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AUD Flashcards

1
Q

What is Kiting? How do you identify it?

A

Kiting is the process by which an entity attempts to use transfers between banks to inflate both balances. Identify using the receipt and disbursement dates per the bank. If the disbursement date is after year end, but the receipt date is prior, the balance is recorded in both and therefore kiting.

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2
Q

Times Interest Earned

A

Earnings before Interest and Taxes / Interest Expense

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3
Q

Internal Control Elements

A

CRIME - Control Environment, Risk Assessment, IT, Monitoring, and Control Activities

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4
Q

Control Activities

A

SCARE - Segregation of Duties, Physical Controls, Authorization, Performance Review, EDP (IT)

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5
Q

Emphasis of Matter

A

Comes after opinion, change in consistency of accounting procedure

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6
Q

Other Matter

A

Restriction on Report Use

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7
Q

Responsibility for Sig Deficiencies and Material Weakness

A

Report within 60 days of Report Release Date (Nonissuer)

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8
Q

Assertions for Account Balances (B/S)

A

Completeness, Existence, Accuracy/Valuation, Rights and Obligations

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9
Q

Assertions for Transactions (I/S)

A

Completeness, Existence, Accuracy/Valuation, Classification, Cutoff

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10
Q

Assertions for Presentation and Disclosure (Notes)

A

Completeness, Accuracy/Valuation, Classification, Rights and Obligations

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11
Q

Subsequent Events

A

Before B/S date, accrue. After B/S, disclose in notes, emphasis of matter (between B/S and Audit Report Date, NOT release date)

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12
Q

Going Concern

A

Add emphasis of matter paragraph if adequately disclosed (substantial doubt to continue as going concern). If not appropriately disclosed, adverse opinion

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13
Q

Referencing Component Auditor

A

Reference when not taking ownership of work, if taking ownership no reference

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14
Q

Operating Margin Percentage

A

Operating Income / Sales

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15
Q

Gross Margin Percentage

A

Gross Margin (Sales - COGS) / Sales

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16
Q

Sequential Sampling - What is it and when is it used?

A

Type of attribute sampling, used when many errors are expected, each step is conditional on the previous step

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17
Q

Upper Precision Limit

A

Allowance For Sampling Risk + Observed Error Rate

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18
Q

Elements of Attribute Sampling - Sample Size

A

Risk of Assessing Control Risk too Low (coefficient of confidence rate), Tolerable Deviation Rate, Expected Deviation Rate -> population size does NOT effect the sample size

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19
Q

Assessing Sample Results - Attribute Sampling

A

Population Deviation Rate + Sampling Risk = Upper Precision Limit -> compare this to tolerable deviation rate

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20
Q

Purpose of Stratification in Population?

A

Decrease the effect of variance in the population, and therefore reduce sample size.

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21
Q

Ratio Estimation - How to Calculate

A

Auditor Balance / Book Balance (in sample) = Factor x Book Balance = auditor value (in population)

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22
Q

PPS Sampling - What is it and how do you evaluate results?

A

Type of variable sampling, each dollar represents a sampling unit, if observed error is less then sampling interval, then the projected misstatement is equal to observed error. If not then must apply tainting percentage, which is

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23
Q

An auditor’s program to examine long-term debt most likely would include steps that require

A

Correlating interest expense recorded for the period with outstanding debt

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24
Q

To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is

A

Stamped paid by the check signer

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25
Q

Can separate reports be issued on separate financial statements?

A

Yes as long as they are separate reports (cannot be in conjunction with FS audit).

26
Q

Projected Misstatement

A

Projected Misstatement = Actual Misstatement * Population Size / Sample Size = 3,000 * 1000 / 50 = $60,000. For the account to be misstated, the projected misstatement should be more than the tolerable misstatement.

27
Q

Management Rep Letter should be up to?

A

The representations should be made as of the date of the auditor’s report.

28
Q

Communication of significant deficiencies and material weaknesses?

A

In writing, no later then 60 days from the audit report release date.

