Aud 2

Question 1

what is the primary objective of probability proportional to sample size?

Answer 1

to identify overstatement errors.

Question 2

test of credit approval policy is to support managements assertion of:

Answer 2

valuation and allocation – specifically the collect-ability of a/r, collect-ability is more likely, thus the valuation of a/r is proper.

Question 3

What should an auditor evaluate when determining whether a particular assertion is relevant to a significant account balance or disclosure?

Answer 3

• -nature of the assertion
• -volume of transactions or data related to the assertion
• -nature and complexity of the systems, include the use of information technology, by which the entity processes and controls info supporting the assertion.

Question 4

Compiled financial stmts that omit substantially all disclosures must indicate:

Answer 4

that the financial statements are not designed for those who are not informed about such matters.

Question 5

What is included in the assertions about account balances at period-end?

Answer 5

• -existence: assets, liabilities, and equity interest
• -rights and obligations: holds control to the assets; and liabilities for the obligations of the entity
• -completeness: all assets liabilities and equity interest that should have been recorded is recorded
• -valuation and allocation: assets, liabilities, and equity interests are included in the financial stmnts at the appropriate amounts, and any resulting valuation or allocation adjustments are appropriately recorded.

Question 6

How does the auditor control the risk of incorrect acceptance in probability-proportional-to-size (PPS) sampling?

Answer 6

by specifying the risk level for the sampling plan.

Question 7

Should the phrase “Management is responsible for the accompanying financial statements” be included in the compilation report by the auditor?

Answer 7

yes, the phrase “Management is responsible for the accompanying financial statements” should be included in the compilation report.

Question 8

What is ratio estimation sampling?

Answer 8

it is based on ratios between audited amounts and recorded amounts.
The approach is most efficient when the ratio is not equal to one.

Question 9

What is the document retention period time?

Answer 9

No less than five years.

Question 10

What should the auditor not do within the document retention period?

Answer 10

the auditor should not delete or discard any documentation. However, audit documentation may be added/changed after the documentation completion date, assuming that the reasons for the change are all documented.

Question 11

What document is needed to verify that all merchandise received is recorded?

Answer 11

Receiving reports shows that the merchandise was received.

Question 12

what are the three common types of classical variable sampling estimators?

Answer 12

1. mean-per-unit
2. ratio
3. difference

Question 13

what can classical variable sampling (CVS) be used for?

Answer 13

Classical variable sampling can be used substantive testing to look for material misstatements in an account balance or class of transactions.

Question 14

What is attribute sampling generally used for?

Answer 14

Attribute sampling is generally used for test of controls.

Question 15

What is detection risk?

Answer 15

Detection risk is part of attestation risk – the risk that the practitioner may unknowingly fail to modify appropriately the opinion.

Question 16

What is included in attestation risk?

Answer 16

Detection risk is composed of inherent risk, control risk, and detction risk

Question 17

List the specific control activities:

Answer 17

• -Authorization
• -Performance reviews
• -Information processing
• -Physical controls
• -Segregation of duties

Question 18

When must an entity have a single audit in any year?

Answer 18

A single audit is required in a single year when an entity has:

• -spends > $750K per fiscal year in federal awards, grants and funds
• -spends funds from one or more federal programs, and
• -if the entity only expends funds from one program, it “may” be eligible for a program audit versus a single audit.

Question 19

Does a review engagement require the auditor to be independent?

Answer 19

Yes, the auditor must maintain independence in mental attitude in all matters relating to the engagement in a review.

Question 20

What statement should be included in a report issued on significant deficiencies or material weaknesses?

Answer 20

a ‘restricted user” statement should be included in the report on significant deficiencies or material weaknesses.