5/21 Flashcards
Auditing prepaid insurance. Auditor discovers original policy not available for inspection. The absence most likely indicates
There is a lien on the property. The original is in possession of the lien holder.
Determining proper amounts of depreciation are expensed provides assurance about managements assertion of
Valuation, allocation, accuracy
What characteristic would be an advantage of using classical variables sampling rather than PPS
Selection of zero balances requires no special design considerations
If reporting system provides adequate reports but the reports are not analyzed and acted upon
Control has been implemented but is not operating effectively
When unaudited financial statements are presented in comparative with audited FS in a document filed with the SEC such statements should be
Marked as unaudited, Referred to in auditor’s report
Auditor determines whether there are restrictions on retained earnings resulting from loans, agreements or state law. This audit procedure is intended to verify
Understandability of presentation and classification
For effective internal control, monthly bank statements should be received directly from the bank and reviewed by
Internal Auditor
Auditor is unable to complete a procedure during an audit. What opinion is least likely to be rendered?
An adverse opinion. Adverse opinion is a departure from GAAP.
What procedure would an auditor most likely perform when auditing statement of cash flows?
Reconcile the amounts included in statement of cash flows to other financial statements.
Management has decided not to account for a material transaction in accordance with GAAP. Management demonstrated that due to unusual circumstances the FS according to GAAP would be misleading. What opinion
Unmodified and include an emphasis of matter paragraph.
Compilation audit of an entity that received federal funds. Client does not have adequate documentation to support operating expenses from federal program funds.
Conclusion is the operating costs have been identified.
What procedure would the auditor most likely perform to determine that an interest rate swap contract is properly stated at fair value on the BS
Test the data used to arrive at the fair value.
According to the SEC, members of an issuers audit committee may not
Accept any consulting, advisory, or other compensatory fee from the registrant for services other than as a member of the board.
In a preparation engagement, if unable to include a statement that “no assurance is provided” the auditor should
Either Issue a disclaimer to make it clear no assurance is provided, perform a compilation audit, or withdraw from the engagement.
To examine long term debt, steps required
Examine bond trust indentures. Check that client was not in violation of any covenants.
When auditor does not receive replies to positive requests for year end AR
Increase the assessed level of detection risk for the valuation assertion
Auditor of nonissuer exercising professional skepticism with respect to the risks of material misstatement due to fraud will
Consider the reliability of information to be used as audit evidence.
Service organization provides initiation, execution, processing or reporting of a users company transactions, those services are
Considered to be part of the company’s information system.
Practitioner examined a client’s compliance with debt covenants associated with a bank loan and is ready to issue a report. Which standards apply?
Compliance attestation standards
Auditor identifies unrecorded AP of 50,000. How should the auditor record this amount on the summary of possible misstatements
Dr Income before Tax
Cr Liabilities
Auditor is supplied with a photocopy of vendor invoices rather than originals. Client states the originals have been misplaced. Auditor response?
Reevaluate risk of fraud and design alternative tests for the related transactions
What would an auditor most likely use in determining preliminary judgement about materiality?
PY Financials
When compiling a nonissuers FS, an accountant would be least likely to
Perform analytical procedures
In an integrated audit of a nonissuer, what is the responsibility of an auditor with regard to testing controls at a company with multiple business units?
Test controls over specific risks at business units that are material to the company’s consolidated FS.
An accountant is required to follow SSARS when the accountant has
Used information in a general ledger to prepare FS outside of an accounting software.
SSARS apply when accountant prepares, compiles, or reviews FS.
What is not included in the PCAOB auditing standards as one that should influence the nature and extent of necessary planning activities?
The size of the auditing firm and the number of auditors assigned to the audit.
PCAOB standards state that the relevance of audit evidence depends on
Whether the audit procedure is designed to directly test an assertion
Timing of the audit procedure
Whether the audit procedure is designed to test for an understatement or overstatement
The auditors risk assessment affects the NET but does not determine the relevance.
What standards are applicable for a compilation of a nonissuer?
Statements on Standards for Accounting and Review Services SSARS
Audit materiality is set at 500,000. You have over 3 mil in proposed adjustments. What is your conclusion?
The balance is materially misstated and requires adjustment.
In regards to a scope limitation or material weakness in internal control. What would be the opinion rendered.
Scope limitation - Disclaim or withdraw
Material weakness in internal control - adverse opinion.
