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Audit > A2 > Flashcards

A2 Flashcards

1
Q

A quality control system consists of:

A

policies and procedures designed, implemented, and maintained to ensure that the firm complies with professional standards and appropriate legal and regulatory requirements and that any reports issued are appropriate in the circumstances

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2
Q

The nature and extent of a CPA firm’s quality controls depend on what factors?

A

size of the firm, the degree of operating autonomy allowed its personnel and its practice offices, the nature of its practice, its organization, and appropriate cost-benefit considerations

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3
Q

When assigning personnel to an engagement, the firm should consider the following factors in achieving a balance of engagement manpower requirements, personnel skills, and individual development and utilization:

A
  1. engagement size and complexity
  2. personnel availability
  3. special expertise required
  4. timing of the work to be performed
  5. continuity and periodic rotation of personnel
  6. opportunities for on the job training
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4
Q

Primary purpose of a second partner review is to ensure that:

A

The FS are in accordance with GAAP

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5
Q

Policies and procedures should be established for deciding whether to accept or continue a client in order to:

A

minimize the likelihood of association with a client whose management lacks integrity

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6
Q

The AICPA’s Statements on Quality Standards asset that professional development policies and procedures should be established by the firm in order to:

A

provide reasonable assurance that personnel will have the knowledge required to perform their work and progress within the firm

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7
Q

the six interrelated elements of quality control

A
  1. Human Resources,
  2. engagement/client acceptance and continuance,
  3. leadership responsibilities,
  4. performance of the engagement,
  5. monitoring, and
  6. ethical requirements (professional skepticism)
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8
Q

Statements of Quality Control Standards (SQCS) are issued:

A

to provide guidance with respect to audit quality control. These standards indicate that the nature and extent of a firm’s quality control policies and procedures are directly tied to its organizational structure.

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9
Q

By maintaining a comprehensive system of quality control in relation to its organizational structure, the CPA firm would:

A

provide reasonable assurance that its professional services conform to the SQCS (statements of quality control standards)

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10
Q

two Examples of a policies and procedures for human resources.

A

assigning personnel to engagements, maintaining personnel files containing documentation related to the evaluation of personnel

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11
Q

Why are policies and procedures for Human Resources important?

A

they provide reasonable assurance that the persons assigned will have the technical training and proficiency required to perform their work and progress within the firm

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12
Q

Procedures for reviewing audit documentation and engagement reports are established to ensure:

A

that the work performed meets the firm’s quality standards. relates to the control element of performance

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13
Q

Requiring personnel to adhere to the applicable independence rules related to the quality control element of:

A

ethical requirements

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14
Q

Example of a policy and procedure of the monitoring element of quality control:

A

peer review

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15
Q

Three requirements stated in PCAOB standards to be documented by the engagement quality reviewer

A
  1. identification of the documents reviewed by the engagement reviewer and others who assisted the reviewer
  2. the date on which the engagement quality reviewer provided concurring approval of issuance
  3. identification of the engagement quality reviewer and others who assisted the reviewer.
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16
Q

Audit documentation should include: (3)

A
  1. which members of the audit team performed and reviewed the audit work
  2. demonstrate compliance with the standards of fieldwork
  3. be sufficient to enable members of the audit team with supervisory responsibilities to understand the nature, timing, extent, and results of auditing procedures (the work performed and the evidence obtained)
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17
Q

The permanent (continuing) file of audit documentation includes:

Also, give examples:

A

items with continuing audit significance.

debt agreements, lease agreements, bond indenture agreements, flowchart of internal control

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18
Q

Examples of current audit documentation include: (3)

A
  1. attorney letters
  2. bank statements
  3. lead schedules
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19
Q

Audit documentation serves mainly to provide: (4)

A
  1. the principal support for the auditor’s report
  2. assistance in the planning, conduct, and supervision of the audit
  3. accountability
  4. useful information
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20
Q

The working trial balance generally contains a column for:

A

adjustments and reclassifications

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21
Q

Audit objectives and assertions are contained in:

A

the audit plan

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22
Q

Factors affecting the nature and extent of the audit documentation include: (6)

A
  1. the risk of material misstatement
  2. the extent to which judgement was required in performing the work and evaluating the results
  3. the nature of the specific auditing procedures
  4. the significance of the evidence obtained
  5. the nature and extent of any problems identified
  6. the need to document conclusions that may not be obvious
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23
Q

