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Becker AUD > A4 > Flashcards

A4 Flashcards

1
Q

Where does support for the audit opinion come from?

A

audit evidence

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2
Q

What is the purpose of substantive procedures?

A

*to detect material misstatements in the F/S

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3
Q

Types of Audit Evidence

A
  1. accounting records
  2. corroborating evidence
  3. evidence in electronic form
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4
Q

Two key qualities for audit evidence

A

sufficient and appropriate

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5
Q

Two key qualities for sufficiency of audit evidence

A

valid and relevant

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6
Q

Influences on the sufficiency of audit evidence

A
  1. RMM; increases mean more work

2. quality of audit evidence

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7
Q

Two key factors for appropriateness of audit evidence

A
  1. reliability

2. relevance

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8
Q

Audit objectives from evaluation of audit evidence

A
  1. evaluate management assertions

2. detect material misstatements

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9
Q

Types of Substantive Procedures

A
  1. test of detail (transaction or ending balances)

2. analytical procedures (financial and nonfinancial data)

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10
Q

key to designing and performing substantive analytical procedures

A

developing an expectation

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11
Q

What types of accounts should be analyzed using analytical procedures?

A
  1. I/S accounts are more predictable

2. accounts with management discretion are less predictable

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12
Q

Difference between confirmation and inquiry

A

confirmation is written whereas inquiry is oral

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13
Q

Audit Procedures used in Substantive Procedures

A 
F ooting, crossfooting, and recalculation
I nquiry 
V ouching
E xamination/inspection
C onfirmation
A nalytical Procedures
R eperformance
R econciliation 
O bservation 
T racing 
C utoff review
A uditing related accounts simultaneously 
R epresentation letter
S ubsequent events review
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14
Q

Transaction Assertions

A 
Occurence
Completeness
Cutoff
Classification
Accuracy
Authorization
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15
Q

Account Balance Assertions

A

Existence
Completeness
Rights/Obligations
Valuation/Allocation

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16
Q

Disclosures Assertions

A

Completeness
Understandability & classification
Rights & obligations & occurrence
Accuracy and valuation

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17
Q

PCAOB Financial Statement Assertions

A

C ompleteness
E xistence
O ccurence

A llocation 
P resentation
R ights 
O bligations
V aluation 
E
D isclosure
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18
Q

Two ways to override segregation of duties

A
  1. collusion

2. management override of controls

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19
Q

Credit approval influences which assertion

A

VALUATION

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20
Q

Two actions auditor can do for understanding and testing I/C

A

observation and inquiry

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21
Q

Best instances to use positive confirmations

A
  1. large amounts
  2. expect errors/disputes
  3. weak I/C
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22
Q

Best instances for negative confirmations

A
  1. low risk
  2. small balances
  3. expect customer attention
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23
Q

What to do if you do not receive a confirmation

A

ask a second and a third time

*you CAN ask the client to ask the customer to return the confirmation

24
Q

What to do if you receive a confirmation by fax or email

A

call and confirm the identity of the customer

25
Q

Accounts Payable has Three Functions

A
  • record the payable
  • approve the invoice for payment
  • record the payment after it is paid by the treasurer
26
Q

Debit Memo vs Credit Memo

A
  • debit is for returning inventory

* credit is for customer returning merchandise

27
Q

Who controls cash disbursements in the expenditure cycle?

A

the treasurer

28
Q

Best step for testing completeness in expenditure cycle

A
  • the search for unrecorded liabilities

* focuses on COMPLETENESS, NOT CUTOFF

29
Q

How to detect lapping

A

*inspect date checks are deposited vs. when the receivable was credited

30
Q

How to detect kiting

A

*look to see if there are receipts per bank records before being disbursed per the books

31
Q

When can you do physical count checks with perpetual inventory systems?

A

*you can do them before, during, or after the end of the audit period if they have well-kept perpetual inventories and do physical counts throughout the year

32
Q

Inventory observation is not equal to

A

the auditor actually counting the client’s inventory

33
Q

Assertion tested by comparing company pre-numbered inventory tags to the CPA test counts

A

accuracy

34
Q

Are consigned goods part of inventory?

A

no

35
Q

How can you check the accuracy of dividend income?

A

*access it electronically or from an investment advisory service

36
Q

Ways to test existence of PPE

A
  1. company does not/cannot insure an asset they don’t have
  2. company does not pay taxes on unowned property
  3. tour plant/inquire
37
Q

Primary assertion tested in reviewing the related repair and maintenance expense accounts

A

completeness of asset additions

38
Q

HR fills which function in A R C

A

authorization

39
Q

Audit risk with related party transactions

A

valuation, allocation, and accuracy

40
Q

Indicators of related party transactions

A
  1. compensating balance arrangements
  2. loan guarantees
  3. unusual, nonrecurring transactions near year-end
  4. transactions based on terms that differ significantly from market terms
  5. nonmonetary exchanges
41
Q

One of the first steps to do when the team has identified a previously unidentified or undisclosed related party

A

communicate the information to the other members of the team and do more work with inquiry and understanding of controls

42
Q

Two key components regarding accounting estimates for management

A
  1. responsible for estimates

2. subjective = risk

43
Q

What to do when the estimate is unreasonable per PCAOB?

A

treat it as a misstatement and give management a new estimate

44
Q

Auditing Fair Values Consideration

A
  1. consistent method with prior period
  2. past track record is accurate
  3. justify any changes in approach
  4. appropriate in relation to industry
45
Q

Primary goal of the auditor in testing fair value measurements and disclosures

A

determine whether management’s significant assumptions provide a reasonable basis for fair value measurements

46
Q

Who’s responsibility is it to identify and account for contingent liabilities?

A

management’s responsibility

47
Q

Who must ask permission to speak to client’s lawyers?

A

management first must send the counsel a letter to okay it

48
Q

Refusal to Respond to Attorney Inquiry results in a

A

Qualified or Disclaimer

49
Q

Refusal to Permit Inquiry of Attorney results in

A

Disclaimer or Withdrawal

50
Q

When evaluating audit findings, which two criteria are used in assessing materiality?

A

Qualitative and quantitative

*PROFESSIONAL JUDGMENT

51
Q

Are engagement quality reviews/concurring approvals required?

A

they are mandatory under PCAOB but many firms require them

52
Q

Liquidity Ratios

A

Working Capital
Current Ratio
Acid-test ratio
Cash ratio

53
Q

Activity Ratios

A 
A/R turnover
Days in A/R
Inventory Turnover
Days in Inventory 
Operating Cycle (A/R days + Inventory days)
Working capital turnover (sales/average working capital)
Total asset turnover 
A/P turnover 
Days in A/P
54
Q

Profitability Ratios

A 
Net profit margin 
Return on total assets 
Return on assets 
Return on investment 
Return on common equity 
Net operating margin percentage 
Gross profit margin percentage 
Operating cash flow per share (operating/common outstanding)
55
Q

Investor Ratios

A 
Degree of financial leverage (EBIT/EBT)
Earnings per share 
P/E 
Dividend payout ratio 
Dividend yield
Book value per share (S/E - preferred / common outstanding)
56
Q

Long-Term Debt-Paying Ability Ratios

A
  1. debt/equity
  2. debt ratio (debt/assets)
  3. times interest earned
  4. operating cash flow/total debt

Becker AUD (6 decks)

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