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audit - cpa > A2 - Quality Control, Engagement Acceptance, Planning, and Internal Control > Flashcards

A2 - Quality Control, Engagement Acceptance, Planning, and Internal Control Flashcards

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CPA flashcards
1
Q

The elements of a CPA firm’s quality control are:

A
  • Human resources
  • Engagement/client acceptance & continuance
  • Leadership responsibilities
  • Performance of the engagement
  • Monitoring
  • Ethical requirements
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2
Q

When assigning personnel to an engagement, the firm should consider the following factors:

A
  • Engagement size & complexity
  • Personnel availability
  • Special expertise required
  • Timing of the work to be performed
  • Continuity & periodic rotation of personnel
  • Opportunities for on-the-job training
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3
Q

Maximum number of days in which an auditor should complete the assembly of the final audit file following the report release date:

A
  • Nonissuer: 60 days

- Issuer: 45 days

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4
Q

Audit document retention (how long?):

A
  • Nonissuer: 5 years

- Issuer: 7 years

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5
Q

A successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor’s:

A
  • Working papers

- It is not appropriate for the auditor to request a review of the predecessor’s engagement letter

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6
Q

An auditor’s engagement letter should include:

A
  • The objective and scope of the audit
  • The responsibilities of the auditor
  • The responsibilities of management (FS & IC)
  • A statement that because of inherent limitations, material misstatements may not be detected
  • Identification of the applicable financial reporting framework
  • Expected form and content of any reports
  • Arrangements for the timing of the audit
  • Management will provide written representations
  • Use of specialists
  • Fees and billing arrangements
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7
Q

When an auditor is requested to change the engagement from an auditor to another report (i.e. compilation), the auditor must consider:

A
  • The effort needed to complete the audit
  • Cost of completing the audit
  • The reasons for the client’s request
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8
Q

If management disregards its responsibility to maintain an adequate internal control environment, an auditor would:

A
  • Decide NOT to accept a new engagement
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9
Q

Communications with the predecessor auditor MUST occur:

A
  • BEFORE the successor auditor accepts the engagement, but CAN ALSO occur AFTER accepting the engagement
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10
Q

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

A
  • The current auditor should review the risk assessment of the opening balances of the FS
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11
Q
  • Factors in determining the extent of supervision needed for the staff:
A
  • Nature of the company
  • Nature of the work assigned
  • Risk of material misstatement
  • Knowledge, skill & ability of each team member
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12
Q

Financial statement assertions include:

A
  • Completeness
  • CutOff
  • Valuation, allocation & accuracy
  • Existence or occurrence
  • Rights & obligations
  • Understandability of Presentation & Classification
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13
Q
  • Primary internal control planning objectives:
A
  • Identify types of potential material misstatements
  • Consider factors that affect the risk of material misstatements
  • Design effective substantive tests
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14
Q

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

A
  • The incremental risk involved

- Determine whether sufficient alternative procedures exist to extend the interim conclusions to year end

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15
Q
  • In order to detect material misstatements in the creation of an audit plan, the auditor would use:
A
  • Substantive procedures (i.e. test of details and analytical procedures)
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16
Q

In testing a client’s FS assertions at the account, transaction or disclosure level, an auditor would use:

A
  • Substantive procedures and test of controls
17
Q

The audit strategy outlines the:

A
  • Scope of the engagement
  • Reporting objectives
  • Timing of the audit
  • Required communications
  • Factors that determine the focus of the audit
  • *Includes a preliminary assessment of materiality and tolerable misstatement
18
Q
  • The independent external auditor cannot share responsibility with the internal auditor for:
A
  • Audit decisions
  • Judgments
  • Assessments (i.e. materiality, estimates, inherent & control risk)

-* Can share responsibility for test of controls and substantive tests

19
Q

An independent auditor should consider the following when assessing an internal auditor’s objectivity:

A
  • Info obtained from previous experience
  • Discussions with management
  • External quality reviews
  • Professional internal auditing standards (i.e The Institute of Internal Auditors)
20
Q

Compared to an independent CPAs audit plan, an audit client’s comprehensive internal audit program is:

A
  • More detailed and covers areas that would not normally be covered by the CPA
21
Q
  • The internal auditors’ work may affect the nature, timing & extent of the audit, including:
A
  • Procedures performed in obtaining an understanding of IC
  • Procedures performed in assessing the risk of material misstatement
  • Substantive procedures performed in gathering direct evidence
22
Q

The concept of materiality involves information that:

A
  • Is likely to be viewed by a reasonable investor as altering the mix of available information
  • Influences the judgements of a reasonable investor
  • Determined using BOTH quantitative and qualitative thresholds
  • Influences judgements about any of the financial statements
23
Q

What would an auditor most likely use in determining the auditor’s preliminary judgement about materiality?

A
  • The entity’s financial statements of the prior year
24
Q

What are analytical procedures?

A
  • Evaluations of financial info made by a study of plausible relationships among data, and they include the comparisons between current and prior year financial info
  • Often use financial and nonfinancial data aggregated at a high level
25
Q

An understanding of internal control relevant to WHAT is a necessary FS audit?

A
  • An entity’s financial reporting objective
26
Q

5 components of internal control:

A
  • Control environment
  • Risk assessment
  • Information & communication systems
  • Monitoring
  • Existing control activities

CRIME

27
Q

Factors of the control environment (tone at the top)

A
  • Communication & enforcement of integrity and ethical values
  • Participation of those charged with government
  • Management’s philosophy and operating style
  • Assignment of authority & responsibility over IT operations
  • Organizational structure
  • Human resource policies
28
Q
  • An auditor’s primary consideration regarding an entity’s internal control is whether the controls:
A
  • Affect the financial statement assertions
29
Q

What is a walkthrough?

A
  • Following a transaction from its origination until its reflected in the FS
  • Inspection-> observation -> inspection of relevant documentation -> reperformance of controls
30
Q

Why does an auditor evaluate an entity’s risk assessment?

A
  • To understand how management addresses risks relevant tot financial reporting
31
Q

Internal control over safeguarding assets includes:

A
  • Financial reporting

- Operations objectives

32
Q

Internal control over safeguarding assets includes:

A
  • Financial reporting
    - Use of a lockbox system for collecting cash
    - Passwords for limiting access to accounts receivable data files
  • Operations objectives
    - Controls to prevent the excess use of materials in production
33
Q

In planning an audit, the auditor’s knowledge about the design of relevant internal controls should be used to:

A
  • Identify the types of potential misstatement that could occur
34
Q

The three inherent limitations of internal control:

A
  • Management override
  • Human error
  • Deliberate circumvention of controls by collusion of two or more people
35
Q

Objectives of an entity include:

A
  • Financial reporting
  • Operations
  • Compliance
36
Q

Proper segregation of duties includes assigning different people the responsibilities of:

A
  • Authorizing transactions
  • Record keeping
  • Custody of related assets

ARC

37
Q

Existing control activities include:

A
  • Prenumbering of documents
  • Authorization of transactions
  • Independent checks to maintain asset accountability
  • Documentation
  • Timely and appropriate financial performance reviews
  • Information processing controls
  • Physical controls for safeguarding assets
  • Segregation of duties

PAID TIPS

38
Q

In obtaining an understanding of an entity’s internal control, an auditor is required to obtain knowledge about the:

A
  • Design of controls

- Whether they have been implemented

audit - cpa (4 decks)

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