficient and appropriate to provide a basis for our review d. We identify and assess risks of material misstatement of the fs whether due to fraud or error and design and perform audit procedures responsive to those risks

d c is incorrect because the evidence provides a basis for the opinion, not for a review.

Emphasis of matter is required when:

describing a justified change in accounting principle that has a material effect Subsequently discovered facts that lead to a change in audit opinion FS prepared in accordance with a special purpose framework

Why is detection risk not apart of the control environment?

detection risk is a risk that the auditor will not uncover a material misstatement - not a factor of the company's control environment

Explanatory Paragraph (Issuers) Required when:

does not affect the opinion follows the opinion No heading required Going concern change in acct principles 2/ material effect change in reporting entity material misstatement on previous statements data required by SEC has been omitted/not reviewed Management is required to report on IC but the report has not been audited

Common means for revenue cycle frauds can include:

early revenue recognition holding the books open past close of acct period fictitious sales failure to record returns side agreements to induce customers to accept goods and services they dont need channel stuffing overstating receivables

Where would you disclose that an investment accounted for in the equity method?

emphasis of matter/explanatory

Under PCAOB standards, the engagement quality reviewer is required to hold discussions with the ____________________________ to evaluate the significant judgments made by the engagement team and the ________________________

engagement partner overall conclusion

Performance (ASB QCS)

ensure that the engagement is appropriately supervised and reviewed allow consultation with experts for complex issues

The auditor's opinion includes

entity being audited which FS have been audited dates auditor opinion

Why would reconciling the control totals for sales invoices with the AR subsidiary ledger be an ineffective control to reduce the risk of errors in the billing process?

errors that exist in the preparation of invoices would carry through the the AR

How often must the auditor test internal controls to rely on them during the audit

every 3 years (unless risk is a significant risk or internal controls have changed)

Authorization of transactions, segregation of duties, pre-numbering of documents, and operating performance reviews are part of the

existing control activities internal control component

May might or could indicates

explanatory material that doesnt impose a professional requirement

If the client refuses to proceed as the auditor advises in subsequent events before the report has been issued, the auditor should

express a qualified or adverse opinion

A change in accounting principle that necessitates a change in estimate does not require an explanatory paragraph.

false

A successor auditor should request to view the predecessor's engagement letter

false

An internal auditor is likely to be more objective when they report directly to the corporate controller

false

Analytical procedures during the planning phase generally help an auditor develop a preliminary judgment about materiality.

false

Internal auditors may not assist the auditor in obtaining an understanding of internal control and in performing tests of controls and substantive tests

false

T/F: Weak internal control equals adverse opinion.

false

When CAMs are identified, the auditor can add language to disclaim, qualify, restrict, or minimize the auditor's responsibility for the CAMs

false

When auditing a business that uses the tax basis of accounting, that audit is not conducted in accordance with generally accepted auditing standards

false

You can still use GAAP terms when preparing an audit report using an OCBOA

false

2 Main Responsibility of Management

financial statements and internal control

If the group auditor decides not to refer to the component auditor who audited a subsidiary of the group auditor's client, he would determine the type of work he will then need to perform on the financial information of the component because:

he in effect assumed responsibility for the work of the component auditor

Analytical procedures use aggregate data at a _________ level

high

What are examples of things affecting inherent risk

high volume transactions complex calculations amounts derived from estimates cash technology rendering products obsolete a lack of working capital a decline in the overall industry/economy

The entity's information system supports the ___________, ___________________, and ________________ of information

identification, capture, and exchange

Risk assessment procedures primarily help the auditor:

identify and assess the risk of material misstatement and make informed judgments

What is one of the primary reasons to perform analytical procedures during the planning stage?

identify the risk of material misstatement due to fraud

Knowledge about the design of relevant internal controls should be used to _________________, and the design and implementation of internal control should be used to document _______________.

identify the types of misstatements that could occur document the assessed level of control risk

The auditor should consider the results of analytical procedures performed in the planning stage of the audit in:

identifying the risk of material misstatement due to fraud

Every audit has a presumption that which two risks exist?

improper revenue recognition management override of controls

If you are disclaiming an opinion but are aware of departures from GAAP and have sufficient appropriate evidence, you should:

include a separate explanatory paragraph, the nature and effect of the departure from GAAP