The quantity, type, and content of Audit Documentation vary with circumstances, but it should be sufficient to show:

A

that the accounting records agree or reconcile with the financial statements

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24
Q

An engagement letter summarizes:

A

the timing and details of the auditor’s planned field work

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25
Q

Two methods that might be used to assist the auditor in obtaining an understanding of internal control:

A

flowcharts and internal control questionnaires

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26
Q

The documentation completion date is defined as: (3)

A
  1. 45 days from the report release date, based on PCAOB standards. (issuer)
  2. 60 days from the report release date, based on auditing standards (nonissuer)
  3. the date after which existing documentation must not be deleted, and additions to the documentation file must be documented as such
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27
Q

The report release date: (3)

A
  1. used to define the beginning of the retention period
  2. the date on which the report is delivered to the client
  3. the date on which the auditor grants the client permission to use the report
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28
Q

The required retention period (how long the firm keeps client documents) under PCAOB standards and auditing standards

A

5 to 7 years

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29
Q

Reviewing audit work papers allows a supervisor to: (3)

A
  1. understand the work performed and the evidence obtained

2. evaluate whether the audit was adequately performed

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30
Q

Audit documentation comprises the principal record of: (3)

A
  1. audit procedures performed
  2. evidence obtained
  3. conclusions reached
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31
Q

If additional evidence is required to document significant findings or issues, the original evidence:

A

is supplemented by the additional evidence and not deleted.

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32
Q

The management representation letter is where:

A

the client asserts that all material matters have been adequately disclosed to the auditor

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33
Q

Who has ownership of the audit working papers?

A

CPA firm that performed the audit

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34
Q

Required documentation of an audit in accordance with GAAS: (3)

A
  1. engagement letter
  2. written audit program describing procedures performed
  3. auditor’s assessment of the risk of material misstatement
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35
Q

The ________ _______ is the foundation for all other components of internal control.

A

control environment

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36
Q

successor auditor inquiring to the predecessor includes:

A

specific questions, facts that might bear on the integrity of management; disagreements with management as to accounting principles, auditing procedures, or other similarly significant matters; communications with those charged with governance regarding fraud, acts of noncompliance with laws and regulations, and matters relating to internal control; and the predecessors understanding to the reason for change in auditors

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37
Q

Examples of what is in an engagement letter: (3)

A
  1. arrangements to contact to predecessor auditor
  2. fees for services
  3. the audit provides reasonable assurance of the detection of errors but audit risk does exist
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38
Q

Which party should initiate the communication? successor auditor, client, or predecessor auditor?

A

successor auditor after getting permission from client

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39
Q

An auditor may consider obtaining an additional engagement letter when:

A
  1. a separate report is issued for the component
  2. legal requirements regarding the appointment of the auditor
  3. the degree of independence for the component management form the parent entity
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40
Q

The auditor is required to establish an understanding with the client, and this understanding should:

A
  1. be documented in the form of an engagement letter
  2. encompass management’s responsibilities, which include providing the auditor with a representation letter at the conclusion of the engagement
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41
Q

A successor auditor can review a predecessor’s _____ but not ________.

A

work papers, engagement letter.

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42
Q

Prior to commencing field work, the auditor would likely discuss with management:

A

any assistance desired from client staff

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43
Q

One of the auditor’s responsibilities is to ensure that those charged with governance are aware of:

A

any significant deficiencies in internal control that come to the auditors attention

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44
Q

Prior to commencing fieldwork, an auditor would establish an understanding with the client as to the:

A
  1. services to be performed

2. overall audit strategy

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45
Q

Prior to commencing fieldwork, the understanding the auditor establishes with the client may include:

A

arrangements involving the conduct of the engagement, such as timing, client assistance, and the availability of documents

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46
Q

Determining existing fraud risk factors is generally made during what stage of the audit?

A

fieldwork

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47
Q

Identification and evaluation of control weaknesses generally occurs in what stage of the audit?

A

fieldwork

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48
Q

An independent auditor may accept an engagement after the close of the fiscal year as long as:

A

he or she can address any limitations resulting from accepting the engagement at this time

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49
Q

making a preliminary judgment about materiality is a part of what stage?

