AUD 4

Question 1

The sufficiency of audit evidence is influenced by?

Answer 1

1. the risk of material misstatement–more risk, more evidence required.
2. the quality of audit evidence–higher quality, less evidence required.

Question 2

What do substantive procedures consist of?

Answer 2

1. test of details

2. substantive analytical procedures

Question 3

Can an oral response satisfy an external confirmation? Electronic response(email, fax)? How about mgt provide access code to third party website?

Answer 3

Oral NO. Electronic must be verified by calling the sender and required to mail the original.
Mgt provided code NO, third party provided code OK.

Question 4

What are the three components of segregation of duties?

Answer 4

Authority, Record keeping, Custody.

Question 5

How to Search for Unrecorded Liabilities(AP)?

Answer 5

Select cash disbursements made subsequent to year-end and look for items that should’ve been recorded at the balance sheet date. Also examine open vouchers, receiving reports, vendor invoices and statements received after balance sheet date.

Question 6

If an external lawyer refuses to respond to letter of inquiry, should the auditor modify audit opinion? How about mgt refuse to permit inquiry?

Answer 6

If the lawyer has devoted substantial attention to litigation matters but refuse to respond. It is a scope limitation sufficient to preclude an unmodified opinion.
Mgt refusal will generally result in a disclaimer or withdraw.