If the prior year's audit report is not being reissued, the current CPA should:

include in an other matter paragraph (nonissuer) or explanatory paragraph (issuer) that: 1. The prior year FS were audited by a different auditor (not named) 2. The type of opinion that was expressed and why 3. The nature of any emphasis of matter/other matter/explanatory paragraphs 4. The date of the prior year report

Proper presentation of transactions and related disclosures, measuring and recording proper monetary values, and the way in which sig. events are captured by the acct system are all a part of the

information and communication systems component of IC

Significant risks depend entirely on _______________ risk regardless of _________ risk

inherent; control

An auditor should restrict the use of their communication related to the audit of a nonissuer's financial statement by including an alert when the written communication:

is based on measurement or disclosure of criteria that the auditor determined to be suitable only for a limited number of users who can be presumed to have an adequate understanding of the criteria

The monthly bank rec should be prepared by someone that

is independent of cash receipts and disbursements such as the internal auditor

Statements on Quality Control Standards (SQCS)

issued by Auditing Standards Board to provide guidance with respect to quality control

PCAOB AS is for

issuers

The specific quantity, type, and content of audit documentation are based on the auditor's ____________

judgment

A change in the engagement must be

justified

There may be a duty to disclose to outside parties in circumstances such as:

legal and regulatory requirements successor auditors authorities

What procedures should the auditor use to evaluate the specialist's work?

make inquiries of the specialist review the working papers review their reports observe their work, examine their data, confirm relevant matters with third parties, reperform calculations engage in discussions with other specialists discussing the report with management

The auditor should inquire of _______________ whether they have communicated to _____________________ regarding IC and how it functions to prevent/deter/detect MM due to fraud

management those charged with governance

What are the inherent limitations due to the nature of the audit process?

management may not provide complete information disclosing impairment, warranties, contingencies, lawsuits, etc. Fraud will be intentionally concealed An audit is not an investigation into wrongdoing and the auditor doesnt have legal powers

What types of circumstances may require the terms of the engagement to change?

management misunderstanding change in regulatory requirements financial reporting framework change in senior management/ownership

Preliminary evaluations are done of the ________________ to develop an overall audit strategy

materiality, audit risk, and internal control

CAMs are defined as

matters communicated to the audit committee and that relates to accounts or disclosures that are material to FS and involved especially challenging, subjective, or complex auditor judgment

Auditing around the computer

means verifying processing by checking for known outputs using specific inputs. This approach is most effective for systems with limited outputs.

lower detection risks means (more/less) work

When there is a weak control environment, the auditor's work will be:

more substantive performed at year end NET

Would you add an emphasis of matter paragraph to an unmodified opinion to make the user aware of a material weakness in internal control?

SAS is for

nonissuers

Empahsis of Matter Paragraphs are for:

nonissuers to draw attention to something that is PROPERLY PRESENTED but needs special attention by the user to understand the FS as a whole

If the client refuses to proceed as the auditor advises in subsequent events after the report has been issued, the auditor should

notify each member of the board and "DAR" them to fix it: D - disassociate with the audit report A - alert regulatory agencies R - relying parties (notify persons relying)

Required Contents of Engagement Letter

objective and scope responsibilities of auditor resp. of mgmt. inherent limitations...unavoidable risk applicable financial reporting framework expected form and content

What is a piecemeal opinion? Is it allowed?

occurs when the auditor expresses an adverse or disclaimer of opinion on one or more financial statements but an unqualified/unmodified opinion on one or more financial statements or elements/accounts/etc. Not allowed in general

Monitoring (ASB QCS)

ongoing consideration and evaluation of the design and effectiveness of the QCS a partner should bear responsibility for the monitoring process procedures include the performance of engagement quality control reviews, post-issuance reviews of engagement docs, and inspections of a selection of completed engagements "wrap up" or second partner preissuance review as required by the Sarbanes Oxley Act for every public company audit report

Which sections change when an adverse opinion is issued? (nonissuer)

opinion basis for opinion *do not include KAM all other sections remain the same

Which types of materiality must be determined?

overall FS statements performance particular classes of transactions/accts/disclosures

What is the most common area you would use actuarial calculations?

pensions

In a well designed internal control environment, fraud and errors should be ___________ or ____________ by employees during the ordinary course of business

prevented; detected

embedded audit modules

program code segments that perform audit functions, report test results, and store the evidence collected for auditor review auditors are required to be involved in the system design of the application to be monitored and therefore hesitate to use these