A

planning

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50
Q

If the predecessor auditor refuses to give the current auditor of a nonissuer access to the documentation, the current auditor should:

A

review the risk assessment of the opening balances of the FS

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51
Q

_____ is usually agreed upon before implementation of the audit strategy

A

timing

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52
Q

An understanding with the client should be established regarding management’s responsibilities, which include:

A

establishing and maintaining effective internal control over financial reporting

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53
Q

inadequate financial records may preclude the auditor from obtaining:

A

sufficient appropriate audit evidence

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54
Q

Describe the timing of the predecessor / successor communications:

A

Must communication before the successor excepts the engagement (talk about managements integrity). May communicate after accepting the engagement (talk about continuing accounting or audit significance).

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55
Q

Contingencies have continuing significance as they may:

A

continue to affect the current year financial statements (either by remaining as contingencies or by being resolved)

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56
Q

Balance sheet accounts from prior year have continuing significance because:

A

they are opening balances for the current year

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57
Q

Matters that may facilitate the evaluation of financial reporting consistency between the current and prior years should be discussed:

A

with the predecessor auditor after accepting audit the engagement

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58
Q

Disagreements between the predecessor auditor and management as to significant accounting policies and principles should be discussed:

A

with the predecessor auditor prior to accepting the engagement

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59
Q

If the accountant concludes that there is reasonable justification to change the engagement, the accountants review report should:

A

not include reference to the original engagement, to any auditing procedures that may have been performed, or to the scope limitation that resulted in the changed engagement

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60
Q

When an auditor is requested to change the engagement from an audit to a compilation, the auditor must consider:

A

the effort needed to complete the audit, the cost of completing the audit, and the reasons for the client’s request

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61
Q

Part of the assistants responsibility is to:

A

properly evaluate audit results, and the in-charge auditor would likely discuss this with them.

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62
Q

To obtain an understanding of a continuing client’s business in planning an audit, an auditor most likely would:

A

review prior-year audit documentation and the permanent file for the client

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63
Q

Each assistant should have a right to:

A

document her disagreement if she believes it is necessary to be disassociated from the resolution of the matter

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64
Q

Impartial peer review teams are primarily concerned with:

A

determining whether quality control policies and procedures are being effectively applied

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65
Q

During the ______ stage, matters that may affect the audit should be discussed with the firm personnel responsible for non-audit services to the entity

A

planning

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66
Q

A decrease in the amount of misstatements that the auditor can tolerate will cause the auditor to:

A

modify the nature, timing, or extent of auditing procedures. Performing the planned procedures closer to the balance sheet date.

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67
Q

A decrease in the amount of misstatements that can be tolerated would ____ the extent of auditing procedures

A

increase

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68
Q

In designing a written audit plan, an auditor should establish:

A

specific audit objectives that relate to the FS assertions

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69
Q

In developing an overall audit strategy, an auditor should consider:

A

preliminary evaluations of materiality, audit risk, and internal control

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70
Q

Which element of quality control does this policy represent: Personnel will receive an annual evaluation of performance and career development

A

Human Resources

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71
Q

Which element of quality control does this policy represent: Engagement documentation will be filed with document control. Document control will only release documentation to approve personnel

A

performance of engagement

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72
Q

When audit procedures are performed before year-end, the auditor must assess:

A

the incremental risk involved and determine whether sufficient alternative procedures exist to extend the interim conclusions to year end

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73
Q

According to PCAOB standards, a centralized accounting function is indicative of:

A

less complex operations

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74
Q

The extent of supervision should be determined after taking into account:

A

the nature of the company, the nature of the work assigned to each engagement team member, the risk of material misstatement, and the knowledge, skill and ability of each engagement team member

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75
Q

Inherent risk should be _____ in order to test substantively at interim

A

low

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76
Q

Primary internal control planning objectives of an auditor at a financial statement audit:

A
  1. identify types of potential material misstatements
  2. consider factors that affect the risk of material misstatements
  3. design effective substantive tests
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77
Q

In assessing the objectivity of internal auditors, the independent CPA who is auditing the entity’s financial statements considers:

A

information obtained from pervious experience, from discussions with management, from external quality reviews (if performed), and from professional internal auditing standards (developed by the institute of internal auditors)

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78
Q

The internal auditors’ work may affect the NET of the audit, including procedures the auditor performs when:

A

obtaining an understanding of internal control, assessing risk, performing substantive procedures

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79
Q

The work of a management specialist who has a relationship with a client:

