(A4)M7-M10 Flashcards

1
Q

management rep letter typically includes info in 4 categories, what are those categories?

A

FS
completeness
recognition, measurement, and disclosure
subsequent events

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2
Q

what do materiality limits not apply to in obtaining written representations from management?

A

fraud involving management/key employees, management’s acknowledgement of its responsibility for the FS, availability of financial records, and completeness and availability of minutes

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3
Q

what party actually contacts the client’s legal counsel, requests audit inquiry letter (i.e., prepares the letter)?

A

client management

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4
Q

concerning an entity’s ability to continue as a going concern, the emphasis-of-matter paragraph should contain what two phrases?

A

“substantial doubt; going concern”

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5
Q

if there substantial doubt about going concern, an auditor may issue which two types of opinions?

A

Disclaimer; unmodified with emphasis-of-matter (most common)

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6
Q

an auditor is likely to request clarification if a client’s lawyer’s letter does not implicitly or explicitly mention what?

A

the likelihood of an unfavorable outcome

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7
Q

when evaluating the reasonableness of management’s estimates, what is the procedure that an auditor would first perform?

A

obtaining an understanding of how management developed its estimates

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8
Q

letters of inquiry from client’s attorneys are ___ evidence

A

corroborative

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9
Q

reviewing any type of transaction that is already recorded on the FS will not identify a ___?

A

contingency

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10
Q

when evaluating reasonableness of an estimate, an auditor would normally concentrate on key factors that are what? (4 things)

A

significant to the estimate
sensitive to variation
deviation from historical pattern
subjective and susceptible misstatement/bias

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11
Q

legal responses should be dated within two weeks of what?

A

the audit report date

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12
Q

responses from legal counsel that are dated (received) after the audit report date requires the auditor to update what?

A

the audit report date

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13
Q

if insurance carrier will cover the loss attributable to a lawsuit, does that still have to be accrued and disclosed in the FS?

A

Yes!

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14
Q

is the cost of correcting a misstatement a quantitative or qualitative standard?

A

qualitative

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15
Q

the term “open” as it relates to purchase orders and invoices means what?

A

they are not matched to the related receiving report

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16
Q

as it pertains to internal controls, auditors should separately identify ___ and ___.

A

significant deficiencies and material weaknesses

17
Q

is the auditor required to search for significant deficiencies in internal controls?

A

No, but should document and communicate when discovered

18
Q

what are two things that are required to be communicated to those charged with governance?

A

significant audit adjustments (unless all those charged with governance are also involved with management)
changes in significant accounting policies

19
Q

what are the two key words that indicate a control deficiency would be considered a material weakness?

A

Reasonable (likelihood)

Material (magnitude)

20
Q

T or F, the SEC requires companies to establish audit committees.

A

F, but it strongly recommends

21
Q

how many times a year should the auditors and audit committee meet without management present?

22
Q

when communicating findings to management, the auditor is not responsible for what?

A

requesting management’s explanation for uncorrected material misstatements

23
Q

is the auditor required to communicate significant deficiencies/material weaknesses by the report release date for a nonissuer FS audit?

A

No, can communicate within 60 days of the release date

if it is an audit of IC, must be by report release date

24
Q

when is a sale recorded?

A

depending on shipping terms (shipping point, destination), when customer takes ownership of goods

25
what type of deficiency in IC is communicated to management only and can be oral or written?
control deficiency (lowest severity)
26
what are some examples of a deficiency in the design of internal controls?
insufficient control consciousness inadequate documentation of the components of internal control lack of appropriate qualifications or training of client personnel
27
what is considered evidence of failure in the operations of internal controls?
management override undue bias or lack of objectivity misrepresentation by client personnel to auditor observed deviation rate that exceeds auditor's expected rate