Emphasis of matter paragraphs (nonissuer*) are used when referring to a matter that is:

properly presented or disclosed - references where to find said disclosure does not affect the opinion paragraph goes before other-matter paragraph (when included)

Audit committees are required for

publicly traded companies

For specialists, make sure they are a QUIRK

qualifications understand objectives independent Reputation Knowledge

Client acceptance directly ties into

quality control

Human Resources (ASB Quality Control)

recruitment and hiring determining capabilities and competencies assigning personnel to engagements professional development performance evaluation, compensation, advancement

Adoption of new acct principles, hiring new personnel, incorporating new technology, and restructuring are part of the

risk assessment component of IC

An integrated test facility

runs test transactions through the live system then uploads the results to simulated files to provide an auditor with info abt operating effectiveness

A walkthrough can be performed by:

selecting a single transaction and tracing it through the information processing system AND/OR Identifying the key steps in the processing of a class of transactions from inception to financial reporting and then performing risk assessment for each step

PCAOB standards state that ____________________ materiality levels should be set for accounts with a substantial likelihood of misstatements would affect the FS statements in a way that would influence the reasonable investor

separate lower

If the auditor expresses an unmodified opinion, they should/should not reference the work of the auditor's specialist

should not

What should be included in the first paragraph of the Basis for Opinion section of an unqualified opinion for an issuer?

statement that the FS are the responsibility of management statement that the auditor's responsibility is to express an opinion based on the audit a statement that the auditor is a public accounting firm registered with the PCAOB and is required to be independent w/ respect to the company in accordance with us fed securities laws and the applicable rules and regulations of the SEC and PCAOB

Form AP must be filed by

the 35th day after the audit report is first filed in a document with the SEC or within 10 days if the audit report is included in a registration statement.

Which section do I modify when disclosing that another auditor's work was used?

the Opinion section - NOT auditor responsibility

Quality control procedures at the engagement level are implemented to provide reasonable assurance that:

the audit complies with professional standards and legal/regulatory requirements the auditor issues an appropriate report

The auditor typically decide which controls to test based:

the auditor's understanding of the design and implementation of internal control

If an auditor's report on financial statements is included in an exempt offering document and the auditor is involved in the offering, the subsequent procedures should be extended to

the date of distribution, circulation, or submission of the exempt document

If an auditor's report is included in a registration statement, subsequent procedures should be extended to

the date of or shortly before the effective date of the registration statement

What is the order of important auditing report dates

the date sufficient evidence has been obtained the date of the auditor's report (active responsibility stops) the date the report is submitted

Rights and Obligations Assertion

the entity holds or controls the rights to assets, and liabilities are the obligations of the entity

Management is responsible for subsequent events up until the date

the financial statements are issued (issuer) are available (nonissuer)

Group Financial Statements

the financial statements of more than one component (division, subsidiary, or other segment)

Group Engagement Partner/Principal Auditor

the group engagement partner (AICPA)/principal auditor (PCAOB) is the partner responsible for the group audit engagement and for the auditor's report

Engagement (ASB Quality Control)

the policies and procedures established to decide whether to accept or continue a client relationship - minimizes the likelihood of association with a client that lacks integrity - only undertake clients that we can reasonably expect to complete with professional competence - can comply with legal and ethical requirements - policies and procedures for withdrawal

The description of each key audit matter should include a reference to:

the related disclosures in the financial statements why the matter was significant how it was addressed

When do you have to add an explanatory paragraph under PCAOB standards to a report on supplementary information?

the required info is omitted there are material departures from the prescribed guidelines the auditor is unable to complete proscribed procedures there are unresolved doubts about conformance of supp info

dual-dated audit report

the use of one audit report date for normal subsequent events and a later date for one or more subsequent events that come to the auditor's attention after the date of the audit report

A review consists of consideration of whether:

the work was performed in accordance with professional standards significant findings need further consideration appropriate consultations have taken place The nature extent and timing of the work performed

For all significant risks, if the auditor plans to rely on internal controls

they MUST be retested in the year being relied on

If an auditor becomes aware after the date of the auditor's report but before the financial statements are issued, of a fact that may materially affect the financial statements,

they should consider whether it is necessary to adjust their report even though their responsibility is technically over

When management is required to report on internal control but the auditor does not audit that report, the auditor must include language stating:

they the auditor was not engaged to perform an audit over internal control over financial reporting the auditor must obtain an understanding of ic but not for the purpose of assessing it the auditor expresses no opinion

