Aud notes study question

Question 1

Cutoff

Answer 1

relief on inventoty means dr cogs and dr inventory. you must reocrd the sale when inventory is relief.

all transaction adj. are done in year of relief.

fob shipping point. do dr cogs cr inv when inventory leave cleint

fob destination when cutomer gets inventory

Question 2

Sampling; control test v substance testing, a/r aged that are stastistical sampling that are fairly stated.

Answer 2

where are looking for stastical sampling ( Sampling is a term used in statistics. It is the process of choosing a representative sample from a target population and collecting data from that sample in order to understand something about the population as a whole.) and if the a/r was fairly stated.

All question independent from other question

for control test sampling we are looking for ; attribute sampling (Attribute sampling is defined as the method of measuring quality that consists of noting the presence (or absence) of some characteristic (attribute) in each of the units under consideration and counting how many units do (or do not) possess it.)

looking for errors

for substance test we are looking for; we are looking for varible sampling. Variables sampling is the process used to predict the invalue of a specific variable within a population. For example, a limited sample size can be used to compute the average account receivable balance, as well as a statistical derivation of the plus or minus range of the total receivables value that is under

in fairly stated , we care about fairly presented and looking for misstatement.

1. how would sample size for attribute sampling (contol risk) plan change if the risk of assessing control risk too low is revised to 1% ; this is an inverse relationship so tolerence rate goes up.and increase sample size

if it is a expected relationship, that have a direct relationship.

2. How wil the sample size for the variable sampling plan change if tolerable misstatement is changed to $2500. this is substance increase

the before tolerable was $2000. inverse relationship with sample size so tolerable up than sample dowm

3. Schmidt is thinking about using dual purpose sample to save time. if he does this, what sample size should be used

dual purpose sampling is test of control and substantive testing

on test of control invoices was 75

on substantive 50

take highest 75

4.In evaluating the invoices for proper authorization, schmidt dtermines a sample deviation rate of 2.5% (number of error in sample). what conclusiion will shmidt draw.

sample deviation rate is the number of errors; control testing; that mean over 97% is good so control are operating effectively.

5. in evaluating the confirmations associated with each invoice, schmidt does not find any errors. what impact will this have on schmidt’s evaluation of i/c ;confirmation = substantive.what does that tell about i/c . can’t tell no monetary.
6. in evaluating the confirmations associated with each invoice, schmidt discovers that there is an average overstatement error of $10 per account. what will be the projected error in the population.

take number of accounts 201-212 = 212 *10 = 2120

7. in evaluating the confirmation associated with each invoice, schmidt discovered that there is an average overstatement error of 1% per account. what will schmidt point estimate be for the true population value. substantive testing. what is book value of population = 500,000/.01 average of error =495,050
8. Schmidt is considering using pps sampling plan (PPS sampling is used when populations of the sampling units vary to ensure that every element in the target population has an equal chance of being selected.) with a sampling interval of $3000. after ther confirmation, schmidt discovers that an account balance of $1500 is overstated by $150, and an account of $4000 is overstated by $400. based on these errors only, what will be the total projected error in a/r.

Question 3

Valuating various risks;

no such things as financial statement risk

Answer 3

2. Roy Rogers recently invested for the first time, in securities for which the accounting is highly complex; inherent risk = complex
3. RR employees are aware that a large reductions in the workforce is planned ; auditor evaluates fraud risk from employees via incentive, opportunities, under pressure , rationalization/attitudes
4. CPA rendered an unmod opinion on RR y-e f/s but unbeknownst to the auditors, the f/s are materially misstated due to a computer error that causes sales revenue for a patricular product to be recorded twice

wrong audit opinion issued; audit risk.

Detections risk; audit may not detect a material misstatement that exist in an assertions due to procedures

5. Based on a sample of securities seclected, wilson erroneously concluded dividend income is materailly understated but f/s was present fairlly

sample two types 1. attribute for controls and 2. variable for substance testing

the two risk variable sampling are 1. incorrect rejection and 2. incorrect acceptance.

incorrect acceptance = accepting something that is not true and f/r were not presented fairly

Incorrect rejection; auditor sample results came out bad so he rejected but in reality sample was good.

6. CPA rely primarily on CR journal and the Cash disbursement journal in its audit. auditors conclude cash is fairly stated when in fact, a large withdrawal on 12/31 was not recorded , resulting in a material overstatement of y-e cash bal
7. CPA selects a sample invoice and noting that the majority of the invoices are properl approved, reduces the extent of substantive testing . in fact , most of the invoices selected by cpa happen to have been processed in the 1st qtr. . On 4/1, a new accouting manager was hired who did not require approval of invoices
8. top executive at RR will receive significant management bonouses if certain targets are achieved.
9. CPA selects a sample of sales ordes and noting that many of the sales orders lack appropriate credit approval, decides to increase substantive testing. As it turns out, Wilson just happen to pick a nonreproesentative sample, and most of the sales orders in the population at large have in fact been properly approved.
10. a lack of appropriate controls surrounding RR purcahse function may allow unintentional errors to occur and remain undetected.

Question 4

EOM , OM and Eplainatory paragraph

Answer 4

EOM must be a material event and OM non issuer

EOM ; going concer

accounting pinciples; i.e. change in depreciation method, (when researching look for consistency if it is year to year change)

change in audit opinion ( for OM as well)

Special purpose frame : cash tax, contract (oboa)

EOM not for regulatory

no need for eom on uncertainty contigency that is disclosed.

OM;

restrict users

change in audit opinion

prior year audit by predessor and audit report is not reissued

audit f/s are peresented in comparative form with compiled or reviewed f/s for not audited f/

material inconsistencyin other iformatiion

supplementary information

restricte the use of the auditor report when special purpose f/s are prepared with contractua or reg basis of accounting (except with reg basis f/s are intened for geneneral use.

Judgemt call on reason why the auditor can not withdraw and law, reg

Explanatory = public conbo of iEOM and OM

Explanatory

Expanatory = issuer

Question 5

what are the subsequent event procedures

audit report = once all audit evidence have been gathered goes through a review

and then audited f/s are issued.

12/31/ye

audit fieldwork Jan-feb 28 y3

3/15 date of report and audited f/s ( this is strange that both happen simultaneously )

Answer 5

Subsequent event = PRIME

Post ye transactions

Rep letter

Inquires

Minutes after ye

Examine interim f/s

Sub1. review of post balance transactions

2. review management letter
3. make inquiries of managment regarding any unusual adjustments that may have been made in the month of Jan and Feb. audit field work
4. Review Bod or stockholders after y-e
5. examine latest interim f/s

A material amount of inventory at a remote warehouse location was not counted by the client as of DEc 31, ye 2; is this a subsequent event and do we make adustment and footnotes. miss count during ye. not a subsequent event. Scope limitation yes. and a issue.

Dual date if event happen after the report and before f/s date.

Question 6

mock exam 1; sim2-2; ‘Adjusting entries for year 2 for unrecorded liabilities

Answer 6

Ck#1337 1/10/y3 $45,601/ Trsucking services 12/4/y2-1/3/y3 , deliveries made evenly thourghout the period. recoginize 28 days in december 12-4-12/31 = 28 days. 28days/ 32 days month = 90%*45,601 = 41,187.99 0r 41,188 for dec. Dr trcuking exp 41,188 cr a/p 41,188

Ck# 1339.. 1/22/y3 $11,000 recieved new for lift on 12/29 /y2 order on 12/18/y2

Since forklift was receivec in yr 2. should record to year 2.

Dr Forklift (ppe) $11,000 Cr a/p $11,000

Question 7

research question on change in method that had a material effect on f/s. auditors concurred with changed

how would you look up for appropriate modification

Answer 7

change in accounting principles

then look for something doing with consitency because change happen from last year.

AUC 708 08

Question 8

mock test 1; sim 3-2; Ratio Analysis what is driving the change

Answer 8

Days sales in a/r ( ending a/r/net sales / 365) Y2 32 days YR 1 20 days: Sales managers are recording fraudulent sales to receive larger commission; either a/r up and or sales up

Inventory Turnover: Yr 2 4.01 Yr 1 6.32 ( COGS/avg inventory); COGS down and inventory up. due to economic downturn, buuyers have switched to economy car. the will evenually bring COGS down due to low sales and inventory up due to not as many luxuary cars are being purchased.

Debt to Equity ( total liab/ common shareholder equity): Yr2 3.2 Yr 1 4.3” In year 2, the company made a required principal payment of l-t debt

Return on Assets (net income / Net sales * net sales/avg total assets): Yr 2 10.5% Yr 1 12.0% NI down and totall asset up.

due to economic downturn, buuyers have switched to economy car. the will evenually bring COGS down due to low sales and inventory up due to not as many luxuary cars are being purchased.

Net Fixed assets to equtiy ( net FA/ Equity) : Yr 2 19% Yr 1 23.2%

FA down and Equity up or both moved. what is the fall of of net FA.

The company reclassified its international productiion facility to be held for sale = reduce FA

Question 9

mock exam 1; sim 3-3; what is the appropriate inherent risk and the effect of inherent risk

ir= analyze each to understand how it impact net income and what if no i/c.

If not sure of answer, go with overstated = how co. will go for ni

Answer 9

2. Sales orders for an internet textbook distributor have increased 100% over the last year. Additionally, the company’s asset turnover has doubled since previous years.

Inherent risk factor: volume. could be artificial inflating sales

Efffect of inherent risk n NI

3. RM co. recorded its first hedging transaction for mortgage-backed securitys (MBS) in year 1. At the end of year 1, the FV of MBS had decreased significantly

Inherent risk: complexity; hedge = complexity

NI Impact: overstated

4. Metal inc. suppplies copper pipes to home buildeers. During year 1, copper priced doubled. At any given time, a significant amount of inventory is in transit or located at job sites.

