Adaptive Drill 2 Flashcards
In an audit of a special purpose framework, the auditor is required to obtain agreement of management that it acknowledges and understands its responsibility. In this case, the agreement of management should not include…
Required GAAP disclosures
In an audit of a special purpose framework, the auditor is required to obtain agreement of management that it acknowledges and understands its responsibility. In this case, the auditor is required to obtain agreement as to…
Any additional disclosures beyond those specifically required
What is the primary objective of probability proportional to sample size?
To identify overstatement errors
PPS does not identify…
Zero and negative balances
If the auditor expects to include an emphasis of matter or other matter paragraph in the auditor’s report, what should the auditor do?
Communicate with those charged with governance
If the auditor expects to include an emphasis of matter or other matter paragraph in the auditor’s report, the auditor should communicate with those charged with governance regarding the…2
Expectation and proposed wording of the paragraph
Which areas of professional responsibility should be observed by a CPA not in public practice? 3
1 objectivity
2 integrity
3 free of conflicts of interest
Independence is not required of a CPA…
Not in public practice
What computer assisted auditing technique allows fictitious and real transactions to be processed together without client operating personnel being aware of the testing process?
Integrated test facility
Integrated test facility is a method of testing programmed controls by…
Creating a small subsystem within the regular EDP system
Test data approach involves…
Dummy transactions prepared and processed by auditor using
The client’s computer program
A CPA is not required to turn over…
His working papers to a client
A CPA is not required to turn over his working papers to a client, because…
The working papers are the property of the CPA, not the client
A CPA that leaves an engagement is required to allow the client…
2) but the CPA has no obligation to…2
Access the working papers compiled representing the client
2) give them to the client or share them with prospective auditors
What internal control would most likely reduce the risk of diversion of customer receipts by an entity’s employees?
A bank lockbox system
When a bank lock box system is used, customers, in effect, send…
Their remittances directly to the bank
When a bank lock box system is used, customers, in effect, send their remittances directly to the bank thus…
Eliminating the possibility of employees misappropriating those
Cash receipts
Depositing cash receipts daily will not by itself…
Reduce risk of misappropriated cash receipts
A CPA may be engaged to examine and report on management’s written assertion about the effectiveness of an entity’s internal control structure. Management may present its written assertion either…2
1 in a separate report that will accompany CPA’s report or
2 in representation letter to the CPA
A CPA may be engaged to examine and report on management’s written assertion about the effectiveness of an entity’s internal control structure. If management presents its assertion in a representation letter, the CPA should…
Should restrict the use of report to management and others
Within the entity
Program (or process) change controls would be classified as…
General controls
Application controls are classified as either…3
1 input controls
2 processing controls
3 output controls
The accountant would be required to perform analytical procedures designed to identify relationships that appear to be unusual in a review engagement, but not in…
A compilation engagement
Obtaining an understanding of internal controls involves…2
1 evaluating the design of a control within the audited company
2 determining if a control has been implemented within the audited
Company
Implementation of a control means that…2
The control exists and the entity is using it
Understanding controls that exist in the audited company’s industry is…
Not part of obtaining an understanding of internal controls
An auditor is required to establish an understanding with a client regarding the services to be performed for each engagement. This understanding generally includes…
auditor’s responsibility for ensuring that the audit committee is aware
of any significant deficiencies that come to auditor’s attention
The understanding with the client regarding services to be performed during an engagement includes:
That the objective of the audit is…
The expression of an opinion on the financial statements
The understanding with the client regarding services to be performed during an engagement includes:
Includes the responsibilities of management for…
The financial statements
The understanding with the client regarding services to be performed during an engagement includes:
Responsibilities of management for financial statements include…
adjusting FS to correct material misstatements
The understanding with the client regarding services to be performed during an engagement includes:
Management is responsible for establishing and…
Maintaining effective internal control
The understanding with the client regarding services to be performed during an engagement includes:
Management is responsible for ensuring that…
Entity complies with laws applicable to its activities
The understanding with the client regarding services to be performed during an engagement includes:
Management is responsible for making all…
Financial records available to auditor
The understanding with the client regarding services to be performed during an engagement includes:
Management is responsible for providing an auditor with…
A letter confirming representations made to auditor during the
Audit
The understanding with the client regarding services to be performed during an engagement includes:
Auditor’s responsibility to conduct the audit in accordance…
With GAAS
The understanding with the client regarding services to be performed during an engagement includes:
Auditor’s responsibility to obtain an understanding of…2
1 Internal control sufficient to plan the audit and
2 determine the nature, timing and extent of audit procedures
An auditor determines that the entity is presenting certain supplementary financial disclosures of pension information that are required by the GASB. Under these circumstances the auditor should…
Compare the required supplementary info for consistency with
Audited financial statements
The auditor should apply the following procedures to required supplementary info:
Make inquiries of management regarding…
Measurement and presentation of info
The auditor should apply the following procedures to required supplementary info:
Compare the info for consistency with…3
1 management’s responses to inquiries
2 audited financial statements
3 other knowledge obtained during the audit
The auditor should apply the following procedures to required supplementary info:
Consider adding the supplementary info to…
Management’s respresentations
The auditor should apply the following procedures to required supplementary info:
Apply any other prescribed…
Additional procedures
Which of the following is an engagement attribute for an audit of an entity that processes most of its financial data in electronic form without any paper documentation?
