03/28/2018 Flashcards
When an auditor decides to confirm accounts receivable balances rather than individual invoices, it most likely would be beneficial to include with the confirmations…
Client-prepared statements of account that show the details of account balances.
Providing the customer with a copy of their account balance helps them remember the balance & account in question and increases the odds that they’ll return the confirmation.
Subsequent to issuing a report on audited financial statements, a CPA discovers that the accounts receivable confirmation process omitted a number of accounts that are material, in the aggregate. Which of the following actions should the CPA take immediately?
Perform alternative procedures to verify account balances.
The first thing the auditor would do is perform alternate procedures to test the accounts receivable balance. If the alternate procedures support the opinion issued, nothing else needs to be done. If there was a material misstatement, then the auditor would possibly bring the misstatement to the attention of the board and/or audit committee.
Which of the following procedures would an auditor most likely perform in searching for unrecorded payables?
Compare cash payments made after the balance sheet date with the accounts payable trial balance.
What you’re doing here is looking at cash disbursements after year end, and if a disbursement relates to the year under audit, you check the payables record to see if they had recorded it properly as a payable.
Which of the following procedures regarding accounts payable would an accountant most likely perform during a nonissuer’s review engagement?
Comparing ratios developed from recorded amounts to expectations developed by the accountant.
This describes an analytical procedure and reviews are usually just inquiry and analytics. This is the best answer.
A review doesn’t include obtaining an understanding of internal controls, assessing fraud risk, or sending and obtaining confirmations.
The auditor usually communicates to management…
Arrangements involving a predecessor auditor.
The auditor usually communicates with management about arrangements involving a predecessor auditor.
How should differences of opinion between the engagement partner and the quality control reviewer be resolved?
By following the firms policies and procedures.
For audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent
1) as a substantive test?
2) in the final review stage?
1) as a substantive test - No
2) in the final review stage - Yes
Analytical procedures are required to be applied to some extent in planning and in the final review stage. In addition, although not required, analytical procedures may be used as a substantive test when they are more effective or efficient than test of details.
A CPA is required to comply with the provisions of Statements on Standards of Accounting and Review Services when
1) proposing correcting journal entries to the financial statements?
2) preparing standard monthly journal entries?
1) proposing correcting journal entries to the financial statements - No
2) preparing standard monthly journal entries - No
A CPA is not required to comply with the provisions of Statements on Standards of Accounting and Review Services with proposing correcting journal entries or preparing standard monthly journal entries.
An auditor may issue a qualified opinion under which of the following circumstances?
1) lack of sufficient appropriate audit evidence
2) restrictions of the scope of the audit
1) lack of sufficient appropriate audit evidence - Yes
2) restrictions of the scope of the audit - Yes
An auditor may issue a qualified opinion (or a disclaimer, depending on materiality) when there is a lack of sufficient appropriate audit evidence, or when there are restrictions on the scope of the audit.
An auditor was unable to obtain financial statements or other evidence supporting an entity’s investment in a foreign subsidiary. Between which of the following opinions should the entities auditor choose?
Qualified and disclaimer.
When an auditor is unable to obtain audited financial statements or other evidence supporting an entity’s investment in a subsidiary (foreign or domestic), the auditor should issue a qualified or disclaimer or opinion depending on the materiality of the investment in the subsidiary.
Which of the following procedures most likely would provide an auditor with evidence about whether an entity’s internal control activities are suitable designed to prevent or detect material misstatements?
Observing the entity’s personnel applying the activities.
Observation and inspection may be used to evaluate the design of controls. Observation of entity personnel applying control activities is a procedure that would likely provide evidence about the design of the activities.
Which of the following is a component of internal control?
Risk assessment.
Risk assessment is a component of internal control. The other four components of internal control are control environment, information and communications systems, monitoring, and existing control activities.
Which of the following most likely would be detected by an auditor’s review of a client’s sales cut-off?
Unrecorded sales at year-end.
A sales cut-off test is used to detect unrecorded sales (shipments where no invoice has been generated) or sales allocated to the wrong period (January sales included in December by “holding the books open”).
In evaluating the reasonableness of an accounting estimate, an auditor would be least likely to use which of the following approaches?
Review the minutes of board of directors and shareholder meetings for discussion of the estimate.
Even if estimates were discussed during board meetings and/or shareholder meetings, it is unlikely that review of such discussion would provide evidence that the estimate is reasonable.
Reviewing subsequent events, developing an independent expectation, and reviewing and
The primary responsibility of a bank acting as registrar of capital stock is to:
Verify that stock is issued in accordance with the authorization of the board of directors and the articles of incorporation.
Large companies often use a registrar to provide registration services and maintain the stockholder list. The primary responsibility of the registrar is to verify that stock is issued only with proper authorization.