Peer reviews of QCS must happen every (AICPA standards)

three years

An accountant is precluded from changing the engagement if the client refuses:

to allow correspondence with legal counsel to provide a signed representation letter

What is the ultimate purpose of assessing control risk?

to contribute to the auditor's evaluation that material misstatement may exist in the FS

What is the primary purpose of performing analytical procedures during the planning stage?

to identify the RMM due to fraud

The auditor may familiarize himself with the business by:

touring facilities reviewing history understanding client accounting talking to personnel

A change in estimate is not necessarily a consistency issue and does not require an explanatory paragraph.

true

A nonrecognized subsequent event should still be disclosed if failure to do so would make the FS misleading

true

A reporting accountant is not required to be independent

true

An auditor should follow up by calling customers/banks that respond to confirmations electronically, such as by fax or email

true

An auditor would modify the same paragraphs when rendering either a qualified opinion due to a departure from GAAP or a qualified opinion due to a scope limitation

true

Bearer bonds have been used historically to facilitate fraud and money laundering

true

Failed quality control does not equal failed GAAP and GAAS requirements

true

For assertions related to material financial statement amounts with a high risk of material misstatement or a high degree of subjectivity, the internal auditor's work alone cannot eliminate direct testing by the CPA

true

If a company issues FS but omits the related statement of cash flows, the auditor is required to release a qualified opinion

true

If any FS are presented with audited documents and filed with the SEC they should be marked "unaudited"

true

Lack of records equals a scope limitation

true

Most issuers are required to have an integrated audit

true

T/F An audit may be on one financial statement or even only one element of a financial statement and can cover single or multiple periods

true

T/F Analytical procedures and testing of controls are not part of walkthrough procedures

true

The auditor is not required to report on CAMs when issuing an adverse opinion

true

The auditor is required to communicate all deficiencies in internal control to management, and deficiencies that constitute a significant deficiency or a material weakness to management and the audit committee

true

The auditor should treat the CPAs firm specialist like one of your staff.

true

The explanatory paragraph for an issuing company contains the same information from both the emphasis of matters and other matters paragraph of a nonissuing company

true

The reporting accountant should request permission from management to consult with the continuing accountant

true

There is no requirement to reference GAAS when auditing an issuing company, but rather they reference PCAOB

true

When the current period's financial statements are presented on a comparative basis, the auditor may disclose the prior year's CAMs

true

T/F Departure from GAAP is permissible if financial statements would be otherwise misleading

true but a theoretical concept not often seen

In an initial audit, communication with the predecessor auditor is mandatory

true if the client will not allow this, consider withdrawing

The auditor is not required to evaluate the operating effectiveness as part of obtaining an understanding of the design and implementation of internal control

true only must be evaluated once auditor has decided to rely on the controls

You can never issue an adverse opinion when you suspect a material misstatement, but management does not allow you to obtain the evidence to prove it

true withdraw or disclaim

Common risk assessment procedures

understand entity and environment understand internal control inquire of the audit committee, management, etc analytical procedures discussion among engagement team

During the subsequent period, the auditor has an active responsibility to:

understand management's procedures of identifying subsequent events (P)Post Balance Sheet Transactions (R)Representation Letter (from management regarding whether anything requires adjustment (I) Inquire of legal counsel and management about potential subsequent events (M) Minutes: review stockholders/directors/committee meetings (E) Examine: Latest interim financial statements and compare to those under audit

Response Addressing Risks Related to Management Override

unterstand their financial reporting process examine JEs and other adjustments review their accounting for estimates evaluate significant unusual transactions

The objective of performing analytical procedures in planning an audit is to identify the existence of

unusual transactions and events

parallel simulation

using auditor-written software to process data and comparing the output with the company's output; discrepancies are investigated to see if unauthorized program changes were made

A CAM is defined as a matter that:

was communicated or required to be communicated to the audit committee relates to accts/disclosures that are material to the FS involved especially challenging or subjective auditor judgment a report must include all CAMs OR a statement that none were found

If a company has weak IC, the auditor will utilize more (interim/year-end) testing

year end

Would the settlement of litigation or loss on an uncollectible receivable be a subsequent event?

yes

An auditor uses assessed control risk to

determine the acceptable level of detection risk for financial statement assertions.