Performance of audit tests on a continual basis
It may be possible to test completeness of processing in an entity that processes most of its financial data in electronic form…
Only at various times throughout the year
Assessing control risk below the maximum is not required to…
Have a reasonable basis for extending audit conclusions from
An interim date to the balance sheet date
If the auditor assesses control risk at the maximum during the remaining period, he or she should consider whether the…
Effectiveness of certain of the substantive tests to cover that period
Will be impaired
What is a disadvantage for an entity that keeps micro computer files rather than manually prepared files?
It is usually easier for unauthorized persons to access and alter
The files
When an entity keeps microcomputer-prepared data files, to prevent the risk of unauthorized persons getting access both…
Physical and logical access controls are required
Manually prepared files only need to be secured…
Physically
The use of a microcomputer can…
Decrease the random errors associated with processing similar transactions in different ways
Microcomputer recorded transactions can be easily downloaded and compared with…
Physical count of assets
Preventative controls are usually…
More cost beneficial than detective controls
Preventative controls are policies and procedures which are…
Part of the process itself (internal controls)
Preventative controls place restrictions on and require…
Documentation of employee activities to reduce occurrence of
Errors/deviations
Preventative controls prevent errors…
Before they occur
Preventative controls are included in both…2
1 general accounting controls and
2 accounting transaction (application) controls
While preventative controls are usually more costly then detective controls, preventative controls are considered to be…
More cost beneficial
Give 2 examples of detective controls
feedback and feedforward controls
Preventative controls are considered to be more cost beneficial than detective controls because they are…3
1 more effective
2 easier to implement
3 minimize time delays
Example of preventative controls being more cost beneficial than detective controls
It’s better to prevent a $10 million embezzlement than discover it
After it has already occurred and the employee left the country
For going concern considerations, international audit standards include a time horizon of…
At least, but not limited to 12 months
PCAOB standards limit the foreseeable future for going concern consideration for..l
Up to 12 months
Which set of auditing standards include a time horizon of at least 12 months, but not limited to 12 months in the area of going concern?
1 US PCAOB Auditing standards
2 International Standards on Auditing (ISAs)
International Standards on Auditing (ISAs) only
PCAOB Auditing Standard state that an integrated audit of internal control over financial reporting and the financial statements, the auditor should design his testing of controls to accomplish the objectives of both audits simultaneously to obtain sufficient evidence the support the…2
1 auditor’s opinion on internal control over financial reporting as
Of year end and
2 auditor’s control risk assessments for purposes of audit of FS
Risk assessment procedures include…4
1 inquiries of management and others within entity
2 analytical procedures
3 observation and inspection
4 info from sources outside the entity
What control can an entity use to prevent or detect sending of an invoice for shipped goods that is not recorded in the sales journal?
Daily sales summaries are compared with control totals of invoices
A comparison of daily sales summaries with control totals of invoices would detect…
Differences between total sales made and recorded
A comparison of daily sales summaries with control totals of invoices, is an example of…
An independent check used as a control
A sale that has not been recorded will result in a…
Sales summary that does not include certain sales invoices
The risk of material misstatement has increased due to business factors. What does this cause the auditor to do?
The auditor normally increases the extent of audit procedures as
RMM increases
What is the best assertion or assertions involved when an auditor is concerned about overstatement or understatement of revenues?
Valuation, completeness, cutoff
Describe the assertion involved when the auditor is concerned about overstatement or understatement of revenues:
Valuation is concerned with…
Recording the proper amounts or values
Describe the assertion involved when the auditor is concerned about overstatement or understatement of revenues:
Completeness relates to whether or not…
All transactions have been recorded that should have been recorded
Describe the assertion involved when the auditor is concerned about overstatement or understatement of revenues:
Cutoff is concerned with…
Whether transactions have been recorded in the correct accounting
Period
If you wish to reduce the substantive procedures performed to support the assertion of cutoff as it relates to revenue, what might you do?
Testing controls allows auditor to assess control risk, which may
Lead to lowering control risk
What substantive procedure might you decide to perform to audit the assertion of cutoff for revenue?
Inquiry can be used as a substantive procedure
For PPS calculations, when does taint error exist?
Exists when accounts are overstated (BV is greater than AV)
Doesn’t exist when understated (AV is greater than BV)
In PPS, when a BV = $500 and an AV = $0 and the sampling interval is $1,000, what is the projected misstatement?
$1,000 = (500-0/500) x 1,000
