A2

Question 1

Elements of Quality Control

Answer 1

Human resources
Engagement/client acceptance and continuance
Leadership responsibilities- ultimate responsibility for quality control
Performance of engagement
Monitoring
Ethical requirements- helps firm maintain independence

Question 2

Tone at the Top attributes

Answer 2

Control environment
Risk assessment
Information
Monitoring
Existing control activities

Question 3

Significant engagement deficiencies

Answer 3

The team failed to obtain sufficient appropriate evidence
The engagement team reached an inappropriate conclusion
Engagement report is not appropriate for the circumstances
Firm is not independent of the client

Question 4

Performance of Engagement examples

Answer 4

Ensure engagement is properly supervised and work is appropriately reviewed
Maintain confidentiality, integrity of documentation.
Engagement quality review should be appropriately documented.
Develop and use standard audit forms, checklists.
Establish procedures to review engagement documentation.

Question 5

Monitoring procedures

Answer 5

Helps determine whether firm has complied with legal requirements
Helps determine whether quality control system has been designed, implemented, operated effectively.
Review of administrative records, working papers, financial statements.
Conduct peer reviews at least every three years.

Question 6

Report release date

Answer 6

The date which the auditor grants the client permission to view the report.
Date on which report is delivered to client.

Question 7

Document completion date

Answer 7

The date in which auditor must have final documentation assembled. The date after which no existing documentation can be deleted and all additional information must be documented.

Question 8

Factors in determining nature and extent of documentation

Answer 8

Size and complexity of entity
Nature of auditing procedure
Risk of material misstatement
Significance of evidence obtained
Nature and extent of any exception identified
Extent to which judgement was required

Question 9

Significant audit findings

Answer 9

Complex and unusual transactions, estimates
Matters that give rise to significant risks
Cause significant difficulty in applying required audit procedure
Result in modifying opinions, or adding an emphasis of matter paragraph

Question 10

Engagement letter required content

Answer 10

Objective and scope of audit
Responsibilities of auditor and management
Statement that unavoidable inherent risk exists.
Identification of applicable reporting framework.
Statement that the auditor’s report may differ from what is expected.

Question 11

Engagement letter optional content

Answer 11

Scope of the audit- reference to applicable regulations
Audit planning arrangements- audit team composition
Agreement of management to provide all information auditor requests
Agreement of management to provide written repesentation (last)
Arrangements regarding use of specialists, former auditors
Fees and billing arrangements

Question 12

Auditor’s responsibilities during planning stage

Answer 12

Obtain knowledge of client’s business and industry
Develop audit strategy and audit plan
Perform risk assessment procedures to assess risk of material misstatement

Question 13

Audit strategy procedures

Answer 13

Define scope, timing and objective of audit
Determine focus of audit team efforts
Determine allocation of resources
Making required communications
Preliminary assessment of materiality and material misstatement

Question 14

Financial statement assertions

Answer 14

Completeness
Cutoff
Valuation, Allocation, and Accuracy
Existence and Occurrence
Rights and Obligations
Understandability and Classification

Question 15

Supreme Court definition of materiality

Answer 15

Information that is likely to be viewed by a reasonable investor as altering the mix of available information

Question 16

Factors in preliminary assessment of materiality

Answer 16

Identify appropriate benchmark: based on FS items to focus on, nature and size of entity, industry
Prior period financial results
Current period budgets and forecasts
Significant known or expected changes in entity’s circumstances
Changes in conditions on industry or economy as a whole

Question 17

Tests of details

Answer 17

Audit procedures to verify specific account balances

Question 18

Tests of controls

Answer 18

Performed to evaluate the effectiveness of internal controls

Question 19

Tests of transactions

Answer 19

Selecting specific transactions and verifying if they were properly recorded

Question 20

Analytical Procedures Performed during Planning

Answer 20

Comparing financial statements to budgeted results
Comparing financial information with nonfinancial operating data
Comparing current year account balances for conformity with predictable patterns

Question 21

Objectives of Analytical Procedures during Planning

Answer 21

Enhance auditor’s understanding of entity and transactions/events that have occurred since last audit.
Identify unusual transactions and events
Identify risks of material misstateents due to fraud

Question 22

Control Environment Factors

Answer 22

Integrity
Competence
Participation of those charged with governance
Management philosophy
Organizational structure
Assignment of responsibility
Human resource policies

Question 23

Risk Assessment factors

Answer 23

Related to changes:
Change in regulatory/operating environment
New personnel/technology/business models
Corporate restructuring
Rapid expansion of operations
Expansion or acquisition of foreign operations
Adoption of new accounting principles

Question 24

Information and Communications systems factors

Answer 24

Communicating roles and responsibilities
Identify and record valid transactions
Present transactions and disclosures properly in FS
Financial reporting process- developing significant accounting estimates

Question 25

Monitoring factors

Answer 25

Internal audit function
Regular management and supervisory activities
Seperate evaluations of internal control performance
Evaluation of communications from external parties

Question 26

Existing control activities

Answer 26

Segregation of duties
Prenumbering of documents
Authorization of Transactions
Independent Checks to maintain asset accountability
Documentation
Timely and Appropriate Financial Performance Reviews
Information Processing Controls
Physical Controls

Question 27

Integrated test facility

Answer 27

Test data is commingled with live data and allows fictitious and real transactions to be processed together without client personnel knowing.
Processed to simulated (dummy) accounts.

Question 28

Parallel simulation

Answer 28

Auditor reprocesses some or all of the client’s live data using auditor’s software (controlled by auditor) and compares results of auditor’s version with client files

Question 29

Test data

Answer 29

Auditor processes invalid test data to client’s system to make sure the system rejects it as invalid.
Live computer files are not affected by the test.

Question 30

Embedded audit modules

Answer 30

Sections of the application program code that collect specific transaction data for the auditor.
Continuous testing of the system as transactions are processed.

Question 31

Transaction tagging

Answer 31

Used by the auditor to electronically mark specific transactions and follow them through the client’s system

Question 32

Generalized Audit Software Packages tasks

Answer 32

Allow the auditor to perform tests of controls and substantive tests directly on client’s system.
Examining transactions for control compliance.
Selecting items meeting specified criteria.
Reclculating totals
Reconciling data from two seperate files
Performing statistical analyses