A

may be acceptable under certain circumstances

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80
Q

If the management specialist has a relationship with the client, the auditor should:

A

assess the risk that the specialist’s objectivity might be impaired

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81
Q

If the auditor believes that the relationship might impair the management specialist’s objectivity, the auditor should:

A

perform additional procedures with respect to the specialist’s assumptions, methods, or findings to determine that the findings are not unreasonable or should engage another specialist for that purpose

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82
Q

In making judgements about the extent of the effect of the internal auditor’s work on the auditor’s procedures, the auditor considers:

A

the materiality of the financial statement amounts, the risk of material misstatement of the assertions related to these financial statement amounts, the degree of subjectivity involved in the evaluation of the audit evidence gathered in support of the assertions.

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83
Q

As the degree of subjectivity increases, the need for the auditor to perform tests of the assertions _____

A

increases

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84
Q

Internal auditors may assist the auditor in: obtaining an understanding of its:

A

obtaining an understanding of its internal control, performing tests of controls, performing substantive tests

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85
Q

Although the appropriateness and reasonableness of methods or assumptions used and their application are the responsibility of the specialist, the auditor should:

A

obtain an understanding of the methods or assumptions used in order to determine whether the findings are suitable for corroborating the representations in the FS

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86
Q

Because the auditor has the ultimate responsibility to express an opinion on the financial statements, what should always be those of ONLY the auditor? (4)

A

judgements about assessments of risk, the materiality of misstatements, the sufficiency of tests performed, the evaluation of significant accounting estimates, and other matters affecting the auditor’s report

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87
Q

The independent auditor (can/cannot) share responsibility on the judgements of inherent risk and control risk with the internal auditor

A

cannot

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88
Q

In evaluating the work of internal auditors, the independent auditor should examine on a test basis, documentary evidence of the work performed by internal auditors and should consider such factors as:

A

whether the scope of the work is appropriate, the audit plan is adequate, audit documentation, adequately documents work performed, conclusions reached are appropriate in the circumstances, and any reports prepared are consistent with the results of work performed

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89
Q

An auditor who uses the work of a specialist may refer to the specialist in the auditor’s report if:

A

as a result of the work performed by the specialist, the auditor adds explanatory language to or departs from an unmodified opinion

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90
Q

What would assist an independent auditor in assessing the objectivity of the internal auditor?

A

the organizational level to which the internal auditor reports

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91
Q

Considering the policies that prohibit the internal auditors from auditing areas where they were recently assigned. Is the auditor assessing objectivity or competence?

A

objectivity

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92
Q

An auditor is most likely to rely on work done by internal auditors for FS amounts judged by the auditor to require:

A

little to no subjectivity evaluated audit evidence

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93
Q

The _____ audits would cover more areas in greater depth than those of ______ auditors.

A

internal, independent

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94
Q

Is a tax expert employed by the auditor’s CPA firm reviews the client’s tax accruals using the work of a specialist? why?

A

No, the experts skills are in accounting

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95
Q

the auditor engages a lawyer to interpret the provisions of the complex contract. is this using the work of the specialist?

A

yes

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96
Q

GAAS defines a specialist as:

A

a person or firm with special skills in a field other than accounting or auditing

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97
Q

Examples of specialists:

A

actuaries, appraisers, attorneys, engineers

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98
Q

The independent auditor most likely would consider that the audit committee reviews employment decisions related to the director of internal auditing when assessing:

A

the objectivity of the internal auditor

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99
Q

The auditor would most likely use what to determine preliminary judgement about materiality?

A

entity’s FS of the prior year

100
Q

Because the FS are interrelated, materiality levels are generally considered in terms of:

A

the smallest level of misstatement that could be material to any one of the FS

101
Q

an increase in materiality levels would result in a ______ in audit risk

A

decrease

102
Q

The auditor believes there is a high likelihood of uncorrected and infected misstatements. Therefore, she most likely will use a percentage closer to:

A

the lowest end of the range provided in firm guidance

103
Q

overall materiality equals:

A

applicable benchmark x applicable percentage

104
Q

performance materiality equals:

A

overall materiality x applicable percentage

105
Q

Test of transactions involve:

A

selecting specific transactions and evaluating whether they were properly recorded

106
Q

Test of details are audit procedures used to:

A

gather evidence to support specific account balances

107
Q

Test of controls are performed to:

A

evaluate the effectiveness of controls

108
Q

The auditor would consider the turnover of accounting personnel when:

A

assessing control risk and when considering appropriate disclosure

109
Q

When performing ______ ______ during planning, the auditor considers relevant non financial information, when generally is related to financial data in some way

A

analytical procedures

110
Q

A requirement during planning is to perform analytical procedures, which involve:

A

comparisons of recorded amounts to expectations

111
Q

Analytical procedures used in planning the audit should focus on:

A
  1. enhancing the auditor’s understanding of the client’s business and transactions and events that have occurred since the last audit date
  2. identifying areas that may represent specific risks relevant to the audit
112
Q

The auditor should obtain an understanding of the entity and its environment sufficient to assess:

A

the risk of material misstatement and to design and perform further audit procedures

113
Q

The objective of performing analytical procedures during planning is to:

A

discover unusual transactions or events that may have an impact on the planning of the financial statement audit

114
Q

The understanding of the entity’s business enables the auditor to better understand:

A

events, transactions, and practices that may affect the FS, to plan and perform appropriate audit tests, and to properly understand and evaluate the results of those tests

115
Q

an understanding of internal control relevant to what is neccesary in a FS audit?

A

an entity’s financial reporting objective is necessary as part of audit planning

116
Q

If the auditor spots a significant increase in net income then what exception of recorded amounts would be unreasonable?

A

a decrease in retained earnings

117
Q

If a person is the authorized representative of management and the board of directors then the auditor should address the engagement letter to:

A

the authorized person

118
Q

If management and the board of directors both take responsibility of the FS then the engagement letter states:

A

both of them are responsible

119
Q

The auditor report is addressed to:

A

entity’s board of directors

120
Q

The federal reserve announces that they will continue to keep interest rates low. This ____ audit risk.

A

decreases

121
Q

What procedures would provide an auditor with evidence about whether an internal control activities are suitable to prevent or detect material misstatements?

A

Observation of entity personnel applying the activities

122
Q

What procedures may be used to evaluate the design of controls:

A

observation and inspection

123
Q

Reperforming control activities provides the auditor with evidence about:

A

the operating effectiveness of special control activities

124
Q

Examples of control activities:

A

segregation of duties, safeguards over access to assets, computer-based controls

125
Q

What factors does the control environment represent: (5)

A

managements philosophy and operating style, the entity’s organizational structure, the participation of those charged with governance, methods of assigning authority and responsibility, and human resource policies and practices

126
Q

The auditor should obtain sufficient knowledge of the client’s info system relevant to financial reporting to:

A

understand the types of transactions processed, and how the transactions are intimated, recorded and summarized

127
Q

An entity’s information system supports:

A

the identification, capture, and exchange of information

128
Q

Included in the information system relevant to financial reporting is:

A

the preparation of significant accounting estimates

129
Q

“Substance over form” concerns relate to:

A

controls that appear on the surface to exist but in reality are not operating effectively

130
Q

When obtaining an understanding of a client’s internal controls, an auditor should concentrate on:

A

the substance of controls rather than the form because even when appropriate procedures are established, management may not enforce compliance

131
Q

In every audit, the auditor should obtain a sufficient understanding of the design of relevant internal controls pertaining to:

A

financial reporting in each of the five internal control components

132
Q

The control environment element of an entity’s internal control relates to:

A

the tone of the organization

133
Q

What is a primary criterion that should be considered in designing internal control?

A

cost-benefit relationship

134
Q

Knowledge about the design and implementation of relevant internal controls should be used to identity:

A

types of potential misstatements that could occur.

135
Q

Assessment of control risk (and documentation of that assessment) must be based on:

A

test of controls

136
Q

In obtaining an understanding of an entity’s internal control, an auditor is required to obtain knowledge about what? what is the auditor not required to obtain knowledge about?