Inherent risk: could fraud of susessability of theft of the copper

Impact on I/s.: Overstatement

Home builder is the industry and not the copper.

Joe’s computers provides 3 year money back warranties on all laptops. During year 1, warranty claims decreased significantly and the company has not reduced the warranty reserve

Inherent risk: estimates

NI impact: understatement of ni idue to over expenses

Global co. imports most of its products from a foreign supplier. During yr 1, a new technoology made part of the Global co. inventory obsolete.

Inherent risk:instry circumstances

NI impact: inventory write offer = bad debt exp = overtatement.

FYI’ no impact is a b/s entry in the sim.

Question 10

mock exam 2; sim 1-1

ratio analysis 2 year to year changes

Answer 10

Year 1 Year 2

A/r turnover 6.5 6.10

wrong answer; company implemented a fast collect. this would have had a increase but was a decrease in a/r yr. right answer; item shipped on consignment during the last month recorded as sales. the impact sales and are until. must have adjusted to reduce sales and a/r. because an increase in sales numerator would have a bigger increase than avg a/r the denominator. so a/r decrease year 2.

sales net/ar avg

Inventory turnover 3.2 3.54

wrong answer; COGS sold as a percentage of sales. this would r yr. right answer; item shipped on consignment during the last month recorded as sales.

COGS/avg inventory

Gross Profit Margin 40% 44%

sale-cogs/sales

Current Ratio 1,0 1.08

ca/cl

Debt to Equity 1.20 1.03

tl/te

Question 11

mock exam 2; sim1 -2; Calculation of materiality

Answer 11

the benchmark ; would be the lower of sales 2,550,000 at interim *2 = $5,100,000 and total assets $4,900,000. lower sales= $4,900,000.

preliminary planning material; the % from table for range of total assest . even though % says 60%, you calcalc at .006. $4,900,000*0.006= $29,600

Tolerable misstatement = preliminary planning material $29,600 * either the low likelyhood of misstatement 60% or high likelyhood of misstatement 70%. this is what the call of the question is.

in this question, it is lower 60%

Tolerable misstatement = 29,600*60%= $17,600

Question 12

mock exam 2; sim 2-2; identify fraud risk

Answer 12

the CEo would like to create two division; no effect of risk; this is for better management

management bonus is based on profits; increase fraud risk, act of this is potential fraud.

the board of directors are all independent of the entity; decrease risk; good thing when bod indenpendent

CEO. CFO and CAO have personal gauranteed debt in company; increaese risk; more pressure to perform due to debt

managment is currently creaeting an adverstising paln for contractrs; no effect. operation plan

Due to economic downturn co. is planning to issue stock to pay debt ; increase risk

Co. require employees to take mandatory vacations, even though, company is experiencing low profits; decrease risk; good things when company vacations are taken.

Question 13

PCAOB integrative report

Question 14

mock 2; sim 3-2 confirmation and determine action required

Answer 14

based on the confirmation that was sent , amount wanted to confirm was $2000. client said it was $2760. the client stated to additional invoice outstanding. auditor action; verify by examining shipping documents and subsequent cash collections.

review and verify invoice to determine if sales and invoice are after year end.

\

client could not confirm confirm owed of $40 without po numbers. auditor actions; verify by examing shipping documents and subsequent cash collection; we need to review and verify to determine invoice. sending out second request with po number is not as sufficient as doing alternative procedures.

Question 15

mock exam 2; sim 3-3AICPA Code of Conduct Rules

independent rule: financial interest, conflicts with clients, material direct or indirect

integrity and objecitvity; must be honest and unbias

General standards rules; must be competent, techniques

must know the accounting principle rules and know if client did not follow gaap

confidental cleint information rule. unless supeona, peer review, cpa hearing, state board hearing.

act of discretable rule behave like a professional, don’t hold records hostage for payment or you don;t file taxes

advertising rules. not misleading or fraud

commission and referal. follow rules

form of organization rules; most of owners must be cpas

no rule violated

contingent fees rules; can not get contigent fee on tax returns or admendent tax returns. can on reportation of voliation from irs.

Answer 15

2. a client continuosly demand auditor returns records. auditor refuse until fees are paid on engagement; act of discretable rule ;
3. CPA hired by client to challenge irs examination of refund denial. CPA will get 10% settled refund. no rule violated, fining by irs allowed
4. an accounting firm has 2 cpas and 3 non cpas with financial interest. the firms current and past engagements include reviews and audit of non-issuers ; form of organization

a cpa belongs to a social tennis club that is an attest client and was required to aquire a pro rata share of the club’s equity securities; no rule violated; a social event no direct interest.

CPA fails to timely file their personal tax returns: Act Discreditable rule

Question 16

9958, when would an auditor not express an unmodified opnion on a justified

Answer 16

when is a justifiable inseparatable change in to accounting estiment to an accounting principle.

however you can change an inseparable change accounting estimate to accounting principle

Question 17

9927. Using probability -proporational to size (PPS) = dollar unit or cumulative dollar amount sampling : how would you calculate sample size

PPS; Probability proportional to size (PPS) sampling is a method of sampling from a finite (Specific amount) population in which a size measure is available for each population unit before sampling and where the probability of selecting a unit is proportional to its size. PPS sampling is used when populations of the sampling units vary to ensure that every element in the target population has an equal chance of being selected.

Answer 17

data

tolerable misstatment( net of effect expected misstatement) $126,000

Risk of incorrect acceptance you agree with results but results were wrong; 5%

Number of misstatement allowed; 2

Recorded amount of A/R= $700,000

Number of accounts: 500

Step 1; the reliabilty factor is selected based on the number of misstatment allowed = 2 and the incorrect acceptance 5%. then corresponded to the reliability factor %= 6.30

Step 2; then take the tolerable misstatement $126,000/ 6.30= 20,000

Step 3 ; take the Recorded amout or population = $700,000/ 20,000= 35

Question 18

9939. how would an auditor be able to detect a misstatement in a cash transfer

Answer 18

by reviewing the disbursment recorded in books to deposit received in books

if a payment is recorded before payment is recieved = cash misstatement.

Question 19

9944. what would require a modification of the accountant report of review of interim f/s infor. of issurer prepared on basis of GAAP

Answer 19

lack of adherence to GAAP and lack of disclosure

Question 20

Are negative assurance provided on compiance report

Answer 20

no

Question 21

10251. An auditor is auditing many cash transactions and a few fixed assets transaction. how would strategized work

Answer 21

He would be effecient and focus on ending cash balances because of many transactions. and the the few fixed assets.

Question 22

10274. If an auditor decides not to test operating efficiency of control , what is not likely a reason he did not do it

Answer 22

a very small MATERIAL error is noted in a/r account; he would have to do it.

Reason do it;

lack of paper audit trail, could be electronic version.

it would be easier to perform substantive testing

design of controls are inadequate

Question 23

10282. what is improper segregation of duties

Answer 23

Segregation of duties= ARC= Authorization - Recording - Custody all done separate

in approriate= supervisor approve timesheet = authorization and distributes paychecks = custody

appropriate = treasurer signs checks custody - distributes custody and holds unclaim check custody

appropiate; payroll department computes and record payroll infomration and prepares check = recording process

HR department authorize new hire and approve pay rates = authorization

Question 24

10284. how would an audit do a procedure on retain earnings

Answer 24

analyze re. account since last audit. should be fairly easy and effecient there should not be a lot of transactions.

do not trace to declarization off authorization of management of dividends because mangement does not do this BOD does

Standard bank confirmation = bank would not have this specific informaiton.

Question 25

10320; under government standard , when auditors has assessed control risk at the maximum level for assertions related to computerizes information systems that materially impact the f/s. The auditor should document

Answer 25

1. . basis for assessing control risk at the maximum
2. what is the planned audit procedure designed to reduce audit risk.= risk the auditor will make an mistake in the audited f/s.

not included is managment acknowledgement of the assessed level of risk. this is a management response.

Question 26

2854- in a pps sample with a sampling interval o f$10,000, an auditor discovered that a selected a/r with a recorded amount of $5,000 had an audited amount of $4,000. If this were the only misstatement discovered by the audior, the projected misstatement of this sample would be

Answer 26

5000 recorded amount - audited amount 4000= 1000 tainted

1000 tainted/5000 recorded = 20%

10000 populatiion * 20% = 2000 projected misstatement of this sample.

Question 27

3171- what is accepted when supplemental information is outside the basic f/s but rerquired by GAAP

Answer 27

Accepted=

Express an opinion on the information if review procedures have been apprpriately performed

Report on whether the information is fairly stated in relation to the f/s taken as a whole, if appropriated procedures have been applied

Disclaim an opinion on the information

Can’t accept; express negative assurance on the information, if review procedures have been appropriately performed.

Question 28

what are two requirements for crucial achievement of audit effeciency and effectiveness with computer selection

Answer 28

id. of the application

approriate sofewarre to perform the audit task

not part of effectiveness and effeciency; client data.

Question 29

9924. if population variability increase, does sample size increase

Answer 29

yes. population variability has a direct effect to sample size

however, in a test of control, population size has no effect on sample size unless population is small.

Question 30

What does deviation and deviation rate mean in auditing

Answer 30

Deviation: The term deviation includes: any business event that occurred that was not expected to occur. any business event that didn’t occur that was expected to occur. a control exists but did not operated effectively i.e. it has not prevented or detected and corrected a misstatement on timely basis. a control is absent.

Question 31

2611- what is correct concerning statistical sampling in test of controls

Answer 31

Deviation from control activities do not necessarily result in misstatement. Therefore, deviations from pertinent (important) or specific control activities at a given rate would ordinarily be expected to result in misstatement at a lower rate.

