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Question 1

example of inherent risk an auditor should consider

Answer 1

technological developments that may render inventory obsolete.

Question 2

inherent risk definition

Answer 2

RMM before consideration of any related controls. External circumstances that influence business risks may also affect inherent risks such as technological developments.

Question 3

safeguarding inventory

Answer 3

periodic reconciliation of detailed inventory records w/ actual inventory on hand by taking a physical count.
This will make shortages obvious. Also, employees aware that a count will be conducted may reduce the occurrence of fraud relating to inventory.

Question 4

Examples of entity level controls for an issuer

Answer 4

controls over the period-end financial reporting process
the company’s risk assessment process
controls over mgmt override

Question 5

Review engagement (SSARS’s)

Answer 5

A review provides an accountant w/ a basis for expressing limited assurance on the f/s
An accountant will perform some analytical procedures and inquiries.
An accountant is not required to understand IC

Question 6

An auditor would most likely be concerned w/IC structure policies and procedures that provide reasonable assurance about the

Answer 6

Entity’s ability to process and summarize financial data.

An auditor is primarily concerned w/IC that provide reasonable assurance as tan an entity’s ability to prepare f/s. Because of that, they want to make sure then entity is able to process and summarize financial data.

Question 7

Integrated data check

Answer 7

Most likely refers to the type of test performed using an integrated test facility. This test involves the insertion of fictitious records into a fictitious division, branch, supplier, etc into the master files. Testing can be performed w/o the knowledge of the company employees, as dummy and actual records are processed concurrently. The test is performed, however, at specific points in time. It does not enable continous monitoring and testing of the client’s computerized information system.

Question 8

Test Data generator

Answer 8

Creates test data based on program specifications. The test data can then be used to test the client’s program. Test data would typically include valid and invalid data. Test data enables testing of the client’s program at specific points in time. They do not enable continuous monitoring and testing of the client’s computerized info systems.

Question 9

Embedded audit module

Answer 9

is a program inserted into the clients system to capture designated transactions, such as large or unusual transactions, for later review by the auditor. It enables the auditor to continuously test the client’s computerized information systems.

Embedded - it is embedded into the client system.

Question 10

Snapshot application

Answer 10

takes pictures of the client’s master file record before and after processing. It reviews the way transactions are processed. It does not enable continuous monitoring and testing of the client’s computerized info systems.

Question 11

small business has AR clerk that approves credit memos and has access to cash. What is the most effective control to offset this weakenss?

Answer 11

The owner reviews credit memos after they are recorded.

By the owner checking the credit memos it keeps the AR clerk honest, by not keeping the cash when rec’d and fraudulently issuing a credit memo to cover the theft of cash. When reviewing the credit memo the owner would expect to see a receiving report for sales returns for items the customer presumably returned.

Question 12

An auditor assessed CR too low and decreased substantive testing. This assessment occurred bc the true deviation rate (error rate) in the population was

Answer 12

More than the deviation rate in the auditor’s sample.

When the true deviation rate in the population exceeds that in the sample the auditor may assess CR too low.

Question 13

Financial expert in an audit committee has these acquired attributes

Answer 13

experience as a principal financial or acctg officer, controller, public acct, or auditor.

actively supervising a principal financial officer or principal acctg officer

assessing the performance of public accts w/ respect to preparation, auditing, or evaluation of f/s

must be independent

Question 14

An auditor would be led to believe that material misstmts may exist in an entity’s f/s because

Answer 14

AR confirmations requests yield significantly fewer responses than expected.

It may indicate fictitious accounts and cause for an auditor to believe that material misstmts may exist in the f/s

Question 15

when updating a PR system from time cards to a computerized system

Answer 15

part of the audit trail is altered.

Question 16

Compiling f/s (SSARS’s)

Answer 16

THE SSARS’s do not require that compilation report be printed on the accountant’s letterhead or that the report be manually signed by the accountant

Question 17

likelihood of loss and the potential amount involved w/ a material weakness

Answer 17

the likelihood of loss is reasonably possible when the potential amount involved is material.

The professional stds indicate that a material weakness has more than a reasonable possibility of resulting in a material weakness

Question 18

sufficient evidence

Answer 18

refers to the qty of evidence required
It is directly related to the risk of misstatement (the greater the risk, the more evidence is needed), and inversely related to the quality, the less evidence is needed.

Question 19

appropriate evidence

Answer 19

refers to the relevance and reliability of evidence.

1. the most reliable evidence is obtained directly from the auditor. .
2. 2nd most reliable is evidence obtained from independent outside sources.

Question 20

Stated Control Objective (PCAOB)

Answer 20

In the context of an engagement to report on whether a material weakness continues to exist is the specific control objective identified by management that if achieved, would result in the material weakness no longer existing.

Question 21

Statistical sample for attributes example

Answer 21

sample dev rate = 6%
tolerable rate = 7%
Pop dev rate = 5%
allowance for sampling risk = 2%

Modify the planned assessed level of control bc the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.
6 + 2 = 8 > 7

Question 22

A change in accounting principle that materially affects the comparability of the comparative f/s presented and the auditor CONCURS w/the change:

Answer 22

The only requirement that must be met is to refer to the change in an emphasis of matter paragraph following an otherwise unmodified opinion.

Question 23

Sequential sampling

Answer 23

results in the selection of a sample in several steps, w/each step conditional on the result of the previous steps. Therefore, sample size will vary depending on the number of stages that prove necessary.

Question 24

First step in a Review under SSARS’s

Answer 24

Obtain a general understanding of the entity’s organizations, its operating characteristics, and its products or services.