5

Question 1

Parallel Simulation

Answer 1

is a computer assisted auditing technique in which an auditor-written or auditor controlled program is used to process client data. The results are then compared to those obtained using the client’s program and differences are investigated. This technique enables the auditor to test controls in and processing performed by a client program.

Question 2

In planning an audit of certain accounts, an auditor may conclude that specific procedures used to obtain an understanding of an entity’s IC structure need not be included bc of the auditor’s judgements about materiality and assessments of

Answer 2

Inherent risk.

If the auditor concluded that an account is immaterial and that inherent risk is low, the auditor might decide to skip the procedures used to obtain an understanding of the related IC bc the RMM occurring is low.

Question 3

An auditor would most likely perform what procedure to identify unusual sales transactions.

Answer 3

perform a trend analysis of quarterly sales

This would be relevant to identify unusual sales activity

Question 4

flowcharts and questionnaires

Answer 4

Are not required
used to document an understanding of IC
NOT used to evaluate the effectiveness of IC
The provide an accepted means of documenting the auditor’s understanding of the IC structure.

Question 5

When there has been a change in accounting principle that materially affects the comparability of the comparative f/s presented and the auditor concurs w/the change, the auditor should

Answer 5

Refer to the change in an emphasis of matter paragraph.

There is no need to concur explicitly w/the change.
There is no need to issue an “exept for” qualified opinion

Question 6

For a non trivial factual misstatement identified by the auditor, the auditor should

Answer 6

communicate matters to the appropriate level of mgmt to request correction

Question 7

Quality control element on accepting or continuing a client relationship

Answer 7

1. consider the integrity of the client
2. determine that the firm is competent to perform the engagement
3. determine that the firm can comply w/legal and ethical requirements.

Question 8

Compilation on a financial projection

Answer 8

does not include an evaluation of the support for the assumptions underlying the projection.

A compilation is not intended to provide any assurance on the prospective financial information or the underlying assumptions.

Question 9

SSARS’s Compile

Answer 9

The practitioner should NOT compile prospective F/S that omit disclosure of the summary of significant assumptions, including hypothetical ones. An expected (most likely) outcome defines a forecast, not a projection.

Question 10

Change in accounting estimate

Answer 10

does not need to be added to an emphasis of matter paragraph. It may be required to be disclosed in the F/S.

Question 11

A low level of tolerable misstatement

Answer 11

means a larger sample size.

It requires more confidence that misstatements will be detected using the audit procedures. The auditor will take a larger sample when the level of tolerable misstatement is low.

Question 12

Examination of a financial forecast

Answer 12

includes an evaluation of its preparation and the support underlying management’s assumptions.
An examination also includes evaluating the prospective f/s for conformity w/AICPA presentation guidelines and the issuance of an examination report.

Question 13

Statements on Quality Control Standards

Answer 13

apply to: auditing, accounting, and review services

Question 14

refusing to furnish a mgmt rep letter to the auditor

Answer 14

is a scope limitation,

Question 15

walk-through provides evidence to

Answer 15

1. confirm the auditor’s understanding of the flow of transactions and the design of controls.
2. evaluate the effectiveness of the design of controls.
   3 to confirm whether the controls have been implemented.