29
Q

Forecast

A

Based on normal circumstances, general or limited use, disclaimer that the results may not be achieved

30
Q

Agreed Upon Procedures

A

Independence, limited use,

31
Q

Projection

A

Limited use, disclaimer on limitation of scope/usefulness

32
Q

According to US GAAS, when the auditor of the group financial statements is assuming responsibility for the work of component auditors, for components that are not significant components, the group engagement team should perform

A

Analytical procedures at the group level

33
Q

According to US GAAS, in a group audit, both component materiality and component performance materiality should be ____________ the materiality and performance materiality for the group financial statements as a whole.

A

Lower than

34
Q

When there is substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time, according to US GAAS, the auditor should

A

Obtain written representations from management about management’s related plans

35
Q

When financial statements are materially affected by a departure from GAAP, the auditor should express

A

a qualified or an adverse opinion.

36
Q

If an auditor has issued an adverse opinion on a complete set of financial statements, the auditor is precluded from expressing which of the following in an audit report on a single financial statement of the nonissuer entity?

A

An unmodified opinion.

37
Q

Critical audit matters are:

A

Specific to each entity

38
Q

How often should PCAOB inspect audits?

A

Every year for firms with more then 100 reports

Every 3 for firms that provide up to 100 reports

39
Q

Disclaimer of opinion

A

Material and pervasive scope limitation

40
Q

Qualified opinion

A

Misstatements, scope limitation or departure from GAAP that is material but not pervasive

41
Q

Adverse opinion

A

Departure from GAAP that is material and pervasive

42
Q

Auditor responsibility for RSI

A

Obtain representations from management, and compare RSI to Financials for consistency

43
Q

Is an accountant required to obtain an understanding of internal control for a review?

A

No

44
Q

An agreed upon procedures report should include what?

A

A disclaimer of responsibility for the sufficiency of the procedures

45
Q

Management representations should be obtained on

A

Uncorrected misstatements, absence of unrecorded transactions, and instances of immaterial fraud involving employees who have sig role in internal control

46
Q

What framework is used for internal control audits?

A

Committee of Sponsoring Organizations of the Treadway Commission (COSO)

47
Q

PPS sampling

A

Recorded Amount - Book Amount / Recorded Amount = tainting percentage

Apply this to the sampling interval

If the recorded balance selected is larger then the sample interval, the error becomes the projected error

48
Q

An Accountants compilation report on a financial forecast should include a statement that

A

There will usually be differences between the forecasted and actual results

49
Q

Similarity between GAAS and Attestation Standards?

A

Both require independence

50
Q

Accepting an engagement to compile a financial projection for a publicly held company most likely would be inappropriate if the

A

projection were to be distributed to all stockholders of record as of the report date (general use). Only a financial forecast is suitable for general use.

51
Q

Which of the following is least likely to discover noncompliance?

A

Reviewing an internal control questionnaire provides information about control policies and procedures, but does not provide information about actual transactions or events that have occurred. Therefore, it is not likely to uncover any acts of noncompliance with laws and regulations.

52
Q

An accountant performing a compilation is required to

A

have a general understanding of the client’s business. Does not need rep letter

53
Q

Control activities (not the information and communication system)

A

are the policies and procedures that help ensure that management directives are carried out.

54
Q

When an independent accountant’s report based on a review of interim financial information is presented in a registration statement, the prospectus

A

should include a statement clarifying that the accountant’s review report is not a “part” of the registration statement within the meaning of the Securities Act of 1933.

55
Q

An accountant asked to review financial statements on a comprehensive basis of accounting other than generally accepted accounting principles should

A

modify the review report to reflect the fact that the financial statements were presented on another comprehensive basis of accounting.

56
Q

An auditor’s engagement letter most likely would include

A

managements acknowledgement of its responsibility for internal control

57
Q

Preparation engagements should be performed in accordance with

A

SSARS

58
Q

The engagement quality reviewer is required to identify the documentation reviewed (i.e., fraud workpapers), but is not

A

required to include an assessment of workpapers reviewed. The other answer choices are the three requirements specifically stated in PCAOB standards to be documented by the engagement quality reviewer.

59
Q

A disadvantage of microcomputer data files versus manually prepared files is

A

it is usually easier for unauthorized persons to access and alter the files.

60
Q

A centralized accounting function is indicative of

A

less complex operations

61
Q

Where do BOD minutes and Financial Statements go?

A 
FS = current file 
Minutes = permanent file
62
Q

Quick ratio

A

Current assets (minus inventory) / current liabilities

AUD (1 decks)

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