Adaptive Drill 1 Flashcards
If management refuses a material inconsistency in other information, the auditor must report the matter to governance personnel and can either…3
1 withhold the auditor’s report
2 withdraw from the engagement
3 or do both
If management refuses a material inconsistency in other information, the auditor must…
Report the matter to governance personnel
Search for unrecorded liabilities, is least likely to…
Be performed before the balance sheet date
Accounts receivable may be confirmed prior to the balance sheet date if…
The auditor concludes internal controls surrounding A/R are effective
Inventory counts may be observed prior to year end if…2
1 the client maintains perpetual inventory records and
2 controls surrounding those records are effective
With respect to special purpose financial statements, if such statements constrain items for which GAAP would require disclosure, the financial statements may…
Provide the relevant disclosure that would be required for those
Items in GAAP presentation
what does GAAS provides for presenting…2
1 Qualitative disclosures in special purpose format
2 but no requirements for quantitative disclosures along with it
Precision is a statistical measure of the maximum likely difference between the sample estimate and the true but unknown population total, and is directly related to…
Materiality
Precision or confidence interval represents the…
Range of values within which the true but unknown population
Total will fall
In a group audit, which of the following parties is responsible for obtaining an understanding of the component auditor?
Group engagement team
Although the group engagement partner is responsible for final approval, the group engagement partner is not involved in…
Not involved in obtaining an understanding of the component
auditor
Which of the following is the authoritative body designated to promulgate attestation standards?
Auditing Standards Board
An auditor is required by the second standard of fieldwork to…
Obtain an understanding of the client’s internal control structure
An auditor is required by the second standard of fieldwork to obtain an understanding of the client’s internal control structure, which includes…3
1 control environment
2 accounting system
3 control procedures
When an auditor assesses control risk at the maximum level, the auditor is required to document the auditor’s…2
1 understanding of client’s internal control structure and
2 his conclusions about assessed level of control risk
If the auditor decides to assess control risk at the maximum…
The basis for that conclusion does not have to be documented
If the auditor decides to assess control risk at less than the maximum…
The basis of conclusion must be documented
2 services a CPA may perform in carrying out a consulting service for a client
1 review of client prepared business plan
2 preparation of information for obtaining financing
Types of consulting services:
Give an example of consultations
Review client’s business plan
Types of consulting services:
Give an example of product services
Supplying computer software
Types of consulting services:
Give an example of advisory services
Analysis of client’s accounting system
Types of consulting services:
Give an example of support services
Provide staff for computer programming
Types of consulting services:
Give an example of implementation services
Installing a new computer system
Types of consulting services:
Give an example of transaction services
Preparing information to obtain financing
When an independent CPA is associated with the financial statements of a publicly held entity, but has not audited or reviewed such statements, the appropriate form of report issued must include…
A disclaimer of opinion
When an independent CPA is associated with the financial statements of a publicly held entity, but has not audited or reviewed such statements, the appropriate form of report issued must include a disclaimer of opinion. The disclaimer may…2
1 accompany the unaudited financial statements or
2 be placed directly on them
If a CPA begins an audit and then discovers that he/she lacks the professional competence necessary to successfully complete the engagement, the CPA should…2
1 inform the client and
2 recommend another CPA who possesses the necessary
competence
If a CPA begins an audit and then discovers that he/she lacks the professional competence necessary to successfully complete the engagement, the CPA should inform the client and recommend another CPA who possesses the necessary competence. The withdrawing CPA may…
Still collect a fee for the services provided
To best ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditor should review and test the…
Purchase cut-off procedures
Purchase cutoff procedures are designed to determine that…
Items Actually received in inventory have been included in the
Proper period
A key element of an other-matter paragraph is that…
It involves communication of a matter that is not presented or
disclosed in the financial statements or notes
An auditor may communicate reportable conditions…
During an audit or after an audit’s completion
Reportable conditions are…
Matters coming to the auditor’s attention that, in his judgement
Should be communicated to audit committee
Reportable conditions are matters coming to the auditor’s attention that, in his judgement, should be communicated to audit committee because…
They represent significant deficiencies in the design and operation
Of internal control structure
Storehouse A has 10,000 inventory items
Storehouse B has 5,000 inventory items
If the CPA had used sampling with replacement, the ratio of A to B would…
Have been 1:1
Storehouse A has 10,000 inventory items
Storehouse B has 5,000 inventory items
If the CPA had used sampling without replacement, the ratio of A to B would…
Be a slight difference in sample size between A and B, because
Of finite population correction factor
Resulting in ratio of more than 1:1 but less than 2:1
Give an example of a situation that is a violation of client confidentiality under the AICPA Code of professional conduct.