Question 32

what is complete of management assertion looking for

Answer 32

errors in managment assertions.

Question 33

GASAS ethics principles include

Answer 33

1. professional behavior; honest effort in the performance of professional serivces
2. integrity; conduct fieldwork that is objective, fact-based, nonpartisan, and non-idealogical wiht regard to audit entities and users of audit reports

3 Service to the public; public interest is defined as the collective well-being of the community of people and entities serve by the auditor. auditor should meet this needs

4. objectivity; indepence mind and appereance, maintaining an attitude of impartial having intellectual honesty and being free of conflict of interest.

Question 34

during the preliminary assessment of control risk,the tolerable risk was 7% and the deviation risk was 8%. would the auditor increase the preliminary assessment of control risk. Why

Answer 34

in the evaluation of sample size, the tolerable risk 7% was less than the deviation risk 8%.

Question 35

2753- if there have been a change in accounting principle that is non material should the auditor include in EOM

Answer 35

no. due to it is not material

Question 36

9879- as the acceptable levels of detection risk decrease, auditor would change the

Answer 36

nature of substantive test from less effective to more effective procedure.

AR = ir *cr*dr

If control risk is low then detect risk is high and subtantive is low

when contol risk is high then detect risk is low and substantive is high

Seesaw effect

Question 37

6373 is attribute a quantify sampling risk

Answer 37

yes. attribute is a statistical approach to used to test controls in which auditors quantify sampling risk.

Question 38

2399- when are negative a/r confirmation used

Answer 38

when the combined assessed level of ir and cr relative to a/r is low

Question 39

6233 - what factors are considered in the efficency and effectiveness of analytical procedures

Answer 39

nature of assetion tested

plasusibilty

predictability of the data relationship

availability and reliability of data used to develop the expectatiion and precision of the expectation.

Question 40

10257-when is postive assurance done on audit report

Answer 40

report on other comprehensive basis of accounting f/s

report on specified account in financial statement

report on a financial presentation to comply with a contractual agreement or regulatory requirement

negative assurance

a report on compliance with contractual requirements related to audited f/s

Question 41

What is a critical audit matter?

Answer 41

critical audit matter is defined as any matter arising from the audit of the financial statements that has been communicated or is required to be communicated to the audit committee, and that relates to accounts or disclosures that are material to the financial statements, and that involves especially challenging, subjective, or complex auditor judgments. The communication of critical audit matters is the responsibility of the auditor, not management or the audit committee, and they describe aspects of the audit process. They are not the same as critical accounting policies, which are determined by management and reported in quarterly and annual reports in management’s discussion and analysis.

Critical audit matters will be different for each company, even within the same industry. They may change from year to year, based on the complexity of each individual audit, changing risk environments, and new accounting standards. In the standard, the PCAOB indicated that it expects that in most audits at least one critical audit matter will be identified. The board also has advised that critical audit matters should not be boilerplate because they are intended to provide information about each audit and the auditor’s perspective.

The inclusion of critical audit matters in the auditor’s report is effective for large accelerated filers for fiscal years ending on or after June 30, 2019. It is effective for audits of all other companies required to have critical audit matters included in their auditor’s reports for fiscal years ending on or after Dec. 15, 2020.

Question 42

2594-an auditor uses statistical sampling for attributed in testing i/c should reduce the planned reliance on a prescribed control when the

Answer 42

when the sample rate deviation plus the allowance for sampling risk exceeds tolerable rate

sample rate 3.5 + allowance 4.5 = 8 > tolerable 7 = redyce

Question 43

10314- an auditor is conducting an attributed sampling application to test the effectiveness of a particulary control. using the following determined rates:

Sample rate= 5%

Tolerable rate; 6%

Allowance for sampling = 2%

what is true

Question 44

6284 A6-M1 after failing grade notes 3-20-20; SSARs; can an accountant that is engage to compile unaudited f/s decline to do it due to

1. each page of the f/s is clearly marked restrict its use
2. a written engagement letter is used to document the understanding with the clinet
3. a written represenatation letter is obtained from the clients managment

Answer 44

NO to all must accept

Question 45

6286- is an accountant incompliance with SSAR if doing an compilatioin or reveiw the auditoithoutr also-

1. reproduce client prepared f/s without modifications, as an accomodicaiton to a client
2. prepare monthly je’s

Answer 45

NO to all, he would be out of compliance with SSAR

SSARS requirement= prepare, review compile.

can not reproduce f/s or do je’s.

Question 46

6325- SSARS established standards and procedures to

Answer 46

• Compile, reivew, and prepare unaudited f/s

which includes doing preparing person f/s used in mortages, attached to tax returns,

Does not included - personal f/s for personal financial planing,,

Question 47

A6 notes; SSARS

Answer 47

m1 SSARS Engagement

A. Preparation, SSARS, non attest, no assurance, can be non independent without disclosure

Preparation; lowest level of SSARS

Documentation for prep;

1. engagement letter; to establish understanding with the client included in it; objective on engagement; “manamgement responsibility: preparation of f/s in accordance to GAAP or framework and each page of f/s will include a statement that “no assurance is provided on f/s or accountant will be required to issue a disclaimer.
   - accountant responsibility
   - Limitation of the engagement
   - identification of framework
   - whether the f/s are contain a known departure or departure has inadequate disclosure
2. a copy of the f/s prepared by the accoutant
3. Any significant finding or issues
4. Oral or written communication with management regarding fraud or noncomplance with laws and regs. that came to accountant attention
5. accountant judgement is it is necessar to depart from GAAP. Justification is reqired and how

B. Compilation, SSARS, attest, no assurance, non independent but have to disclose not independent,

Document understanding with

1. Engagement letter
   - objective of engagement
   - management responsibilities
   - accountant responsibilities
   - limitation of the engagement

Accountant performing compilation of entity must have general understanding of clients business via STAFF;

• Staff qualifications
• Transactions types and frequency

Accounting basis used to prepare the f/s

• Form of accounting records
• Financial statements form and content

before issuing report, accountant must read compiled f/s and considered whether they are appropriate in form and free from obvious material erros.

Notice for all SSARS; Never assoicate with False, fraud or missleading f/s by entity.

if client refuse to correct errors , accountant should withdraw form enagement.

Documetnation in compilation engagement

• engagement letter
• copy of f/s
• a copy of accountants report
• any significant findings or issuers of the results of compilation procedures that could be material misstated and the actions taken to address these findings or the resolution of questions or concerns raised during the compilation procedures
• oral or written communication with managment regarding fraud of noncompliance of laws or regs. that came to accountant attention.

Accountant does not issue an opinion

Standard compilation report has no title, non separate paragraph, no assurance, signature of accountant , city and state of accountant, date of the report.

Reports that are in accordance with special purpose framework cash, taxe or contract basis; should have another paragraph that reference management responsibility of determining applicable framework and prepared within special framework and is other than gaap

Accountant may omit substantial disclosures by client request. but the accountant must clearly indicate the omission by including and additiional paragraph diclosing such omission. which would state if disclosure were included it might influence users conclusions.

If not independent, last paragraph should state the disclose that information.

Accountant should not modify the compilation report to include a statement that the financial statements are not in conformity with applicable financial reporting framework. Such modification would give an adverse opition which is not applicable.

C. Review; SSARm attest limited assurance, independent required, analytical procedures and inquiry.

Question 49

11015- what would and would not be reason to accept compile, review and prepare engagments under SSARS

Answer 49

would- there is a lack of segration of duties in acccounting and payroll ; wuld not affect accountants decision to accept engagment

• entity’s intention to omit from f/s substantially all of the disclosures required by GAAP; as along as the omission does not mislead user.
• management acknowledge that the f/s will be lncluded in a written personal financial plan. can accept the engagment just not a application of SSARS

would not- asset that are missappropriated are not investigated.

Question 50

^a6-m2

^{4550; what are engagment attest and non-attest engagment}

Answer 50

attest;

• compilation
• review
• audit

non attest

-preparation = lowest level of services.

Question 51

4551- if an accountant is unable to write on each section of the prepared f/s that no assurance is provided, what is his option

Answer 51

to either=

• isssue a disclaimer that make clear on assurance provided on f/s

or

-perform a compilation enagement

Question 52

4423; a6-m3; is negative assurance such as we are not aware of any material modifications that should be made ot accompany the f/s in order for them to be in conformity with GAAP a part of compilations report

Answer 52

No. compilation reports does not have any assurance be it positive or negative assurance.

Question 53

4937; when doing compilation of unaudited f/s would you evaluate predictable patterns for f/s.

Answer 53

No. This is an analytical procedures which are not required in compilations

Question 54

11118-if an accountant is doing compilation an there were misapplications and unreasonable accounting estimates and management is unwilling to fix them. accountant should

Answer 54

withdraw from the compilation engagement and provide no futher services on f/s. this was an insufficienct diclosrue of GAAP.

Question 55

2974- accountant compiles projected f/s. the accountant should include a separate paragraph that

Answer 55

desribe the limitation on the projections usefulness.

Question 56

6312-compiled f/s should be accompanied by a report stating that

Answer 56

accountant is not required to perform any procedures to verify the accuracy or completness of the information provided by management.

Question 57

SSARS notes

Question 58

6366- when an accountant is not independent, what type of comilaiton report must be issed.

Answer 58

a compilation report that notes or disclosed accountant’s lack of independence.

Question 59

6318- what statement does an accountant make that is implicity when issuing the standard report for the compilation of a nonissuers f/s

Answer 59

implicit compilation statement; if the accountant is not independent, he sould specifically disclose the lack of independence, i.e implicit.