A
  1. design of controls and how they have been implemented

2. operating effectives of controls

137
Q

Examples of important controls related to financial reporting:

A
  1. compliance with income tax regulations, use of password s to limit data access, and generation of reports to facilitate variance analysis
138
Q

Procedures to reduce inefficiency on the production line relate to:

A

operational objectives

139
Q

IF a budgetary reporting system provides adequate reports, but the reports are not analyzed and acted upon:

A

the control has been implemented but is not operating effectively

140
Q

Services performed by another organization are not considered to be part of the client’s information system if the services provided are limited to:

A

executing transactions that are specifically authorized by the client

141
Q

Service organization’s services are part of an entity’s information system if:

A

they affect the initiation, processing, or reporting of the entity’s transactions

142
Q

_____ controls would be more suitable for situations with routine errors that can be predicted and corrected

A

automated

143
Q

_____ controls would be more suitable for large, unusual, and nonrecurring transactions

A

manual

144
Q

______ controls would be more suitable for circumstances that require a high degree of accuracy

A

automated

145
Q

______ controls would be more suitable for high-volume transactions that require additional calculations

A

automated

146
Q

General controls are:

A

policies and procedures that relate to many applications and support the effective functioning and proper operation of the information system

147
Q

____ controls include procedures to ensure appropriate systems software acquisitions

A

general

148
Q

_____ controls help assess the quality of internal control

A

monitoring

149
Q

_____ controls relate to safeguarding assets

A

physical

150
Q

Application controls apply to the processing of individual transactions and help to ensure that:

A

transactions occurred, are authorized, and are completely and accurately processed and reported

151
Q

______ follows a transaction from its origination until it is reflected in the FS

A

walkthrough

152
Q

Walkthrough procedures include:

A

inspection, inquiry, observation, recalculation, and/or control reperformance

153
Q

Inadequate segregation of duties implies that the system of internal control:

A

wasn’t properly designed

154
Q

_____ ____ may result in an inappropriate application of properly designed controls

A

human error

155
Q

Proper segregation of duties reduces the opportunities for:

A

any individual to both preptrate and conceal errors or fraud

156
Q

Proper serration of duties involves assigning different people the responsibilities of:

A

authorizing transactions, recording transactions, and maintaining custody of the related assets

157
Q

An inherent limitation of internal control exists when:

A

although good controls are instituted, management can override those controls

158
Q

The suitability of the client’s lines of reporting is an important part of the:

A

organizational structure

159
Q

The more _____ the IT system, the more _____ the documentation

A

complex, extensive

160
Q

The best compensating control for the lack of segregation of duties in small organizations is:

A

to have more management oversight in incompatible functions

161
Q

An auditor most likely would consider what when evaluating the control environment of an audit client?

A

the management’s operating style

162
Q

Management reviews of monthly financial statements most likely be considered in evaluating:

A

control activities

163
Q

The managements philosophy and operating style include the management’s approach to:

A

taking and managing business risks, attitudes and actions toward financial reporting, and attitudes toward information processing and accounting functions and personnel

164
Q

An auditor would most likely perform risk-assessment procedures to:

A

evaluate the design of relevant controls when obtaining an initial understanding of internal control sufficient to assess the risk of material misstatement of the FS

165
Q

Test of controls are performed when the auditor’s risk assessment is based on:

A

assumptions that controls are operating effectively or when substantive procedures alone are insufficient

166
Q

The classes of transactions in the issuer’s operations that are significant to the issuers FS are typically assessed when:

A

the auditor is obtaining an understanding of the information and communication component of internal control

167
Q

Deliberate circumvention of controls by collusion of two or more people is an example of:

A

a limitation of internal control

168
Q

A failure in internal control occurs when:

A

a control doesn’t exist, isn’t designed appropriately, or isn’t operating effectively

169
Q

An auditor would most likely be concerned with internal controls that provide reasonable assurance about:

A

the entity’s ability to process and summarize financial data

170
Q

An entity’s objectives consist of:

A

financial reporting, operations, and compliance

171
Q

Internal control over safeguarding of assets may relate to which objectives?

A

financial reporting and operations

172
Q

Controls related to financial reporting include:

A
  1. use of a lockbox system for collecting cash

2. passwords for limiting access to AR data files

173
Q

Controls related to operations might include:

A

controls to prevent the excess use of materials in production

174
Q

Control environment factors include:

A
  1. communication and enforcement of integrity and ethical values
  2. commitment to competence
  3. participation of those charged with governance
  4. management philosophy and operating style
  5. organizational structure
  6. assignment of authority, responsibility, and accountability
  7. human resource policies and practices
175
Q

An auditor evaluates an entity’s risk assessment to:

A

understand how management addresses risks relevant to financial reporting

176
Q

Control activities

A

policies and procedures that help ensure that management directives are carried out

177
Q

The auditor obtains an understanding of the entity’s information and communication system to understand:

