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Path To CPA > AUD > Flashcards

AUD Flashcards

1
Q

Unqualified vs Unmodified

A

Issuers vs Nonissuers

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2
Q

Modified Audit Opinion

A

-unable to obtain sufficient audit evidence (audit issues)
-material misstated f/s (f/s issue) (but not pervasive)

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3
Q

Audit Issues
Disclaimer, Qualified, or Unqualified

A

Disclaimer:
Qualified:
Unqualified:

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4
Q

Qualified is…

A

“except for”

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5
Q

Comparative F/S - Unmodified Predecessor’s Report - How does current auditor address?

A

In an other-matter paragraph indicate that the predecessor auditor expressed an unmodified opinion on the prior year’s F/S

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6
Q

What should an auditor do when she becomes aware of an apparent material misstatement of fact in other information included in a document containing audited financial statements?

A

The auditor should discuss the matter with management.

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7
Q

What are OCBOAs?

A

Other Comprehensive Basis of Accounting
I. Basis of accounting used by an entity to file its income tax return.
II. Cash receipts and disbursements basis of accounting.
III. A Basis prescribed by a regulatory agency
IV. Contractual basis

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8
Q

If there is a scope limitation issue, what types of opinions may be given?

A

An auditor would issue either a qualified opinion or a disclaimer of opinion when there is a scope limitation (GAAS issue).

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9
Q

Deviation Rate

A

Error Rate in the sample

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10
Q

Tolerable Deviation Rate

A

Maximum rate of error the auditor can accept

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11
Q

Expected Deviation Rate

A

The Auditor’s estimated error rate (before sampling)

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12
Q

Upper Deviation Rate

A

high end of range for auditor’s estimate of error rate (based on results from testing the sample)

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13
Q

Allowance for Sampling Risk

A

adjusts sample rate to get to upper deviation rate: Sample deviation rate + Allowance for sampling risk = Upper deviation rate

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14
Q

Affect to sample size: Risk of Assessing Control Risk too Low

A

Inverse Relationship

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15
Q

Affect to sample size: Tolerable Deviation Rate

A

Inverse Relationship

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16
Q

Affect to sample size: Expected Deviation Rate

A

Direct Relationship

17
Q

Risk of incorrect rejection

A

The sample indicates that the balance is not fairly states when, in fact, it is fairly stated. (Efficiency - The auditor will do more work than is necessary.)

18
Q

Risk of assessing control risk too low

A

The sample indicates that the control is working when, in fact, it is not. (Effectiveness - The auditor will erroneously rely on the control)

19
Q

Risk of assessing control risk too high

A

The sample indicates that the control is not working when, in fact, it is. (Efficiency - The auditor will erroneously extend audit work.)

20
Q

When an auditor can rely on control:

A

Upper deviation rate < (or =) Tolerable deviation rate

21
Q

When an auditor cannot rely on control:

A

Upper deviation rate > Tolerable deviation rate

22
Q

Risk of incorrect acceptance

A

The sample indicates that the balance is fairly stated when, in fact, it is not. (Effectiveness)

23
Q

Give a summary of Variable Sampling

A

Tolerable Misstatement - max monetary misstatement in an account balance or class of transactions that the auditor is willing to accept
Expected Misstatement - the auditor’s estimate of misstatement (before sampling)
Projected Misstatement - the auditor’s estimated misstatement, based on the sample.

24
Q

Variable Sampling: Summarize which factors which increase/decrease sample size

A

Expected Misstatement - direct relationship
Population Variability (standard deviation) - direct relationship
Assessed Level of Risk - direct relationship
Tolerable Misstatement - inverse relationship
Acceptable Level of Risk - inverse relationship

25
Q

A risk assessment based on the effective operation of internal control increases allowable detection risk, which reduces…

A

…the required extent of substantive testing.

26
Q

Qualified or adverse opinion - financial issues:

A

Qualified: GAAP violation, low materiality
Adverse: GAAP violation, substantial materiality

27
Q

Attribute Sampling calculation

A

Sample deviation rate + Allowance for sampling risk = Upper deviation rate

28
Q

Accounts receivable turnover

A

Sales (net) / Average accounts receivable (net)

29
Q

Days sales in accounts receivable

A

Ending accounts receivable (net) / Sales (net)/365

30
Q

Current Ratio

A

Current assets / current liabilities

31
Q

Gross margin

A

Sales (net) - COGS / Sales (net)

32
Q

Profit margin

A

Net income / Sales (net)

33
Q

Inventory Turnover

A

COGS / Average Inventory

34
Q

Inherent Risk

A

The susceptibility of an assertion to material misstatement assuming there are no related controls.

35
Q

Audit risk

A

The risk that the auditor may unknowingly fail to modify appropriately the opinion on financial statements that are materially misstated.

36
Q
A

Path To CPA (2 decks)

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