Question 60

8929-what matter should the accountant include when establishing an understanding with client regarding the service performed for compilations

Answer 60

the effects of independence impairments, if present, will have on the expected form of the accountant’s report.

Question 61

8188- what information is not specifically stated in compilation report but is not implied in the report

Answer 61

substantially all disclosure required by GAAP are included in the f/s

Question 62

3388- if an accountant compile with f/s with non gaap in year 1 and gaap included in year 2. can audit do comparison f/s in year 2 compiles

Answer 62

NO.

Question 63

A6 M4 mcqs; 6247; during the review engagement, a supervisory accountant becomes aware that information provided by management is incorrect. what should the supervisory accountant do

Answer 63

Request that managment consider the effects of the related matter on the f/s.

would not issued a disclaimer due to scope limitation., due to review is not an audit

With a review, accountant unable to perform procedures deemed necessary to the review. the review is incomplete and review report is not issued.

Question 64

6340- what inquire and analytical procedure is and is not performed in a review engagement

Answer 64

review = analytical procedures and inquiries;

is= inquiries concerning the entitys procedures for recording and summarizing transactions

is not= analytical procedures designed to test managements assetions regarding existence.

Question 65

4373 - the follow are analytic and inquiry reveiw procedures exept

Answer 65

are = comparing current year to prior year balances

obtaining managment rep letter on year-end balances

making inquires of the payroll accountant regarding the completeness of the account balances

are not = testing the process used by management to determine the balance.

Question 66

A6-m5 mcqs 4445; if an accountant is engaged to do a compilation in year 4 and did a review in year 3 what are his options for comparitive f/s

Answer 66

compilation in yr 4 from review yr3 is a down grade

3 options

• issue yr 4 compilation with extra paragraph on responsiblity assume in yr 3 review and no review done in yr 4.
• issue two separate reports for yr 4 and yr 3
• issue combined yrs 4 and 3 full reports and a statement that no review done in year 4.

Question 67

3772- unaudited report issue prior year and audit report issue current year. for comparative report. report should be marked in yr 4 as

Answer 67

Either. the report on the prior period reissued to accompany the current period report

or

the report on the current period should include a separate paragraph a description of the responsibility assumed for the prior periods f/s.

Question 68

6862- a prior year report is audited and current year report is reviewed. separate paragraph should include a

Answer 68

the type of opinion if it is not unmodified.

date of previous audit report

that no auditing procedure done in current year review report

prior year statements were audited.

Question 69

A6-M6 mcqs; 3393; accountant is performing a review of interim financial information. reads financials waht is the least likely to affect the review

Answer 69

A scope limitation that was overcome through acceptable alternative procedures.

Question 70

3389- what is and is not required fro interim financial statement review

Answer 70

is.

• comaparing disaggregated revenue data for the current interim period with that of comparable prior periods
• inquire of management about knowledge of fraud or suspect of fraud.
• obtain evidence that interim f/s reconcile with the accounting records

is no-

• obtaining corroborating evidence on entity going concern

Question 71

3401- what is the objective of review of interim f/s of a public entity’

Answer 71

to provide an accountant basis for reporting whether material modifications should be made to conform with GAAP framework

Question 72

3402- accountant reviewed interim f/s. if report is presented in a registration statement, a prospecturs should include a statement clarifying that the

Answer 72

accountant review report is not a part of the registration statement within the meaning of the SEc Act of 1933 . this is to indicate that in no way he is responsible for financials on prospectus.

Question 73

6854- when planning a review of interim fs, which procedures should the acccountant perform to update the accountants knowledge about entitys business and i/c

Answer 73

consider audit procedures performed on previous f/s and how they correspond to current year’s interim f/s.

Analytical procedures ar performed after knoweldge of company.

Question 74

A6, m7 mcqs, 3449; what is cover in a comfort letter

Answer 74

an opinion (positive) as to whether audited f/s comply in form with the accounting requirements of the SEC.

Question 75

A6 m8 mcqs; 3210 According to professional ethical standards, what event would justify a departure from GAAP

Answer 75

Unusual circumstances such as ; 1. new legislation

2. evolution of a new form of business transactions

Question 76

4791; under the ethical standards of the profession, what position would be considered a position of influence

Answer 76

a position in policy making in the clients’s finance division.

Question 77

1477; understandards of professional, which non dependent members of auditor family is most likely to impair the auditors independence

Answer 77

A spouse employment with a client. Independent rules extend to member’ spouse, dependent children, and dependent relatives

Question 78

1478; under ethical standards of profession which is and is not considered direct financial interest

Answer 78

is

• an investment held by the trustee of a trust
• an investment held through a nonclient investment club (influence)
• an investment held in a blind trust

is not

• an investment held through a nonclient regulated mutual fund. member does not control the stock.

Question 79

8398 If an auditor has security in a regulated fully covered account would this be considered impaired

Answer 79

no account that are Security Investor Protected Corp protect or FDIC are not impaired

Question 80

1488 - accoding to standard of profession with Due Care standard would consulting with expert and obtaining accreditation apply

Answer 80

Yes for Consulting with experts because something may exceeds member competency

No. for obtaining accreditaion

Question 81

what is the best reason why the CPA profession has found it essential t promulgate eithical standards and to establish means for ensuring their observance

Answer 81

To distinguish a mark of profession as it is accpetance of responsibility to the public

Question 82

8699= According to the AICPA code of professional conduct, what would be an act that would be considered discreditable to the prosession.

Answer 82

An CPA selling CPA quesions without written authorization.

Signe immaterial false document is a Integrity and objectivity rules violation

not following certain rules is a Compliance and standard rule violation. However, Cpa may give justication as to why.

Question 83

5628- what would be considered an impairment

Answer 83

auditors sisters= works at client firm as an internal auditor,

Independence rule

Question 84

2330- would materiality be least important in client audit if audit had direc financial

Answer 84

yes. This would be an impairment.

Question 85

4402; AICPA code of professional conduct applys to

Answer 85

Applies to any services that a memeber perform such as compilation, reivews, atttestation, auditing

Question 86

A6 M8 Notes

Answer 86

AICPA Rules for member

1. Independence rules; members in practice 1.xxx,

public practices. membersperforming attestation, audit., close relative are impairments, financial (all) are impairments. not for compilations (must disclose) and non attestation.

2. Integrity and objective rules, members in practice , a members in business 2.xxx.

in the perfomra of any professional services, a member shall maintain objectivity and integrity, shall be free of conflicts of interest and shall not knowingly misrepresent facts of subordinate his or her judgemet of others

3. General standard rules 1.xxx, 2.xxx. other members = retired or unemployed 3.xxx. Professional competency; knowledge of technical subject matter or ability to obtain that knowledge by research or by consulting with others.

Due professional care; degree of skills commonly possessed by other in the field; must critically reivew work done by those assisting in engagement, plan and supervise of professional services; sufficient relevant data (not all ) to afford a reasonable basis for conclusion or recommendations in relation to any professional service performed

4. Compliance with standards 1.xxx 2.xxx

a measure of quality and performance.

members must comply with their governing body SAS, PCAOB, SSARS etc.

5. Accounting principal rules 1.xxx 2.xxx

GR; GAAP must be followed. Exception; unusual circumstances may justify a departure from if f/s may cause a f/s to be misleading.

There are some interprepation of code specifically new legislation and new forms of business transactions. all justification must be described and explained.

not a justification; unusual degree of materiality of the existence of conflicting industry practices .

6. Confidential rules 1.xxx.

a member in public practie shall not disclosed any confidential client information without the specific consent of client.

Exception; subpoena or summons, CPA peer reivew, ethics or trial board of AICPA or investigated body of state CPA society or under authority of state statues; your legal defence team if your are being sued by your client.

7. contingent fee rules. 1.xxx

GR; not allowed

Contigent fees are permitted in the following casesl fixed by courts authority or tax matter based on court or government findings, represent a client in tax examination

compilations of f/s expected to be used by third parties only if member inclused a statement that member is not independent.

8. Acts Discretible Rules. 1.xxx 2.xxx 3.xxx

member shall not; failure to return clients records

discimation or harrassment

follow standards or procedures in govt audits unless member disclose why standards are not usd

Shall not be negligent in preparing f/s

shall not solicit cpa exam questions and answers without aicpa consent.

promote and marketing and advertsing of cpa members experience and qualification are deceiving

terminitatig from client shall not retain clents record

shall file tax returns on time

9. Advertising and other forms of solicitation rules 1.xxx

advertising and soliciation are misleading or deceptive ; can not intentially understate fees

would mislead or deceive a resonable person

influent court

10. Commissions and referral fees rule 1.xxx

a member shall not for a commission recommend or refer to a client any product or service when the member or the member’s firm also perform for that client.

• audot pr review f/s
• compilation of f/s expect to be used by 3rd parties, when the member does not dislosed a lack independence
• examination of propospective financial

compilation (when disclose independent) and tax ok commission and referral fees

11. Form of organization rule 1.xxx

A firm may not designated itslefs as a member of the AICPA unless all of its CPA owners are members of AICPA and can continue to one or more past owner past away

Owner of CPA firm must be more than 50% ownership owned. those doing SAS and SSARS

non owner ; non cpa can use the title principals , owner, officer, member, shareholder, or other title permitted by state law.

Use of CPA title in private industry; a cpa employee in private industry may use the designation cpa in signing a report a report only if the use of that designation does not imply to readers of the report that the cpa is independent.