A

how transactions are initiated, processed, and reported, the financial reporting process, and the means used by entity to communicate financial reporting roles and responsibilities

178
Q

Monitoring is the process of:

A

assessing the quality of internal control performance over time and taking necessary corrective actions NOT eliminating a control that is operating effectively

179
Q

Client records documenting the use of EDP programs would be a relevant item for an auditor to examine while determining if:

A

internal control is operating as designed

180
Q

Embedded audit modules are:

A
  1. sections of the application program code that collect transaction data for the auditor
  2. usually built into the application program when the program is developed
181
Q

Primary reason auditors hesitate to use embedded audit modules:

A

they are required to be involved in the system design of the application

182
Q

In a paperless system, the CPA would most likely need to continuously monitor and analyze transaction processing to ensure:

A

that controls are operating effectively throughout the period under audit. an embedded audit module is one way to achieve this goal.

183
Q

What procedure is used to monitor the authorization of transactions in all computerized systems?

A

verification of encrypted digital certificates

184
Q

__________ uses test data commingled with actual data to test transactions

A

integrated test facility

185
Q

_______ involves the client’s input data processed through both the auditor’s version of the clients program and the clients program and the output is compared

A

parallel simulation

186
Q

Examples of input controls:

A

data entry monitor, input controls matrix

187
Q

Test data consists of:

A
  • “dummy” or fictious data run through the clients computer system under the auditor’s control to test whether adequate controls exist over data processing
  • only transactions that the auditor wishes to test is used
188
Q

The objective of the test data approach is to:

A

test programs that the client uses to process data. Using different programs defeats the purpose of the test

189
Q

It is (easier/harder) to access and alter microcomputer data files than manually prepared data files

A

easier

190
Q

Microcomputer access security is difficult to maintain because:

A

of the increased number of data entry points and the potential ability to defeat access controls

191
Q

1 benefit and 1 disadvantage of an automated system over a manual system regarding errors:

A

benefit: removal of random (computational) errors from the process
disadvantage: systematic errors are more common because pf reduced human involvement in processing

192
Q

Example of test data:

A

discovery of invalid employee ID numbers

193
Q

When using computers in an auditing task, audit documentation may not contain:

A

readily observable details of calculations

194
Q

in order to review assistants work, a supervisor may have to:

A

examine the formulas used on the computer rather than simply examining the audit documentation

195
Q

The assessment of control risk is based on:

A

auditor’s judgement. (a computer cannot replace auditor judgement in assessment)

196
Q

A generalized audit software package (GASP) is used:

A

to perform tests directly on a clients system

197
Q

Tasks typically performed by generalized audit software package (GASP) include:

A
  1. selecting items that meet specified criteria
  2. recalculating amounts and totals
  3. performing statistical analysis of data
198
Q

When performing test data, if the client’s program is operating effectively, it should:

A

generate the same results determined previously by the auditor

199
Q

_________ contains the types of valid and invalid conditions in which the auditor is interested

A

test data

200
Q

An integrated test facility utilizes:

A

dummy (simulated) accounts

201
Q

Using ___________, test data is initially commingled with live data, but coding to a dummy (simulated) account allows later extraction from the system of information on operating effectiveness of controls

A

integrated test facility approach

202
Q

One of the primary benefits of using generalized audit software:

A

the ability to access client data stored in computer files without having a detailed understanding of the client’s hardware and software features

203
Q

_________ and _________ are controls embedded in client software applications to ensure accuracy

A

Self-check digits and hash totals

204
Q

Generalized audit software is used to:

A

extract and analyze data, filter data to select items meeting specific criteria

205
Q

Another word for random errors

A

computational errors

206
Q

In computer audit applications, efficient and effective system usage requires:

A
  1. identification of the appropriate audit tasks and

2. appropriate software to perform the selected audit tasks

207
Q

Program code checking is:

A

the review of the client’s program source code by a qualified IT/auditor specialist

208
Q

________________ is a less common term used for parallel processing where the auditor writes a program to “reprocess” some or all of the client’s live data

A

Controlled reprocessing of transactions

209
Q

Frame relay protocol refers to:

A

the physical and logical link layers of digital communication channels using packet switching methodology

210
Q

Remote node router is:

A

a device used to connect physical devices such as terminals and printers not connected to the main network

211
Q

_______ is data that the auditor develops to test programmed controls

A

test data

212
Q

If the client has a programmed control that requires a supervisory approval for transactions over $500, the auditor would then create________ to determine if the system would accept a transaction over $500 without a required supervisor password approval.