As part of a fraud audit, which test of controls using CAATs would best meet the objective of uncovering invalid SSNs? 1. Compare the payroll transaction file to the employee master file to find payments to employees not in the master file 2. Randomly select 25 payments and compare results to SSN cards 3. Obtain stats on population of the payroll file to identify unusual pay amounts 4. Compare SSN paid in the payroll to a file of government authorized SSNs

An internal auditor's work would most likely affect the NET of an independent CPAs auditing procedures when the work relates to assertions about the: 1. valuation of intangible assets 2. valuation of related party transactions 3. Existence of contingencies 4. Existence of fixed asset additions

4. Existence of fixed asset additions In making judgments about the extent of the effect of the internal auditor's work on the procedures, the auditor considers the materiality of financial statement amounts, and the degree of subjectivity involved in the evaluation of the audit evidence gathered in support of the assertions. As the degree of subjectivity increases, the need for the auditor to perform tests of the assertions increases. Testing the existence of fixed asset additions involves very little subjectivity.

Which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorded? 1. The accounting department supervisor independently reconciles the accounts receivable subsidiary ledger to the accounts receivable control account monthly 2. The accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences reported by customers 3. The billing department supervisor sends copies of approved sales orders to the credit department for comparison to authorized credit limits and current customer account balances 4. The billing department supervisor matches prenumbered shipping documents with entries in the sales journal

4. Selecting prenumbered shipping documents and matching them with entries in the sales journal is a control that would help ensure that all credit sales transactions are recorded

How many separate handlers do you want for segregation of duties in an IT control environment

5 Control team Operator Programmer Analyst Librarian

How long does the auditor get to complete the audit documentation file after the report release date under: SAS Rules PCAOB Rules

60 days 45 days

Regulatory Basis

A basis of accounting used to comply with the requirements or financial reporting provisions of a regulatory agency having jurisdiction over the entity

Which section of authoritative literature outlines the steps the auditor may take to prevent future reliance upon an audit report?

AU-C 560.A24

________________ controls apply to the processing of individual transactions _______________controls apply to information processing throughout the company

Application General

What procedures would an auditor perform related to supplementary information that accompanies the financial statements and is required by a designated accounting standards setter, such as the FASB?

Apply limited procedures, including: inquiry regarding how the supp info was prepared, including changes from prior years and sig. assumptions used determining whether the supp info is consistent with mgmt.'s responses, audited FS, and other knowledge Obtaining written mgmt. representations The auditor may but is not required to issue an opinion on the info

Inventory turnover

COGS/Average Inventory

Relevant assertions for account balances

CVER Completeness Valuation, Allocation, and Accuracy Existence and Occurrence Rights and Obligations

Examples of special purpose frameworks

Cash basis Tax basis Regulatory basis Contractual basis Any other basis using a definite set of logical, reasonable criteria that is applied to all material items in the FS

An auditor who wishes to capture an entity's data as transactions are processed and continuously test the entity's computerized information system most likely would use which technique?

Embedded audit module

A disclaimer is a _________ problem

GAAS

Qualified Opinion due to Inadequate Disclosure (nonissuer)

GAAS problem in opinion section "except for omission of the information described" Basis for Qualified opinion - describe the info referenced in the opinion make sure omission does not make financials false fraudulent or deceptive (if so, withdraw)

What should be included in the unqualified opinion section of an issuer?

Header: Opinion on the Financial Statements Name of the company Statement identifying each FS and any related audited schedule Dates or periods covered by each FS and related schedule Statement indicating FS were audited Opinion that the FS present fairly the financial position as of the BS date and the results of its operations and cash flows for the period ended were in conformity with GAAP/etc

What is the IT exception as related to manual controls?

IT system may make it impossible to resolve the detection risk through substantive testing alone must do control testing as well

If an opinion is modified, on a nonissuer audit report where does the paragraph explaining the modification appear?

Immediately following the Opinion paragraph with an appropriate heading such as: Basis for Qualified Opinion Basis for Adverse Opinion Basis for Disclaimer of Opinion

If an opinion is qualified due to material misstatement of FS on an issuer audit report, where does the paragraph explaining the qualification appear?

Immediately following the opinion paragraph with no separate header. The paragraph should include: All of the substantive reasons that lead the auditor to conclude that there has been a departure from GAAP Disclosure of the principal effects of the subject matter of the qualification on financial position, results of operations, and cash flows, if practicable - if the effects are not reasonably determinable, the report should state that - if such disclosures are made in a note to the financial statements, the explanatory paragraphs may be shortened by referring to it

What is the effect on the audit report when the current period FS are audited and presented in comparative format when the PP was reviewed or compiled?

