A4 Final

Question 1

When would the use of blank confirms of AR be considered over positive confirms?

Answer 1

The recipients are more likely to sign the confirmations w/o devoting proper attention to them

Question 2

What would an entity use in safeguarding against loss of marketable securities?

Answer 2

independent trust company that has no direct context with the employees who have recordkeeping responsibilities has possession of the securities

Question 3

What is the objective of auditing procedures to segment information?

Answer 3

To provide the auditor with a reasonable basis for concluding the information is presented in conformity with GAAP rules on segment information

Question 4

What are examples of mitigating factors relating to going conern?

Answer 4

1. Dispose of assets
2. Plan to borrow money or restructure debt
3. plans to reduce or delay expenditures
4. plans to increase ownership equity

Question 5

If the client does not give permission to auditor to communicate to the legal counsel, what does the the auditor modify?

Answer 5

Issue disclaimer of opinion

Question 6

What type of opinion is issued when there is substantial doubt about an entity’s ability to continue as a going concern?

Answer 6

Unqualified w/ explanatory paragraph

Disclaimed

Question 7

What should the auditor do if there is a possible misstatement in the clients FS reported from the py auditor?

Answer 7

Ask the client to arrange a meeting of the PY auditor, mgmt, and successor auditor to discuss

Question 8

What opinion is issued wen substantial doubt about an entity’s ability to continue as a going concern are inadequately disclosed?

Answer 8

Qualified or adverse opinion

Question 9

When are negative confirmations used? (3)

Answer 9

1. When the combined assessed level of inherent and control risk is low
2. a large number of small balances is involved,
3. the auditor has no reason to believe that the recipients of the requests are unlikely to give them consideration

Question 10

What are the assertions tested through AR confirmations?

Answer 10

• rights and obligations (does the client have a right to the receivable?)
• Existence (Does the receivable exist?)

Question 11

Why does an auditor analyze a repairs and maintenance account?

Answer 11

To ensure that all expenditures for PP&E have not been charged to expense

Question 12

What dept is responsible for preparing a PO, matching the receiving report and invoice with purchase order and paying the purchase?

Answer 12

Purchase dept –> Prep PO
receiving dept –> matching documents
AP dept –> responsible for making payment

Question 13

what assertion will analytical procedures satisfy?

Answer 13

Completeness

Question 14

How should an auditor verify the valuation of marketable securities at the BS date?

Answer 14

Compare the prices of securities to published closing prices at the BS date

Question 15

What should be communicated with TCWG?

Answer 15

The initial selection and changes in significant accounting practices

Question 16

What is REQUIRED to communicate with TCWG?

Answer 16

Significatn audit findings which include:

• Material/corrected misstatements brought to mgmts attention as a result of audit
• disagreements w/ mgmt about audit aje

Question 17

What should a report issued on sig deficiencies indicate?

Answer 17

Indicate that the purpose of the audit was to report on the FS and not to provide assurance on internal control

Question 18

What assertion is satisfied by obtaining credit approval before shipping goods to customers?

Answer 18

Valuation and allocation - testing that AR is collective

Question 19

hy does an auditor review the reconciliation of payroll tax?

Answer 19

To ID potential liabilities for unpaid payroll taxes

Question 20

What assertion is Tracing and Voucihing?

Answer 20

Tracing - Completeness (source doc -> ledge)r

Vouching - existence (Ledger -> source document)

Question 21

Who requests inquiry of clients lawyer?

Answer 21

Mgmt of client