AUD 2 Outline/MCQs Flashcards
Under what conditions may an auditor accept an engagement if they are not independent
Only if required by law
What is mgmt’s responsibility written in the engagement letter?
Mgmt is responsible for adjusting the F/S is the auditor identifies material misstatements
When is the understanding of the business required?
After the engagement is accepted
What is required before “accepting” the engagement - regarding predecessor auditors
The prospective clients consent to make inquiries to the predecessor auditor
What are the elements of a CPA firms quality control system?
H - HR
E - Engagement/ A&C
L - Leadership
P - Performance
M - Monitoring
E - Ethical requirements
Within COSO, what are the Control Environment principles?
1) Commitment to competence & integrity -Baseline expectations
2) Board independence and oversight (AUD Committee - assignment of authority)
3) Organizational structure
Within COSO, what are the Risk Assessment principles?
1) Specify objectives
2) Identify and analyze risks - hiring personal
3) Consider fraud
4) Identify and assess changes
Within COSO, what are the Information & Communication principles?
1) Obtain and use info - how info is captured on accounting system
2) External Communication
3) Internal Communication
What are the objectives of an entity?
1) FAR 2) Safeguard assets / Effective operations 3) REGs are followed
Within COSO, what are the Monitoring activities principles?
1) Ongoing evaluations - Mgmt oversight of effectiveness
2) Communications of deficiency
(WE ARE NOT REMOVING WHEN MONITORING)
Within COSO, what are the Existing Control activities principles?
1) Select and develop controls
2) Deploy through policies and procedures
Explain the difference between control activities and monitoring
Control activities are specific, whereas monitoring is an ongoing evaluation
How does testing for income statement accounts differ from balance sheet accounts?
Testing for income statement accounts can be for before year-end. B/S accounts have to be after year-end
How does the work of internal auditors effect the understanding of the independent auditor
Effects auditors understanding 1) of system of internal control 2) assessing risk of 3) substantive procedures performed
What does the auditor do when the specialist provides work to the auditor?
Evaluate the nature and level of expertise of the actuary
What is considered when determining preliminary judgement about materiality
Prior years F/S
Does the clients extension to submit data effect materiality ?
No it does not
Is the group auditor responsible for the component auditors materiality?
Yes and group auditor must assess performance materiality
How does component materiality effect group materiality
Component materiality that is equal to the materiality of the group
How is inherent risk considered?
Before control factors are considered, what is the risk - Control factors are how info is generated and the availability of the data
What is the effect of control risk on sample size?
Control risk is related to the sample size. if CR comes down the sample comes down with it. Vise Versa, larger sample sizes are needed if risk of MM is high.
What is best describes auditor’s responsibility regarding fraud?
Design the audit to provide reasonable assurance of detecting errors or “fraud” that is “material”
When do fraud risk factors “have” to be discussed
They must be discussed in the planning stage
What type of journal entries would reviewed by auditors
Seldom used accounts, post-closing with no description, entries by people who dont make entries. Periodic entries are fine
How do documents are not ready in time effect the assessment on fraud?
Not being ready in time would rise suspect to fraud - auditor will have to reevaluate the risk of fraud and design alternative tests. DO NOT COUNT as a misstatement
Within the planning memo checklist what items are “excluded”
Planning memo excludes specific procedures and includes specific reg requirements they have
What are areas that internal audit can not assist in
“Determine” unannounced entries, “Making” required inquiries
What is rounding down significant digits?
If the value is 29,340 rounding down would be to 29,000
What does large cash on hand and excessive mgmt interest do regarding the fraud triangle?
Opportunity to steal cash and an attitude to fraudulently report
How does “uncertainty” modify the opinion
An uncertainty may still result in unmodify, qualified, adverse and disclaimer. As long as mgmt supports and discloses the uncertainty.
How is materiality considered?
Smallest aggregate to “ANY ONE” of the F/S
Identify procedures to identify subsequent events
1)Review post balance transactions 2) review mgmt rep letter 3) check for major purchases that may need disclosure