Member whose practice is primarily bankruptcy discloses a client’s
Name
When an auditor submits a document containing financial statements to a client or others, the auditor has a responsibility to…
Report on all information included in document
If the auditor-submitted document contains info that is presented outside the basic financial statements that is not required for those financial statements to be presented in accordance with GAAP, such as investment and property presented for purposes of additional analysis, the auditor must…
Express an opinion on the accompanying information
If the auditor-submitted document contains info that is presented outside the basic financial statements. When reporting on this information, the measurement of materiality is…
The same as that used in forming an opinion on basic financial
Statements taken as a whole
The primary purpose of a generalized computer audit program is to allow the auditor to…
Independently process and verify client electronic data processing records
Which body ordinarily has the authority to suspend or revoke a CPA’s license to practice public accounting?
A state board of accountancy
What is a necessary condition for a practitioner to accept an attest engagement to examine and report on an entity’s internal control structure over financial reporting?
Management presents its written assertion about the effectiveness
Of the internal control structure
AT 400 states that a practitioner may examine and report on management’s assertion about the effectiveness of an entity’s internal control structure if the following conditions are met:
Management accepts responsibility for…
Effectiveness of entity’s internal control structure
AT 400 states that a practitioner may examine and report on management’s assertion about the effectiveness of an entity’s internal control structure if the following conditions are met:
Management evaluates the effectiveness of entity’s internal control structure using…
Reasonable control criteria
AT 400 states that a practitioner may examine and report on management’s assertion about the effectiveness of an entity’s internal control structure if the following conditions are met:
Sufficient evidential matter exists or…
Could be developed to support management’s evaluation
AT 400 states that a practitioner may examine and report on management’s assertion about the effectiveness of an entity’s internal control structure if the following conditions are met:
Management presents its written assertion about the effectiveness of the entity’s internal control structure based upon…
The control criteria referred to in its report
A confidence level of 95% indicates that a…
Good system of internal control has been determined by means of
A sample
A confidence level of 95% indicates that a good system of internal control has been determined by means of a sample. Having met that test, the auditor could…
Place much less reliance on substantive tests
An auditor makes separate compliance and substantive tests in the accounts payable area which has good internal control. If the auditor uses statistical sampling for both of these tests, the confidence level established for substantive tests is normally…
Less than that for tests of compliance
Control risk should be assessed in terms of…
Financial statement assertions
Assessing control risk is the process of…
Evaluating the effectiveness of an entity’s internal control structure
In preventing or detecting material misstatements in FS assertions
Communication regarding fraud or an illegal act may be…
Oral or written
If the communication is oral, the audit should document it
Known misstatements (2 part definition)
1 Specific misstatements identified during the audit arising from
incorrect selection or application of accounting principles
2 misstatements of facts identified
3 examples of known misstatements
1 unrecorded liability related to services rendered by vendor
During period under audit
2 misstatements arising from mistakes in gathering or processing
Data
3 misstatements arising from misinterpretation of facts
Likely misstatements (2 part definition)
Misstatements that arise from difference between mgt’s and
auditor’s judgement
That auditor considers unreasonable
2 judgements an independent auditor cannot share responsibility with an internal auditor
1 assessment of inherent risk
2 assessment of control risk
“The objective of our audit is to express an unqualified opinion on the financial statements although it is possible that facts or circumstances encountered may preclude us from expressing an unqualified opinion.” What is the most likely source of this statement?
Auditor’s engagement letter