Seven Type of threats to conceptual fundament

1. Adverse interest threat; not act with objectivity
2. Advocacy threats; compromise or promote client interest or position
3. Familiarity threat; long family relationship member and sympathetic
4. Managment participant threat; assuming mangagement responsibilty with client.
5. Self interest; financial benefiting or
6. will not appropriately evaluate the results of a previous judgement made or performed or supervised by the member.
7. Undue influence threat; subordinate his or her judgement. client indicates that will not award additional engagments to the firm if the firm contiunes to disagree with the client on an accounting or tax matter.

-

Question 87

A6 m8 sim notes

Answer 87

relates to ethics policy . research questions on itegrity in absense of guidence; find terms until you get something. nothing on ethics but something on integrity

ET is for code of conduct

ET 0. 300.040.04

CPA has inheritance that was a financial interest in one of cpa clients.

key words are

close relative, financial interest, impaired,

ET 1 270 100 03

Question 88

A6 m9; MCQs; 4424; PCAOB must consist of how many CPa

Answer 88

At least 2

Question 89

5967; Under /sox 2002 how many annual audit periods i.e. cooling off period must an engagement team member be of audit of client before accepting Officer or controll like postion with client

Answer 89

1 year

Question 90

8187- an auditor may not provide client without being impaired

Question 91

8413; according to the PCAOB which tax service may be jointly done with the audit without being impaired

Answer 91

Reviewing proposed transactions and informing client of the tax consequense maybe performed without impairment

not planning and issuing an opinion on a tax treatment on an aggresssive tax position

Question 92

6114; under SEC partner rotation, do all partner rotate off an engagement after 5 year

Answer 92

no. lead and concurring partner rotate off after 5yrs. Other audit partners are subject to a two year rotation

Question 93

4377- if an audit firm perform audit of clients fy 12-31-y2 audit on 1-3-yr. what case would an former engagement team partner could perform audit without it being impared

Answer 93

if a cfo that was an audit manager of former client began a now cfo of client but ws last on the audit on 12-31-y1. one year cooling off periond is over

Question 94

4652; how long are registered pcaob audit firms required to maintain work papers

Answer 94

7yr pcaob issuer public company

5 yr SAS non issurer private company

Question 95

6972- what are and are not the attributes of the audit committee expert

Answer 95

attributes

• priincipal financial officer, principa; accounting officer, controller, public accountant, or auditor
• actively supervising principa cfo or cao
• assessing the performance of public accountant with respect to preparation of aucit or evaluation of f/s

not attribute

-serving on at least one other issure audit committe or disclosure committee of the bod. = this is not required on the bod training

Question 96

A6 m9 sims ; (1) if partner in charge did 5 consequtive audits four years ago and left for another audit assignment. is this impaired based on SEC and pcaob

(2) if a partner retired and now sits on clients board but not on audit committe is the impaired
(3) other partner should rotate off
(4) under SEC rules, cover person include the audit engagement team. this also include any other partner, principal, shareholder or manager employee of the firm that provide more than xxx or more hours of non audit service
(5) AICPA code of conduct, a firm engaged to provide attest services to the public must be greater than x% of CPA
(6) auditor of issuer and non issuer must assemble the final audit documentation within xx days following the report release date

Answer 96

(1) yes. the audit rotation for key audit personel is 5 years
(2) yes. just becasue retired does not limit he could advocate for audit firm
(3) 7 year = 5 +2
(4) 10
(5) 50%
(6) issuer 45 day and non issuers 60 day

Question 97

a6-m10 mcq; 7268; what are the standard under GAGAS for

• Integrity
• Professional Behavior
• Servicing the public
• Objectivity

Answer 97

• objectivity; independence in mind and appearance; an attitude of impartiality, having intellectual honesty and being free from conflicts of interest
• integrity; audit conducted with fact base, non partiscan, non-ideological, with regard to the audited entities and users of the audit report
• professional behavior; honest effort in the performance of professional services in accrodance with relevant technical and professional standard

Serving the public interest; the collective well-being of the community of people and entities served by the auditor. should meet the needs of those that need

Question 98

A6 Test questions

Answer 98

8666- what services would constitute a management function under Govt Auditing Serivces and an impairment for independent cpa’s; The development of program policies.

7171- what circumstances would a covered aicpa member independents be impairmentj with respect to nonissuer client; member owning securities or bonds in a clients company.

6874 - are the understanding of a review of inquiry and analytical procedures used in a management rep letter; No, they are discussed in an engagement letter.

Things in an engagement letter; management responsibility

Question 99

A6 test ; 6372 ; what is an appropriate response on a compilation report

Answer 99

a statement that the accountant was not required to perfomr any procedures to verify the accuracy or completeness of the information provided by management.

An accountant when compiling the report does not give assurance on them not being aware of any material modification that should accompany the f/s.

Question 100

4943- what is not true of an auditor review of a interim financial of issuer

Answer 100

does not provide any opinion of GAAP or anything else

true

audit report provide postive assurance and review provides negative assurance.

Question 101

4792- a cpa who is not in publice practice is obligated to follow which of the rule of conduct

Answer 101

Despite not being in public practice , must follow the code of conduct rule of integrity and objectivity

if not in public practice does not have to follow rules of

• independence
• commission
• contigency fees.

Question 102

A5-m1

Answer 102

Integratative Audits are audited of the financial statements and audit of managements assessments of the effectiveness of i/c over financial reporting (icfr)

Dodd frank act amended rule 404 of SOX icfr are required for SEC registered large accelerated filers $700m or more and Accelerated filers $75m or more but less than $700m.

SAS 130 governs non issuers icfr

the rules for issurs and non issuers are very simulare. the auditor objectives is to express an opinion on the effectiveness of icfr. two opinon; unmodifed/unqualified or adverse= material weakness = ineffectiveness of i/c.

auditor requirement for both= should paln and perform integrative audit to achieve both objectives. perform control criteria on management use of its evaluation of the effectiveness of i/c. auditor will test those controls.

Management requirement sox 404 issuer;

state managements responsbility for establishing and maintaining an adequate ic structure. containing an assessment of icfr

Management responsibility SAS 103 non issuer

Accepts responsibilty of effectiveness of ic

Evaluate the effectiveness using criteria of AICPA or reg. agencies

Have support for assessement of ic

Provide a written assessment of effectiveness of ic

In some rare instances auditor may no be permittted to withdraw of audit of icfr, they would give a disclaimenr of opinion of icfr.

Written Representatin for both

Management ; aknowledges refor icfr; state assessment as of a specified date and criteria used; affirms that management did not rely on audit procedures as basis for assessment; state disclosed all deficiency in design and operation of ic. confirms that all significant defiencies and materail weaknesses have been disclosed and have previous ones been resolved; descibe fraud resulting in material misstatement of fraud involving senior management or empolyess who have significant roles in icfr; subsequent events; where there any changes as of the date the report or corrective action take by management of significant deficiency or material weakness.

Planning the engagement ;both

What is the auditor strategy to consider; look at matters affecting the industry, prior knowledge of entiy ic via the last audit or reviewing predecessor working, matters concering entity business, operation and capital structure, the complexity or the entity ops and recent chages in ops and ic, maanagement effective of evaluating ic, judgement about materiality and risk of effectivness of ic this is also used for audit of f/s. more attention focus on high risk areas; evaluating fraud rsik assessment perform in the f/s audit, scaling the audit, smaller or less complec might achieve control objecting differently thant more large and complex corp.

Fraud Risk assessment both;

Auditor looks at the triangle of fraud; opportunity-rationalization-pressure incentive

controls to address fraud risk assessment= significant or unusual transactions, period-end journal entries and adjustments; related party transactions; significant management estimates.

audit may use the work of IA. other company personell and specialist who are competent and objeuctive in evaluatng the effectiveness or ic.

Top down approach Both

1. F/s level- entity level (high level)= control environment, management override, company risk asessemnt, central process., monitoring ops and controls, period end fr,policies that address significant business controls and risk mangement.
2. Account, transactions and disclosure this is quantitative and qualitative of risk factors; accoutn size and composition, susceptible to missstatment, volume of activite and complexity, account and transaction class, exposure to loss, existence of related parties, changes for prior periods. auditor assess material weakness that will lead to material misstatement ifn f/s.
3. Assertions= auditor should test those control that are important in addressing the risk of material misstatement.

Audit uses CRIME components for icfr.

Test of controls.

• evaluate design effecttive of ic by doing walk-through , observe and inspect documentation
• evaluation operating effectiveness; inquiry alone is not suffecient. must do the following; inspect documents, observe, reproformance and recalculation, use auditor judgement.

Auditor must determing the effect of any ic deviation of risk, evidence and effectiveness. Auditor must test test for errors and fraud. errors can be inherent risk. Fraud don’t let management know your test because they might try to divert information.

Use of Service organization; auditor would want to

• obtain an understanding of relevant control
• obtain evidence that controls at the service organization are operating effectively by performing by ; obtaining service auditors reports, testing the entitys controls over activities, perfrom test of controls at the service organization.

Benchmarking of automated controls. automated contols are not susceptable to human erros. benchmarking strategy is most appropriate in low rsik suitiations. low risk, non change, autuomated - benchmarking.

Evaluating Control deficency both

1. compensating controls when other contols are offeset the material weakness that was found by auditors. Due to cost, managment will not fix it. auditor may considered it.

Forming an opinion both’ base opinion about the effectiveness of ic on all evidence including f/s and ic.

