AICPA Blueprint #2 Flashcards
According to US GAAS, when the auditor of the group financial statements is assuming responsibility for the work of component auditors, for a component that is significant due to its individual financial significance to the group, the group engagement team, or a component auditor on its behalf, should perform
The correct answer is: B
For a component that is significant due to its individual financial significance to the group, the group engagement team, or a component auditor on its behalf, should perform an audit of the financial information of the component, adapted as necessary to meet the needs of the group engagement team, using component materiality.
The use of which of the following word(s) in the IESBA Code of Ethics for Professional Accountants imposes a requirement?
The word shall is used to impose a requirement in the IESBA Code of Ethics for Professional Accountants.
An auditor of a nonissuer is required to give special consideration to related party transactions because they
Related party transactions require special consideration because they may not be conducted on an arm’s length basis and could result in financial statements that do not present a true and fair view. Such transactions can be used to manipulate financial results and disclosures, making it essential for auditors to scrutinize them closely to ensure transparency and fairness.
While related party transactions can represent significant sources of revenue and expense, this is not the primary reason for the auditor’s special consideration. The main concern is their impact on fair presentation.
Although related party transactions are often not conducted in the normal course of business, this characteristic alone does not necessitate special consideration. The key issue is the potential for these transactions to distort the financial statements.
Related party transactions are generally required to be disclosed and accounted for in accordance with relevant accounting standards, but the primary reason for special consideration by auditors is to ensure that these transactions do not mislead users of the financial statements.
Which of the following statements is correct concerning internal control in an electronic data interchange (EDI) system?
Preventive controls are generally more important than detective controls in EDI systems because of the speed with which goods and services are delivered. Objectives remain the same as for other information systems. Internal controls in EDI systems must be strong to minimize losses. Segregation of duties is not as important as protection of assets in an EDI system.
A significant risk
A significant risk is an identified and assessed risk of material misstatement that, in the auditor’s professional judgment, requires special audit consideration.
The auditor is required to communicate with those charged with governance an overview of the planned scope and timing of the audit and this may include how the auditor proposes to address the significant risks, but it is not required.
In exercising judgment as to whether a risk is significant, the auditor should exclude the effects of identified controls related to the risk.
One of the factors the auditor considers in identifying significant risks is whether the risk is a risk of fraud, but not all significant risks are fraud risks.
A decrease in taxes can have a widespread effect on the economy. Which of the below effects can be best linked to a decrease in taxes?
The correct answer is (C).
A decrease in taxes increases the disposable income in the hands of the household, which stimulates demand and shifts the aggregate demand curve rightwards. An increase in aggregate demand can trigger a price rise, leading to inflation.
Reducing taxes will increase people’s take-home salary/wages. This will increase the spending power of the nation and boost demand, which increases prices and causes demand-pull inflation.
What increases when U.S. commercial banks increase net deposits?
Banks only retain a specified percentage of funds due to reserve requirements. The more funds banks hold, the more they may lend to qualified customers. As the amount of deposits increase, the amount of loans increases, directly increasing the money supply. Purchasing power of the U.S. dollar may be decreased by a money supply expansion. Real national income and wealth are not changed directly by increases in money supply. National debt is government debt; governmental debt is not changed by private deposits.
What is the most likely impact of government borrowing to finance deficits that increases the demand for loan funds?
An increase in the demand for loan funds tends to increase interest rates. An increase in the demand for loan funds has no direct effect on the supply of loan funds. With increased interest rates and more competition for available loan funds, businesses most likely have increased difficulty borrowing.