Include an other matter or explanatory paragraph that includes: 1. a description of the services performed in the PP 2. Date of the PP report 3. Statement that the service was less in scope and does not provide a basis for expressing an opinion 4. A statement that no opinion or assurance is expressed on the FS

What is a complete and accurate list of the walkthrough procedures usually performed in an issuer's integrated audit?

Inquiry Observation Inspection of relevant documentation Reperformance of controls

What are the modifications to the audit report paragraphs for a nonissuer when a qualified opinion is expressed?

Opinion - Except for Basis for Opinion - amend to describe Mngmt Resp. - standard Auditor Resp. - standard KAM - when engaged

What are the modifications to the audit report paragraphs for a nonissuer when an adverse opinion is expressed?

Opinion - do not fairly present Basis - amend to describe MGMT Resp. - standard Aud. Resp. - standard KAM - do not include

What are the modifications to the audit report paragraphs for an issuer when a qualified opinion is expressed?

Opinion - except for Additional Paragraph - Yes Basis for Opinion Section - standard

What is changed in the audit report when the auditor disclaims an opinion? (nonissuer)

Opinion - rather than stating the FS have been audited, say you were engaged to audit; reference the basis for disclaimer of opinion as the reason for the disclaimed opinion Basis for DOO - do not include a reference to the auditor responsibilities or the statement that sufficient evidence has been obtained do not include KAM

How would you title the opinion section with a prior year unmodified current year qualified opinion for an issuer? For a nonissuer?

Opinion on the FS Qualified Opinion

How are the sections changed for an Adverse Opinion for an issuing company?

Opinion section: "because of the effects of the matters discussed in the following paragraph..." Following paragraph - describe Basis for opinion: unmodified CAM section omitted

When issuing a qualified report for a Public Company, how are the opinion and basis for opinion sections changed?

Opinion: "except for ____" Additional Paragraph immediately following opinion describing the substantive reasons for the qualification and disclosure of the principal effects Basis for opinion: same as standard report *CAMs are still reported on

What are the five general GAAS requirements related to the conduct of an audit?

S Professional Skepticism E Ethical Requirements J Professional Judgment E Sufficient and Appropriate Evidence C Compliance with GAAS

Every company must have a recognized system of internal control must have a system of internal control because of the _______?

Sarbanes-Oxley Act

What are the 2 options to report on supplementary information?

Separate Report Section on the Info in the Auditor Report (nonissuers) Explanatory Paragraph (issuers)

Where do you mention the component auditor in the audit report for a nonissuer?

The Opinion Section

Form AP

The PCAOB form that requires (1) the name of the engagement partner; (2) the names, locations, and extent of participation of other accounting firms that took part in the audit if their work constituted 5 percent or more of total audit hours; and (3) the number and aggregate extent of participation of other accounting firms that took part in the audit. filed for issuers

The two requirements crucial to achieving audit efficiency and effectiveness with a coputer are selecting:

The appropriate audit tasks for computer applications The appropriate software to perform the selected tasks

In the audit of a nonissuer, what is an auditor's responsibility for supp info, such as the disclosure of pension info, which is outside the basic FS but required by the GASB?

The auditor should apply certain limited procedures to the supp info and add a separate section to the auditor's report

Where do you mention the component auditor in the audit report for an issuer?

The opinion on Financial Statements and the Basis for the Opinion Section

Group Engagement Team

The team, including the group engagement partner, other partners, and staff, that establishes the overall audit strategy, communicates with component auditors, performs work on the consolidation process, and evaluates the conclusions drawn from the audit evidence as the basis for forming an opinion on the group financial statements.

List in order the primary sections of an unqualified audit opinion (issuer)

Title Addressee Opinion Basis for Opinion Signature, tenure, location report date

Assertion: Cutoff

Transactions and events have been recorded in the correct accounting period

understandability of presentation and classification assertion

Transactions have been recorded in the proper accounts. Financial information is appropriately presented and described and disclosures are clearly expressed.

Component (Audits on Group Financials)

a component is an entity or business that prepares financial information that is included in the group FS

Our work supports the client's financial statements

false

RMM and DR have an ____________ relationship

inverse

Extent of evidence from the specialist depends on:

the significance of their work the risk for material misstatement

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