Management report on ic include;

-indicate managment responsibility

describe subject atter icfr

id. the criter used in effectiveness of ic

statement of assessment of effectiveness of ic and including as of date and should be at end of most recent fical period.

describe and disclosed any material weakness id by management

if report is incomplete or improper presented, auditor should modify to discuss sitiuation, if management refuse to supply report, auditor should withdraw from engagement.

if report contains additional info,, auditor should disclaim an opinion on additional info. such as cost benefit info,

F/S audit v. audit icfr difference issure and non issuer

Engagement non issuer;

• purpure (issuer) of an audit of the effectiveness of entity ic is to express an opinion about entity maintain, in all material respect effective ic. Purpose (non issuer) of an auditor’s consideraton of ic in an audit of fs conducted in accordance to GAAS is to enable auditor to plan and determine NET of tests to be performed.
• relevant period audit of ic- issuer= ic results in an opinion of ic as of a point in time. ic audit of fs= non issuer= opinion of fs at a period in time.

extent of testing; ic audit of fs = non issuer is more limited. while audit of ic= issuer is test of effective of design ic and operating effect more test.

-communication of control defeciencies

in fs audit= non issuer significant deficiency and material weakness must be made within 60 days of the release of the report and all include restricted use. where as audit of ic= issuer commication must be made by report release date and no restricted used.

Question 103

A5- a1 mcqs study= 8404; in an integrative audit of an issuer, what would not be consided a entity level

Answer 103

entity level= control environment component and high level; an outside auditor assessment process of ia competency an objectivty

Question 104

8689-what would be the least likely consideration for auditor in planning a ic in an integrated audit.

Answer 104

the evaluation of operating effectivness will occur after the planning

Planning ic = [preliminary judgement, extent (net) of recent changes, the type of available evidential matters pertaining to effectivness on ic.

Question 105

2555= what is necessary for an auditor to accept an engagement to audit non issuer icfr

Answer 105

managment written assessment about the effectiveness of ic.

Question 106

3071- how does non issuer scope, procedure and purpse of ic compare to those obtain an understanding of ic and assessing contor risk as part of fs audit of non issuer

Answer 106

Audit of IC Audit of ICFR

Scope Different Different more extensive audit of ic

Purpose Different Different more directed toward Audit ic less in IFRC

Procedure different different more extensive for audit of ic

Question 107

5388- in a audit of issure = audit of ic and audit of fs

Answer 107

management must assess and report on ic

auditor must assess and report on ic

Question 108

3922- what are the orders of top down approach

Answer 108

• evaluate overall risk of f/s level =
• consider entity leve
• evaluate accounts, disclosures and assertions for which there is reasonable possibility of material misstatement
• test of controls

Question 109

3710- what is and is not provided in integrative audit management written representation letter

Answer 109

is = a description of key employee fraud, statement that management has performed an evaluation on the effective of ic, an affirmation that managment did not rely on auditors procedures as basis for assessment, a statement whether there were any significant changes in ic AFTER the as of report.

and not BEFORE the as of report.

Question 110

3714- what would not be an control deficiency of an nonissure that would not be considered a material weakness

Answer 110

inadequate design of IT control would be a control deficency but not necessarily a material weakness.

Question 111

3767-what would be an appropriate response when the auditor does not recieve a written rep letter

Answer 111

Withdraw for engagement or disclaim of opinion=this is for both. failure to receive a rep letter = withdraw or disclaim ( because most of work has been done when rep letter happens)

Question 112

3778- audit team does quantitative an qualitative evaluaton of fs and icfr

Answer 112

yes . audited f/s and icfr

Question 113

3784- what are the testing method in design of ic

Answer 113

ic design test = Inquiry, observe, inspect

ic opertating test = inquiry, observe, inspect documents, reproform, recalculate, audit use judgement.

Question 114

3787- when performing integrative audit, auditor is not responsible for

Answer 114

is not responsible forsufficient evidence to support an opinion abot the effectveness of each indiv control

responsible for overall effectiveness on ic.

it also incorporates an element of unpredictability into testing along with obtain more evidence on greater riske subjects, determining effect of any id controls on assessment of risk associatte with contols.

Question 115

A5- m2 notes

Answer 115

Comunication and reporting in an integrative

Non-issuer; Significant deficiencies and material weaknesses; the auditor should communicate to management and those charged with governance in writing. Such communication generally should be made by the reprot release date. if previous communication have not been corrected, may refer communication in the current communication. Audit can communicate significant matters earlier.

non issuer communication sample;

• address to managment and other governance
• open paragraph; in connection with audited fs as of date and for y-e and our audit of companys icfr, GAAS
• context ; auditors responsibilty plan and perform integrated adut and obtain reasonable assurance whether fs free from material misstatement and whether ic was maintained in all material aspects (whether material weakness exist), integrated audit is not designed to detect deficiency that are less sever than a material weakness
• definitiion and describe of material weakness and significant defiency

–restricted user

• auditor signs
• auditors city and state
• date of audit report

Auditor should communicate to management is writing all deficencies whether significant or nonsignificant. no later than 60 days of following report release date . if auditor concludes that audit committee is ineffective must communicate in writing to BOD. Auditor is not required to search for control deficiency taht are less server than material weaknesses. Auditor should not issue a report with no material weaknesses.

Commucation of deficiency in ic non issuer breakdown;

Control deficiency= communicate in writing to management within 60 days of the release of the report

Significant deficiency; communicate in writing to management and governance. communicate by the report release date

Material weakness; comm in writing to mngmt and governance by the report release date.

Communicate with managment and audit com issuer;

• must communicate in writing any significant deficiency to audit committee
• should comm.in writing to managment all deficienc in icfr. and infor audit comm.
• if conclude audit comm is ineffective with icfr results, comm. in writing to governance.
• auditor is not require to search for control deficincy or significant deficiency, but those id should be communicated in writing
• auditor does not provide assurance that all control def. and all signifanct def have been id.
• no sample communication have been provided by pcaob

Comm. of Def. ic breakdown issuer

• control deficiency= communcate in writing managment and inform audit comm
• signifant def.= comm. in writing managment and audit comm
• material weakness= comm. in writing mnmgt and audit comm. and comm. in writing should be issued prior to issuance of audit report

Report on ic of fs non issurer

separate or combined report on icfr and fs’

if Separate must point of make reference in each report

Separate report layout of icfr

• title = independent auditor’s report
• appropriate address
• intro
• managment responsibility of ic; designing, implementing and maintaining icfr and its assessment about effectiveness of icfr, incldede in the accompanh management icfr report
• auditor responsibility; express oponinf icfr and standards used GAAS.
• definition, framework used and inherent limitation limitation
• opinion
• pointer= report on audtied f/s; we also have audited, in accordance with GAAS icfr and fs. our reprt date which should be same as the date of the report and we express an opinion.

auditor signature

city and state

date of auditor report

Combined report non issurer

• title independent auditor’s report
• approproate addressee
• intro

MR responsibility

AR responsibility

-define and inherent limitation of icfr

=-opinion

-auditor signature, city and state, date of auditor report

REport date should be done no earlier than the date on which sufficient appropriate evidence. the date of the report shold coincide with the date of the audit report

Material weakness in ic; presense of material weakness in ic = adverse opinion.

Breakout -

Basis for adverse opinion

Adverse opinion

Other consideration ;

if mnmgt report fails to include one or more material weakness id by auditors, auditor should state and describe the omitted material weakness, and comm in wrting to governance.

if managment report includes material weakness but does not fairly state, audit should describe material weakness in his ic report.

Audit should considered the adverse opinion on icfr on the fs opinion and should indicate whether the opinion on fs was effected by material weakness on icfr.

Reporting on ic issuer; separate or combined reports

Separate report

title[ report of independence registered public accounting fimr

• addressess; to the sharehoders and BOD of company
• Opinion of icfr
• basis of opinion = also included mr and ar

pointer paragraph follow the opinion paragraph

• definition and inherent if icrf
• signature, we have serve as the company’s auditor since (year), city and state, date

Combine issuer

title same

address same

-opinion on the fs and icfr

ic

and then fs

• basis opinion icfr and fs and mr and ar
• definition and inherent limitaton of icfr
• Critical audit matters
• signaturre and other stuff the same

Report date

same

-Material weakness = adverse opinion defined,statematerial weakness describe in managment assessment

other detail same

• Report on a previously reported material ic weakness
• Scope limitation= withdraw or disclaim opinion; state that opinion is not being given and in separate paragraoh give substantive reason for the disclaimer
• Subsequent events; changes that occur after the as of date of the report 12.31.y3 but prior to the date of the audit report 3/31/y4. audite shoudl
• inquire of management
• obtain written rep from management
• inquire about and examine documentait for subsequent event

no follow if event happen after the audit report released.

Question 116

3808- in an integrative audit regarding control deficiency whar is restricted language

Answer 116

in an integrative audit on non issuer there are no restriction on the use use of the report due to it has the audit of fs and ic. it would have restricted use onf signicant deficiency and material weaknesses when icfr is part of financial statment

Question 117

A5 m2 mcqs 3798; in a icfr report does auditor express an opinion on management assessment of ic or the effectiveness of ic

Answer 117

the effectiveness on ic and not on management assessmen of ic.

Question 118

3858- if a subsequent event happen after the release of audit report, what is auditor responsiblity

Question 119

A5- m2 sims.

Answer 119

Sim 1

Find the correct audit response

2.a client did not furnish adequate evidence for the auditor to evaluate the ic over inventory. all other evidence was provided. =

Answer; issue a disclaimer of opinion. due to scope limitation of ic.

3. the auditor examined the clients ic over cash receipts and concluded that they are operating as designed. however, the designe of the controls does not include control procedures to prevent misstatement and the potential omission of cash receipts.

Answer; Determine if the control deficiency is a material weakness by obtaining further audit evidence. ic operating was good, design was bad. now must determine if it is material

4. the auditor concluded that the ineffectiveness of the design of controls over ap and cr presents a material weakness in ic . subsequent tests revealed no material weakness.

Answer; Express an adverse opinion on the ic. no additional paragrah needed.

