AUD

Question 1

According to PCAOB auditing standards, which of the following audit procedures is not generally associated with performing walkthroughs?

Answer 1

Confirmation
PCAOB AS Section 2201 identifies the following procedures as applicable to performing walkthroughs: inquiry, observation, inspection of relevant documentation, and reperformance of control procedures. Confirmation is a substantive auditing procedure.

Question 2

According to PCAOB auditing standards, in reporting whether a previously reported material weakness continues to exist, the auditor may appropriately issue

Answer 2

An unqualified opinion or a disclaimer of opinion.

Question 3

What reports accompany Financial statement audits per GAS?

Answer 3

Financial statement audits in accordance with Government Auditing Standards require the following reports:

1) an audit report;
2) a report on internal control;
3) a report on compliance with laws, regulations, and the provisions of contracts or grant agreements. The compliance report would identify the scope of the auditor’s testing of compliance with laws and regulations.

Question 4

What is a check digit?

Answer 4

A check digit is a digit that enables verification of other digits in the item. It is calculated based on the other digits and is used to detect errors. For example, a student identification number could consist of 7 digits with the 7th digit computed based on the first 6 digits. If the number is input incorrectly or inappropriately changed during processing, the check digit won’t compute properly and the number will be rejected as invalid.

Question 5

What is a batch total ?

Answer 5

A batch total is calculated as a control total. It helps ensure that the data being input for a batch, e.g., total hours worked for a payroll period, are input accurately and completely. There are three different types of batch totals - financial totals, hash totals, and record counts. A total of the day’s sales transactions is a financial total.

Question 6

What is test data approach ?

Answer 6

Testing an entity’s controls by using the entity’s system (under the auditor’s supervision) to process a set of transactions containing known errors of interest is known as the test data approach.

Question 7

What is auditing “around” the computer ?

Answer 7

Auditing “around” the computer involves examining inputs into and outputs from the computer while ignoring processing, as contrasted to auditing “through” the computer which in some manner directly utilizes the computer’s processing ability.

Question 8

What is boundary protection ? (IT)

Answer 8

To ensure that simultaneous jobs running in large computers cannot destroy or change the allocated memory of another job, the systems software contains boundary protection controls

Question 9

A CPA is engaged to prepare a personal financial plan and knows that certain GAAP disclosures are omitted. To be exempt from SSARs, the CPA is required to agree that

Answer 9

Financial statements will not be used to obtain credit

Question 10

When are negative confirmations useful ?

Answer 10

AU-C 505 states that negative confirmations may be used when (1) the combined assessed level of inherent and control risk is low, (2) a large number of small balances is involved, and (3) the auditor has no reason to believe that the recipients of the requests are unlikely to give them consideration.

Question 11

Confirmations would be least likely to be used for

Answer 11

PPE

Question 12

What is inquiry ?

Answer 12

Inquiry consists of seeking information from knowledgeable people, both financial and nonfinancial, within the entity or outside the entity (for example, formal or oral inquiries).

Question 13

What is observation?

Answer 13

Observation consists of looking at a process or procedure being performed by others (for example, the auditor’s observation of inventory counting) while the event takes place.

Question 14

What is inspection?

Answer 14

Actually examining the goods to determine if there is an impaired value issue is inspection.

Question 15

What is boilerplate confirmation ?

Answer 15

Its a restriction added by the sender of confirmation and auditors may select this as confirmation. The confirmation reply should not be discarded and is not generally considered a fraud risk factor.

Question 16

How does Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Nonprofit Organizations, define a subrecipient?

Answer 16

How does Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Nonprofit Organizations, define a subrecipient?

Question 17

The objective of performing analytical procedures in planning an audit is to identify the existence of

Answer 17

Unusual transaction and events

Question 18

What is cut off bank statement ?

Answer 18

A cutoff bank statement will include canceled checks and deposit slips for the period immediately following year-end. The auditor should verify reconciling items on client’s bank reconciliation

Question 19

Decreasing the tolerable amount of misstatement will require the auditor to do what ?

Answer 19

One or more of the following: (1) perform auditing procedures closer to the balance sheet date (answer [b]); (2) select a more effective auditing procedure; or (3) increase the extent of a particular auditing procedure.

Question 20

Statistical sampling generally may be applied to test controls when the client’s internal control activities

Answer 20

Statistical sampling may be applied when testing controls which leave an audit trail in the form of documentary evidence.

Question 21

Which of the following is a definition of control risk?

Answer 21

The risk that a material misstatement will not be prevented or detected on a timely basis by the client’s internal controls.

Question 22

Departure from GAAP requirement causes a

Answer 22

Qualified Opinion

Question 23

If SAP is performed at interim date instead of year end , it increases the

Answer 23

Detection Risk

Question 24

What are activities done by the vouchers payable department ?

Answer 24

1) determining the mathematical accuracy of the vendor’s invoice;
2) matching the receiving report with the purchase order; and
3) having an authorized person approve the voucher.

Question 25

What is relation between CR and DR ?

Answer 25

Control risk and detection risk are inversely related. If control risk increases, detection risk must decrease. When detection risk decreases, substantive testing increases.

Question 26

Note about consignments

Answer 26

They should not be included in A/R until goods are sold

Question 27

In cash disbursements, the person who signs the check

Answer 27

should also mail them (the Treasurer)

Question 28

In Payroll cycle, an auditor would assess CR as very high if the payroll dept supervisor is responsible for

Answer 28

Authorizing change in payroll rates

Question 29

An auditor generally tests the segregation of duties related to inventory by

Answer 29

Personal inquiry and observation.

When no audit trail exists (as is often the case for the segregation of duties) an auditor should use the observation and inquiry techniques.

Question 30

What is understated bonds payable ?

Answer 30

Understated bonds payable will result in a lower account balance than is proper and thereby create a situation in which the interest expense appears excessive.

Question 31

What is examining new additions of PPE mean?

Answer 31

It means vouching from accounting records to the physical items

Question 32

In creating lead schedules for an audit engagement, a CPA often uses automated workpaper software. What client information is needed to begin this process?

Answer 32

General ledger information such as account numbers, prior year account balances, and current year unadjusted information.

Question 33

How would be deposits in transit be checked ?

Answer 33

The auditor would trace the deposits in transit from the bank reconciliation to the cut-off statement to verify the existence and accuracy of the deposits in transit.

Question 34

On receiving a client’s bank cut-off statement, an auditor most likely would trace

Answer 34

Prior-year checks listed in the cut-off statement to the year-end outstanding checklist.

Question 35

An auditor usually examines receiving reports to support entries in the

Answer 35

Voucher register and sales returns journal.

Receiving reports will be prepared when goods are received through purchase (as recorded in the voucher register) and when goods are received through sales returns (as recorded in the sales returns journal).

Question 36

An auditor should obtain sufficient knowledge of an entity’s information system to understand the

Answer 36

Process used to prepare significant accounting estimates

It also states that this knowledge is obtained to help the auditor to understand (1) the entity’s classes of transactions, (2) how transactions are initiated, (3) the accounting records and support, and (4) the accounting processing involved from initiation of a transaction to its inclusion in the financial statements