A1-3 Simulations

Question 1

For a disclaimer of opinion, qualified (both), or adverse opinion where do you insert your “Basis for Opinion” paragraph?

Answer 1

ALL come BEFORE opinion paragraph

Question 2

What two paragraphs of the Auditor’s report are changed when there is a DIVISION OF RESPONSIBILITY (comp. auditor)?

Answer 2

Auditor’s Responsibility

Opinion Paragraph

Question 3

Are Emphasis of Matter paragraphs considered a MODIFICATION to the Auditor’s Report?

Answer 3

Yes. So you would NOT issue the report without modification.

Question 4

What are two examples of events that are NOT considered a subsequent event?

Answer 4

1. Material Inventory not counted

2. Material Transactions not recorded uncovered

Question 5

What is the important thing to remember regarding procedures and whether they should be used in compilations and reviews?

Answer 5

If the procedure is NOT required for a review, then it is NOT required for a compilation.

Question 6

Do you need to submit a hard copy for reviews and compilations if you already have submitted an electronic copy on a disk?

Answer 6

NO. Either one will suffice

Question 7

When should procedures be performed for an entity’s ability to continue as going concern? (Review, Compilation, or Audit)

Answer 7

ONLY an audit. NOT included in the limited assurance procedures provided by a review.

Question 8

Should there be any type of modification on an Agreed Upon Procedures report? (Statement of Rent/Royalty)

Answer 8

Yes, there should be a disclaimer

Question 9

In an engagement letter who is responsible for the PROVISION of the rep letter?

Answer 9

Management (tricky)

Question 10

In the engagement letter who is responsible for Establishing the Timing of the Audit?

Answer 10

BOTH. Tricky

Question 11

What does the issue of long term debt with complex financial covenants do to Audit Risk?

Answer 11

Increase. It increases inherent risk. Strategic Marketing Plans, CFO who was previously a CPA audit manager, and different divisions do NOT increase audit risk.

Question 12

What are components of the risk assessment regarding the control environment (CRIME stuff)

Answer 12

Adoption of New Accounting Principles
HIRING OF NEW PERSONNEL (NOT HR)
Incorporation of a New Technology (NOT “I”)
Corporate Restructuring

Question 13

What is the obvious component in Monitoring (“M” in CRIME)?

Answer 13

Internal Audit