5. mnmgt has not provided assurance that there ar no material weakness in controls. subsequent test revealed no material weakness.

Answer; express an unqualified opinion on the ic. as long as no material weakness = clean opinion

6. auditor prior yr report on ic included an adverse opinion. the client has since modified ic. no material weakness were found in current yr.

Answer; Express an unqualifed opinion on the ic no additional paragraph needed

Sim 2; the section of audit of ic report’ we believe that the audit evidence is sufficient and appropiate ( not reasonable and appropriate)

in the all sections the internal control framework used is from COSO = committee of sponsoring organizations of the treadway commission.

The auditing standards are GAAS n

on issuere

PCOAB issuer

Accounting principe framework is GAAP.

Sim 3; where do you fine combine report on integrative in PCAOB research. PCAOB - 2201 87 go specifically to combined and separate reports. try to be as detaited as possible to research question. advance search , use Combined reports

Question 120

A5-m3 mcqs; 6503; what statement best serves as management’s assertion of consistency in an MD&A presentation

Answer 120

nonfinancial data have been accurately derived from related records.

Question 121

2451; would reporting on an assertion about the subject matter instead of reporting directly on the subject matter be restricted

Answer 121

NO; not when reporting on a subject matter.

Question 122

8865 ; Under SSAE what procedure is used when it is in the “should considered” catagoring

Answer 122

Should is the procedure of ; procedure is presumptively required, where as carrying out is not required. Account must apply with the requirement in all cases, except in rare circumstances. practitioner must judge it is necessary to depart from requirement.

Question 123

8173; what reporting about a subject matter, the practioner will follow the guidance of

Answer 123

SSAE. when reporting on a subject matter or an assertions about the subject matter

Question 124

A5 m3; notes

Answer 124

Attestation engagement does not report on historical information i.e. historical fs.

Attestation report on subject matters or assertion about subject matter.

SSAE =Statement on standard for attestation enagament report on the following subject matters;

• Agreed upon procedures = aup
• financal forecast and projections
• pro forma financial statements = tatke historical an dturn to fwd senarios
• compliance
• MDA
• Reporting on controls at a service organiization.,

Types of Attestation reports and service peformed

Attestion services

examination ; positive assurance like a audit,REport: Prosective financial statements: forecast and projections; Proforma f/s; Compliance, MDA, Services organization.

Review; negative limited assurance.; proforma f/s, MDA

AUP; no issurance, AUP, prospecitve f/s, compliance.

Audit enagement; SAS and PCAOB

SSAR; Compilations, preparation and review

SSAE; attestment enagagement; AUP, examination, review

You want find in SSAE; historical f/s and no reference to GAAP.

Attest standards;

departure from mantatory requirements must be justified

interpretation publications should be considered with departure expplained

Other attest publications have no authority but may be helpful.

The concepts and guidance ; CAPE CORP

Compliance with all attestations

Acceptance of new clients and attestation

Precondition; must be independent, responsible party is subject matter, accountant responsible for obtain evidence for opinion, conclusion and finding in written report.

Engagement;

Acceptance of CHANGE in terms of engagament

Using the work of OTHER practiioners is allowed. like a specialist, must be competent

Responsibilty for quality control, like the audit

Professional Skepticism and professional judgement.

Attest risk are like audit risk; Attest risk = IR*CR*DR

Inherent risk; exists independently and accountant can not change this risk

Control risk; RMM could occur in the subject matter and not prevent or detected and correct via thorugh ic. accountant can not chage this risk

Detection risk; relates to accountant procedures and can change this rsik by vary the NET procedures.

Material misstatments ; modified risk of qualified or adverse in examinations or a modified conclusion in a review.

Scope restrictions. Examination; QDW

Review; W.

Question 125

A5-M4 MCQs; 4365; in an SSAE examination, an accountant performed examination of prospective f/s and accountant concluded that could not provided a reasonalble basis on opinion this would be considered what time of opnion

Answer 125

Adverse due to very material on not providing reasonable basis.

Question 126

6724- what procedure should an accountant perform during an engagment to compile prospective f/s

Answer 126

make inquires about accounting principals used in the prep of prospective f/s,

and not make inquiries prior to the date of the report about future transations that may impact the forecast once the report is issued in not accountant responsibility

Question 127

4429- what is true regarding prospective f/s

Answer 127

that all prospective reports results may not be achieve

Prospecitve f/s are done with examination, review and compilation. examine and review independent, compile independent not require but must disclosed

Question 128

6237- what engagement would provide limited assurance in a historical f/sq

Answer 128

Review of proforma financial information

Question 129

4714- accountant standard report on a compilation of projection should not include a statement that;

Answer 129

There is no mentions in a standard report that compilation of projection are hypothetical assumptions used in projections reasonable assumptions; although true but not in report.

Question 130

6279; when date will the AUP report beq

Answer 130

The date the AUP is completed.

Question 131

2510; accountant compilation report of financial forecast should include a statement that;

Answer 131

there will usually be difference between the forecast and actual results.

Also remember, compilation does not provided assurance.

Question 132

7124- accountant engagement to compile a financial projection most likely would make a client aware that the

Answer 132

engagement does not included an evaluation of the support for the assumption underlying the projections. limited in scope and no opinion or assurance.

Question 133

8948; if a justified change from an audit to a aup, what should the report about the change

Answer 133

no mention in the audit engagement but may reference procedures performed in the aup

Question 134

2564- Prospective f/s presented in the format of historical f/s that omit gross profit or NI is deemed to be

Answer 134

partial presenation and only used internal audience or restricted when financial statement information is omitted.

Question 135

4358- accountants compilation report on a financial projections that does not contain a range should include a statement that

Answer 135

There usually be a difference between the projected and actual results

Question 136

182; a AUP report of AUP that is in the form of procedures and findings should contain

Answer 136

A disclaimer on the subject matter = denying expressing an opinon. due to aup does not express an opinion.

Question 137

183; accountant compiles a financial forecas, the account reports should include a statement that

Answer 137

the practitioner assume no responsibility to update the report for evetns and circumstances occuring after the date of the report.

Remeber ; do not chose; a statement that the accountant did not audit or reivew the f/s, this would be a statement for compile pro forma and not prospect f/s

Question 138

184; what does and does not recieve a restricted paragraph

Answer 138

do ; nonissure f/s included in registration included in registation statement file to SEC. this is regulatory restricted

financial projections

do not ; proform f/s

financial forecast

Question 139

A5; m4 notes;

Answer 139

AUP; accountant is engaged by client to issue a report of findings based on specified aups.

Aup conditions; I AM SURE

Independent

Agreement of the Parties on determionation of findings and parties are accountable

Measurability and Consistency;

Sufficiency of the procedures ; accountant is not responsible

Use of the report is restricted to specified parties

Engagement to Perform AUP on prospective f/s; must include a summary of significant assumptions

Reporting requirements and elements

A title : Independent Accountant’s Report on applying AUP

ID of specified parties, subject matter or related assertions, the nature of the engagement and responsible parties

A Statement that subject matter is the responsibility of parties

Statement procedures performed were those agreed to by parties and description of aups

Statement engagement conducted with standardd estb. by AICPA

List of procedures performed and related finds. No opinion provided or conclusion

No assurance No opinion.

Restricted use

desription of assistance provided by specialist.

AUP reporting structure for AUP

Title

Intro

Procedures and findings

Scope or Disclosure

OM:

Restricted

Signature,

City and State

Date of the report

Explanatory language would include; disclosure of facts, assumptions, or interpretation, desription of conditions of records, controls, and data, accountant has no responsibilty to update the report

sampling risk

Prospective f/s; may cover partial expired

no a period, a completely expired period

no pro forma statements

Types of prospective f/s

1. financial forecast; expected financial results of future periods based on expected conditions and course of actions not restricted and limited use
2. financial projections; it is based on hypothetical assumptions. based on what if’s scenarios. restricted use and limited

Prospective engagement types;

1. Prep SSARs lowest level, historica f/s. dependent or independent. engagment letter but no rep letter, exclude summary of signifacnt finding, if financial projection used id of the hypothetical assumption or description of limitation. no assurance
2. Compilation; SSARS; no assuarnce, based on partys assumptions, should read prospective f/s with assumptions and accounting policies and considered if conform with AICPA presentation. not required to gather evidence or aware of inappropriate assumptions. is permitted , but not required to disclose the reason for lack of independence. Standard report is independent.
3. Examination; not restricted, positive assurance, opinion. AICPA guideline not followed = Qualified (except for) or adverse opinion. Signifiicant assumption are not disclosed= Adversed, Basis no reasonable; Adverse. Scope limitation; Disclaimer
4. AUP

Exam Financial Forecast Report structure;’

Title; Independent Accountant’s Report

Appropriate Addresses

Intro

Scope= MR and AR

Opinion

Warning: difference between forecast and actual results. because evetns and curcumstances frequently do not occur as expected and those differences may be material. We have not responsibility to update this report for events and circumstances occuring after the date of this report.

Signature, city state, date of the report

Examination of Financial Projections would change slight from financial forecast

2nd paragraph

description of hypothetical assumptions

1st paragraph. a description of the purpose of the projections in the first paragraph

3rd and 4th paragraph ad reference to hypothetical assumptions

A paragraph restricting the report.

Compile Exam AUP

Prospect fs(pfs) assemble Eval apply spec aup

Respon party assmp Assemble Eval includ in pfs

Are f/s and significant

assumption conform w/

AICPA guidelines look for errors opinion disclam

Obtain AUP n/a n/a Yes

ID prospective f/s yes yes yes

compliance with AICPA Yes yes yes

Limited of scope yes no yes

mention a number of things

of procedures performed no no yes

Caveate that prospective results

may not be achieved yes yes yes

CPA has no responsibility

updating the report yes yes yes

Opinion of pfs accordance

with AICPA guidelines no yes no

Limite use of the report proj proj yes

or restricted.