A

test data

213
Q

Continuous performance of audit tests is required when:

A

financial data is processed electronically, without paper documentation, to ensure that controls are operating effectively thought out the period under audit

214
Q

Use of computer assisted audit techniques typically allows:

A

a greater number of items to be tested at relatively little additional cost

215
Q

Computer-assisted audit techniques (CAATs) are:

A

computer programs that allow auditors to test computer files and databases during an audit

216
Q

When are computer-assisted audit techniques (CAATs) best to use?

A

when there is need to examine a lot of data in the computer files

217
Q

When are manual techniques best to use?

A
  • when assessing compliance with policies and procedures related to information security
  • when verifying unrecorded legal liabilities
  • reviewing approval of dividends
218
Q

A policy for information security may be that all patient health care files need to be in a locked cabinet is an example of what?

A

assessing compliance with policies and procedures related to information security

219
Q

What is performed by reviewing the response from the lawyer to the letter of inquiry

A

when verifying unrecorded legal liabilities

220
Q

What is performed by reviewing the board of director meeting minutes for proper approval of the dividends

A

reviewing approval of dividends

221
Q

Comparing the payroll transaction file to the employee master file to extract payments to employees who are not in the employee master file is a procedure for what?

A

testing completeness of the master file

222
Q

obtaining statistics on the population of the payroll file to identify unusual pay amounts to employees is a procedure for what?

A

helping the auditor identify unusual pay amounts

223
Q

Comparing Social Security numbers paid in the payroll transaction file to a file of government-authorized social security numbers is a procedure for what?

A

identify employees with invalid Social security numbers

224
Q

The primary objective of procedures performed to obtain an understanding of the entity and its environment is to provide an auditor with:

A

knowledge necessary for risk assessment and audit planning

225
Q

Documenting the deadlines for interim and final reporting are in the:

A

audit strategy

226
Q

Board meeting minutes go in which file?

A

permanent file

227
Q

________ are responsible for the timing of the audit

A

Both management and auditor

228
Q

_______ are responsible for coordinating client assistance

A

Both management and auditor

229
Q

internal audit function is part of the ______ component of internal control

A

monitoring

230
Q

Adoption of new accounting principles is part of the ______ component of internal control

A

risk assessment

231
Q

________ are used to present presentations and disclosures properly

A

information and communication

232
Q

New personnel is part of the _______ component of internal control

A

risk assessment

233
Q

incorporation of new technology is part of the ______ component of internal control

A

risk assessment

234
Q

measurement and recording of proper monetary values is part of the ______ component of internal control

A

information and communication

235
Q

The way in which significant events are captured by the accounting system is part of the ______ component of internal control

A

information and communication

236
Q

operating performance reviews is part of the ______ component of internal control

A

information and communication

237
Q

Corporate restructuring is part of the ______ component of internal control

A

risk assessment

238
Q

the tile of the OCBOA report:

A

“Independent Auditor’s report”

239
Q

Although the audit strategy and audit plan are linked together, the _________, not the _______, outlines the nature timing, and extent of the audit procedures that will be performed by the auditors on the engagement

A

audit plan, not audit strategy

240
Q

outlining reporting objectives, providing the scope of the audit, and providing a preliminary assessment of materiality and tolerable misstatement are primary functions of:

A

an audit strategy

241
Q

Should the successor auditor request to review the predecessor’s auditor documentation related to internal control?

A

yes

242
Q

the auditor uses ______ at the relevant assertion level to test a client’s material account balances, transaction classes, and disclosure items in the FS

A

substantive tests and tests of controls

243
Q

The auditor’s preliminary evaluations of materiality and audit risk will impact the:

A

focus of the audit (NOT the scope)

244
Q

What would effect the scope of the audit?

A
  • regulatory, statutory and industry specific reporting requirements
  • any knowledge gained by auditor from prior audit experience with the client
  • info tech of the client
245
Q

Operating performance reviews are part of the________ of an organization.

A

control activities

246
Q

____________ are used to capture and record significant events.

A

Information and communication systems

247
Q

The auditor should consider timing when developing the audit strategy, which includes _________

A

he deadlines for interim and final reporting.

Audit (7 decks)

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