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AUD > AUD 1-2 > Flashcards

AUD 1-2 Flashcards

1
Q

When changing an opinion on a prior period’s financial statements, the auditor should ___

A

State the substantive reasons for the change in opinion in an emphasis-of-matter/ other-matter paragraph

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2
Q

When an accounting change has no material effect on the current year, but a material future effect, the auditor must ___

A
  • Ensure that the change is disclosed in the F/S

- Does NOT recognize the change in the auditor’s report

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3
Q

Which paragraphs reference GAAS (auditing standards) in the auditor’s report?

A

Basis for Opinion

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4
Q

Which paragraphs reference GAAP (accounting principles) in the auditor’s report (nonissuer)?

A

Opinion & Management’s Responsibility

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5
Q

If the group engagement partner is satisfied as to the independence and the professional reputation of a component auditor, then ___

A

The partner may express an opinion on the F/S taken as a whole without making reference to the audit of the component auditor

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6
Q

Which opinion would result from the failure of the F/S to adequately disclose related party transactions?

A

Qualified or adverse opinion

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7
Q

What is inappropriate to use in a critical audit matter paragraph in the audit of an issuer?

A

Language that could be viewed as disclaiming, qualifying, restricting, or minimizing the auditor’s responsibility for the CAM

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8
Q

What should the auditor’s opinion state when inadequate disclosure has a material, but no pervasive effect on the F/S?

A

“In our opinion, except for the omission of the information described in the basis for qualified opinion section of our report…”

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9
Q

In addition to GAAS, the auditor may conduct the audit in accordance with which other requirements?

A

May be conducted in accordance with two sets of auditing standards in their entirety

If done so, should state this fact in the “Basis for Opinion” paragraph

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10
Q

When taking responsibility for audit work performed by another firm, which procedures should the CPA firm follow?

A
  • Review the other firm’s audit workpapers and reperform a subset of audit testing to validate the firm’s conclusions
  • No reference to the other auditor should be made since they are taking responsibility
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11
Q

If an uncertainty is properly disclosed, then the auditor ___

A

Should not add an emphasis-of-matter paragraph

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12
Q

What is the most authoritative guidance for the auditor of a nonissuer?

A

General guidance provided by a Statement on Auditing Standards (SAS)

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13
Q

What does not generally appear in the footnotes to the F/S?

A

Details concerning the results of audit procedures

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14
Q

What kind of opinions can be issued on a BS and IS when an auditor is unable to satisfy themselves regarding the amount of beginning inventory?

A

BS: unmodified (since inventory can be verified as of BS date)
IS: disclaimer of opinion (inability to verify COGS during the year)

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15
Q

When is an adverse opinion issued?

A

When the financial statements are not presented in accordance with Generally Accepted Accounting Principles

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16
Q

How should an auditor report when there is substantial doubt with regard to the entity’s ability to continue as a going concern?

A

Disclosed in either an emphasis-of-matter paragraph (optional when doubt is alleviated) or a separate section of the auditor’s report (doubt remains) to an otherwise unmodified (unqualified) opinion

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17
Q

With most special purpose frameworks, the auditor’s special report will include an emphasis-of-matter paragraph that:

A

Refers to the note to the F/S that describes the basis of accounting

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18
Q

What is management responsible for?

A

For the F/S and the selection and application of accounting principles

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19
Q

Which opinion can result from an uncertainty?

A

Any kind

Unmodified- properly recorded or disclosed

Modified/ disclaimer- unable to obtain sufficient audit evidence

Modified/ adverse- materially misstated due to improper accounting

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20
Q

What kind of opinion would result from a justified change in accounting principle?

A

Unmodified opinion w/ emphasis-of-matter paragraph

Note: An unjustified change = qualified/adverse opinion

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21
Q

What is required of a predecessor auditor prior to reissuing a report?

A

They must perform limited procedures to evaluate the continuing appropriateness of the report
(i.e.: read current stmts, comparing current and prior stmts, obtaining representation letters from MGMT and successor auditor)

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22
Q

What are some procedures an auditor can use to obtain evidence regarding subsequent events?

A
  • Inquire management (of changes, unusual adjustments, etc.)
  • Obtain lists of litigation for review with client’s attorneys
  • Reading minutes and interim F/S
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23
Q

How is a modified opinion on supplementary information presented in the auditor’s report?

A

It is expressed in a separate section of the report with the heading “Supplementary Information”

NOTE: Supplementary info. is outside the basic F/S and does NOT affect the opinion on the basic F/S

24
Q

What are the elements of Quality Control?

A 
Human Resources
Engagement/client acceptance and continuance
Leadership responsibilities
Performance of the engagement
Monitoring
Ethical responsibilities

“HELP ME”

25
Q

What are some items that should be included in audit documentation?

A

Demonstrate that appropriate audit evidence has been obtained to support conclusions reached; identify staff who performed/reviewed audit work; include significant audit findings, etc.

26
Q

In regards to controls, what is an auditor required to do as part of the planning process?

