AUD 6 - Miscellaneous

Question 1

Threats to compliance. What is defined as the threat that a member will not act with objectivity b/c the member’s interest are opposed to the interests of the client?

Answer 1

Adverse interest threat

Question 2

Adverse interest threat = lose _______

Answer 2

objectivity

Question 3

Advocacy threat = compromise _______

Answer 3

standards

Question 4

Familiarity threat = _______

Answer 4

sympathetic

Question 5

Management participation threat = acting as _______

Answer 5

management

Question 6

Self-interest threat = _______

Answer 6

benefits

Question 7

What is defined as the threat that a member will promote the interests of the client or employing organization to the point that his or her objectivity or independence, as applicable, is compromised?

Answer 7

Advocacy threat

Question 8

What is defined as the threat that, due to a long or close relationship w/ the client, a member will become too accepting of the product or service and too sympathetic to the client’s interests?

Answer 8

Familiarity threat

Question 9

What is defined as the threat that a member will take on the role of client management or otherwise assume management responsibilities?

Answer 9

Management participation threat

Question 10

What is defined as the threat that a member could benefit financially or otherwise from an interest in, or relationship with, a client, or persons associated with the client?

Answer 10

Self-interest threat

Question 11

What is defined as the threat that a member will not appropriately evaluate the results of a previous judgment made, or service performed or supervised, by the member or an individual in the member’s firm, and that the member will rely on that service in forming a judgment as part of another service?

Answer 11

Self-review threat

Question 12

Self-review threat = evaluate ___ _____

Answer 12

own work

Question 13

What is defined as the threat that a member will subordinate his judgment to an individual associated w/ a client or any relevant third party due to that individual’s reputation or expertise, aggressive or dominant personality, or attempts to coerce or exercise excessive influence over the member?

Answer 13

Undue influence threat

Question 14

Undue influence threat = subordinate _______

Answer 14

judgment

Question 15

What is the first thing you do in the conceptual framework approach

Answer 15

Id threats to compliance w/ the fundamental principles

Question 16

In the conceptual framework approach, what is the second step after identifying threats to compliance?

Answer 16

Evaluate significance of threat

Question 17

In the conceptual framework approach, what is the final step?

Answer 17

Apply safeguards to eliminate threats or reduce threats to an acceptable level, whenever possible

Question 18

Under the IFAC Code of Ethics for Professional Accountants, the engagement partner and the individual responsible for the engagement quality control review should be rotated off the audit engagement team for a public company after no more than how many years?

Answer 18

7 years

Question 19

To exercise due professional care, a CPA must:

I. Posses the same degree of skill commonly possessed by others in the field
II. Critically review work done and judgment exercised by others assisting in the engagement

Answer 19

Both I and II

Question 20

In computerized environments, what five functions should be kept separate (COPAL)?

Answer 20

Control group
Operators
Programmer
Analyst
Librarian

Question 21

What does CAAT stand for?

Answer 21

Computer-assisted audit techniques

Question 22

Are manual or computer assisted audit techniques more appropriate for simple batch systems with good audit trails?

Answer 22

Manual audit procedures (e.g. “auditing around the computer”)

Question 23

What are two key risks with “auditing around the computer”?

Answer 23

• Insufficient paper-based evidence

- Insufficient audit procedures

Question 24

What term describes the following:

Electronically marks a transaction and allows the auditor to follow it through the client’s system

Answer 24

Transaction tagging

Question 25

What term describes the following:

Application program collects transaction data for the auditor; the auditor must be involved with the program design

Answer 25

Embedded audit modules

Question 26

What term describes the following:

Uses application program to process test data, the results of which are already known (client system, offline)

Answer 26

Test deck (test data)

Question 27

What term describes the following:

Test data is commingled with live data (client system, auditor’s data, online)

Answer 27

Integrated test facility (ITF)

Question 28

What term describes the following:

The auditor reprocesses some or all of the client’s live data and compares the results with client files (auditor’s system, client data)

Answer 28

Parallel simulation (reperformance test)

Question 29

What term describes the following:

Allow the auditor to perform tests of controls and substantive tests directly on the client’s system

Answer 29

Generalized audit software package (GASP)

Question 30

What does GASP stand for?

Answer 30

Generalized audit software packages

Question 31

Effective security controls implementation enhances segregation of duties. Why is that?

Answer 31

ARC becomes COPAL

EXPLANATION: Authorization, record keeping, and custody become Control group, operations, programmer, analyst, and librarian.

Question 32

How do you assess control risk in a computerized environment?

Answer 32

• Inquiry
• Inspection
• Observation
• Reperformance

Question 33

How do you calculate net profit margin?

Answer 33

= net income / net sales

Question 34

How do you calculate net operating margin percentage?

Answer 34

= net operating income / net sales

Question 35

How do you calculate gross profit margin percentage?

Answer 35

= gross profit margin / net sales

Question 36

How do you calculate return on total assets?

Answer 36

= net income/ avg. total assets

Question 37

How do you calculate the debt-to-equity ratio?

Answer 37

= total liabilities / common SE

Question 38

How do you calculate the debt ratio?

Answer 38

= total liabilities / total assets

Question 39

What is GAGAS also referred to as?

Answer 39

Yellow Book

Question 40

GAGAS includes designing the audit to provide reasonable assurance of detecting MM resulting from _____.

Answer 40

Noncompliance