A
  • Obtain an understanding of the design of controls
  • Determine if they have been implemented
  • Document understanding

Note: Auditor is NOT required to evaluate operating effectiveness of controls

27
Q

The auditor should consider materiality for the F/S as a whole in terms of:

A

The smallest aggregate level of misstatement that could be considered material to any one of the financial statements

28
Q

What are indicators of reliable data?

A

Reliability of data increases when an entity has strong internal control;

data comes from external resources;

analytical procedure uses reliable nonfinancial data;

and the data has been subjected to auditing procedures.

29
Q

What can be inferred about an entity’s internal control based on control risk?

A

If control risk is low, then an entity has strong internal control.

If control risk is high, then an entity has weak internal control.

30
Q

What is not allowed when performing reasonableness testing on interrelated accounts?

A

When an account is dependent on another account, then the dependent account should not be used to create the expectation for the independent account.

(Ex. Commission should not be used to create expectation for sales. Sales can be used to test completeness of commission because sales is independent of commission.)

31
Q

Where is a justified lack of consistency caused by a material change in GAAP between periods reported in the auditor’s report?

A

In an emphasis-of-matter paragraph

32
Q

What is an advantage of using computer assisted audit techniques (CAATs)?

A

Allows a greater number of items to be tested at little additional cost

33
Q

What are examples of Computer Assisted Audit Techniques (CAATs)?

A
  • Transaction tagging
  • Embedded audit modules
  • Test data
  • Integrated test facility
  • Parallel simulation
34
Q

What is required before accepting a new audit engagement?

A

Make inquiries of the predecessor auditor regarding management integrity

Note: Understanding of client business occurs AFTER acceptance of the engagement

35
Q

Audit documentation quantity and content should be sufficient to show ____

A

That the accounting records agree or reconcile with the financial statements

36
Q

What is required for an agreed-upon procedures engagement?

A

A list of procedures and findings

37
Q

What should the auditor do when facts are discovered after issuing an auditor’s report that would have caused the auditor to revise the report?

A

The auditor should discuss with MGMT and if F/S need revision, ask how they intend to address the matter in the F/S

38
Q

What would a successor auditor ask the predecessor auditor before accepting an audit engagement?

A
  • Predecessor auditor’s understanding of the reasons for the change in auditors
  • Facts known that might bear on the integrity of management
  • Disagreements between the predecessor auditor and management as to significant accounting policies and principles
39
Q

What would a successor auditor ask the predecessor auditor after accepting an audit engagement?

A

-Matters that may facilitate the evaluation of financial reporting consistency between current and prior years

40
Q

What are factors affecting the nature and extent of a firm’s quality control?

A
  1. Size
  2. Organizational structure
  3. Nature and complexity of practice
  4. Degree of operating autonomy allowed its personnel and its individual offices, and
  5. Cost-benefit considerations
41
Q

What is the statement for an opinion on fairly stated supplementary information in the auditor’s report?

A

“the information is fairly stated in all material respects in relation to the F/S as a whole”

Note: No reference to GAAP or GAAS

42
Q

What is the primary reason for pre-audit planning meetings?

A

To plan technical and personnel aspects of the audit. Team should be informed of their responsibilities and objectives of the procedures that they are to perform.

43
Q

What does due professional care require of auditors?

A
  • To critically review the work done by others

- Possess the same degree of skill possessed by others in the field

44
Q

How does litigation affect independence?

A

Litigation only impairs independence when dollar amount is material and/or is related to the audit work

45
Q

What is part of an entity’s control environment?

A
  • Participation of those charged with governance
  • Integrity and ethical values
  • Organizational structure
46
Q

In designing an audit plan, an auditor should establish specific audit objectives that relate primarily to the:

A

Financial statement assertions

47
Q

What is an auditor’s responsibility for internal auditors and specialists?

A

Internal auditor: satisfied regarding competence, objectivity, and whether the internal audit function utilizes a systematic and disciplined approach

Specialist: satisfied regarding competence and objectivity

48
Q

When is a departure from GAAP justified? Name the two events specifically recognized under the Code of Conduct

A

Unusual circumstances if compliance would cause the F/S to be misleading

  • New legislation
  • Evolution of a new form of business transaction
49
Q

How long does audit documentation for nonissuers and issuers need to be retained for?

A

Nonissuers: 5 years
Issuers: 7 years

50
Q

What is integrated test facility?

A

Allows fictitious (test) and real (actual) transactions/data to be processed together without client operating personnel being aware

51
Q

How often should all relationships that could impact potential audit independence be provided to clients as a written list?

A

Every year

52
Q

If an acct. change has no material effect on the F/S in the current year, but is reasonable certain to have a material effect in later years, the change should be:

A

Disclosed in the notes to the F/S of the current year (NO modification of the auditor’s report is necessary)

53
Q

What is the formula for Return on Equity?

A

Net Income / Average equity

54
Q

The auditor’s responsibility paragraph is rarely modified. What opinion results in this modification?

A

A disclaimer of opinion (auditor was unable to audit the F/S; therefore, the responsibilities listed will be less)

55
Q

When is the management responsibility paragraph modified?

A

NEVER

AUD (3 decks)

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