Question 140

A5’ M5 mcqs; 3253; for report on controls at a service organization. Client auditor is doing report on ic and requesting SErvice organization auditor send him a description of controls placed at service organization regarding processing of payroll transactions. Service auditor ic report should contain

Answer 140

Type 1; A decription of the scope and nature of service auditors procedures performed.

Question 142

3255; if service auditor report only contains type 1 description fo service organization ic place in ops. the rport should contain

Answer 142

A disclaimer of opinion on the operating effectiveness of service org controls. This is type 1 report on controls place in operations.

and type 2 report on controls place in ops and test of ops effectiveness . since this was not part of report, disclaim this.

Question 143

when client auditor is planning audit of ic what should he request from services auditor

Answer 143

management description of service org systems

Question 144

A5; M6 MCQs; 4748; Reporting on Compliance; in a reporting on compliance with aspects of contractural agreement in connection with audited fs in accordance with Statement of Audit Standard, what is auditor least likely to consider

Answer 144

Appropriate opinion to render the report on compliance because opinion is used. Only negative assurance. this is not an examination in SSAE,.

Question 145

6033; an examination report on compliance governed by SSAE would include

Answer 145

An examination = opinion on whether the entity complied , in all material respect with all apllicable compliance requirements

Question 146

6038; detection risk of noncompliance is inversly related to

Answer 146

Risk of material noncompliance.

RMM=AR= IR*CR;

As Dectional decrease = RMM increase due to dection detected all RMM up front.

Question 147

6039; in an compliance audit , the design and perfrom addtional audit procedures in response to the assessed risk of material noncompliance. these procedure will include TEST of CONTROL = Operating effective when

Answer 147

Test of control of operating effectiveness on controls may be required if one of three situations exist

1. the risk assessment includes an explanation of the operating effectiveness of controls over compliance
2. Substantive procedures do not provide enough evidence to support a conclusion
3. test of controls are required by the governmental audit requirements.

Question 148

A5’ M8; 6709; integrative audit; how does title 2 of code of federal reg. (containing a single audit requirment) define a subrecipient

Answer 148

a nonfederal entity that expends federal awards received from another entity to carryout a federal program. key word EXpend.

Question 149

A5; M7 MCQs Government Audits ; 4426; Under GAGAS. When reporting on compliancde with laws and regs. in financial statement audit., the auditor report should include;

Answer 149

The f/s audit would include no findings or references of any relevant information regarding material illegal acts and fraud or irregularity found in the course of the audit about the non compliance.

While there is a definition of material weakness and significant diffeciency for i/c, there is no material criteria discussion for compliance.

Question 150

3466- what entities do Government Auditing Standards apply to

Answer 150

Government organizations and Federal financial assistance organizations

Question 151

6032-management written rep. letter to the auditor in connection with a government audit would most likely include.

Answer 151

1. identification of management interpretation of compliance requirements that are subject to different interpretation.
2. Statement that management has disclosed all government program (not material programs)
3. disclose all known non compliance or state there was no such non compliance
4. Management agree that it has complied with compliance.

Question 152

6034- is there an opinion of ic for GAGAS

Answer 152

no. opinion of ic. but to express or to express an opinion of ic over compliance but an opinion on complance.

Question 153

6035- what would and would not compliance work papers include

Answer 153

would include;

• risk assessment procedures performed related to understanding ic over compliance
• responses to the assessed risk of noncompliance including test of compliance and test of control= test of operating effectiveness.
• Material levels of compliance

wuold not have documentation of opinion of ic over compliance. no opinion on ic over compliance.

Question 154

8885- how would an auditor handle a id of a fraud under GAGAS

Answer 154

1. extend the audit procedures as necessary to determine whether fraud has occured.

Question 155

8418- under GAGAS the “should” statement respresents what

Answer 155

This is a presumptively mandatory requirement; where procedure must be followed in all cased, except in rare circumstance. and must be describe and justified.

Question 156

8691= auditor is perfoming an compliance audit under GAGAS. what conclusionn would auditor draw if the entity does not have adequate documentation to support $5M in ops exp. paid from Fed program fuds

Answer 156

Question the cost of $5M for ops exp id.. Which will apprear on the schedule of findings and question costs.

Question 157

3582; Under GAGAS auditor report does the report have give an opinion on the f/s take has a whole

Answer 157

not required.

Reort would include; pertinent view of officials responsible for audit findings, statement of audit objective and scope, indication of illegal acts that could result in criminal prosecution discoverd during the audit.

Question 158

3603- Under GAGAS, what is the documentation requirement that the auditor should follow

Answer 158

Auditor should sufficient audit documentation that supplementary oral explanations are not required.

Question 159

4628- what are some additionals standards that GAGAS that SAS do not

Answer 159

GAGAS = Report on ic and direct reporting on illegal acts.

These reports are not required for SAS.

Although report on ic can be part of an integrative.

and reporting of illegal acts could be AUP

Question 160

3612-under GAGAS an auditor is required to report on the compliance of entitys with laws and regs. this report should

Answer 160

state that the audit should be planned to obtain resonable assurance (postive) about whether m=no compliance could have a material effect onthe entitys programs.

the report should not describe the laws and regs that entity must comply.

Question 161

A5-m7 notes

Answer 161

Financial audits; Financial statements audits performed according to Government Auditing Standards (yellow book) incorporate GAAS and determine whether the fs present fairly the financial position, results of ops, and whether applicable cash flows in accordance with GAAP.

FS in conformity with Special purpose framework (OCBOA) Government regulators generall specify the OCBOA to be used in relation to finaical assistance.

Attestation Engagements; Examination, AUP, Compiles. must follow standards;

1, compliance with specified laws, regulations, rules contracts, grants.

2. effectiveness of ic over compliance of specified requirements
3. Presentation of MDA
4. Reliability of performance measures

Performance Audits: follow standards

they provides objetives analysis, findings, and conclusions to assist mangement and those charge wiht governance and oversight to among other things, improve program performancde and operations, reduce cost, oversee or initiate corrective action and contribute to publice accountantly.

Key performance audit objective

1. effectiveness, economy, and efficiency= done cheap
2. IC; evaluate ic over effective and efficient ops, relaible reporting , or compliance with laws and regs. ie IT security.
3. Compliance ; establish by provisions of laws, regulations, contracts and grant agreements.
4. Prospective analysis; events that may occur in the future or to suggest actions and entity may take in response to future needs.

Performing Financial audits; previous audit and attestation finds need to be fixed or correction action addressed. or else finds will continue to be in the audit or attestation.

Management responses should address; fraud, noncompliance and abuses.

GAGAS define specific requirements to plan and perform finding;

what the ;

Criterial, Condition, cause, and effect or potential effect

Audit Documention is need to support the report and must be reviewed by supervisor to support findings , conclusions and recommendations.

All departure from GAGAS and impact on the audit due to noncompliance caused by law, regulation and scope limitation must be documented.

All communication must be relevant to the professonal judgement of auditor

Standards for financial audits: reporting on financial audits

Give and opinion of financial statements and report on ICFR and on compliance with provision of laws, regulation, contracts or grant agreements that have a material effect on the f/s.

Reporting Confidential or Sensititive information

Disclose; omission of information and state the reason or other circumstance that made the omission necessary.

Audit may issue separate, classified or limited use report that are distributed to onlu the persons authorized by las or regulation to the confidential information.

Distribution of reports

Audit organization should distribut auditors reports to ;

those charged with governance

audited entities officials

oversight bodies (audit committee) and responsible for the findings

all other authorized to receive reports

GAGAS has a reduce material level( worser for entity) to response to

public accountability

various legal requirments

visibility and sensitivity of government programs

Communication of deficiencies may be reported early ;

uregency or signifcant finding need corrective actions

ongoing noncompliance untected by management should be stopped.

GAGAS (yellow book) Report on IC and compliance sturcture

Title ; independent auditors report

Appropriate addressee

Intro; audit standards in accordance with GAGAS issued by Comptroller General of the US.

ICFR;

no opinor and disclaimer

definition of CD and MW

Next paragraph iC limited purpose; negative assurance, and describe DR and MW reported

Compliance and OM

Reasonable assurance on compliance (positive assurance) no opinion. test of compliance to disclosed instances of noncompliance

and OM report required for GAGAS yellow book (pointer)

Purpure of the Report; (pointer)

to describe the scope of testing ic and compliance and result of testing. no opinion.

the report is an integral part of audit fs (pointer)

Management rep letter:

included’

mangement; there are no violation or possible violation of laws or regs. whose effect shoud be considered for disclosure in the fs or as a basis for recording a loss of contingency (same as GAAS/SSA)

responsible for compliace of laws and reg. applicable to GAGAS.

ID and disclosed in writing to the auditor all laws and regs that have a diect and material effect on fs.

Report on ICFR

all SD and MW to be reported

Auditor will obtain understanding of the design of relevant controls and determine whether they have been implemented

Communicate SD and MW in a written report and reported to specified parties

IR is reported to evaluate management assertion on ICFR and compliance or noncompliance and the material effect on fs.

Finding on SD and MW

In the fs audit, GAGAS require report on ICFR and not a report on ic over compliance.

Question 162

A6-m5 test study highlights

Answer 162

what is not a difference between a financial statement audit and an audit of ic for nonissuer; #3862; fs audit of icfr must be made within 60d days of release date of report where as icfr must be made at release date of audit and not vice versa

when an accountant examines projected fs, the accountant reports should included a separate paragraph on; #2502; describing the limitation of the usefullness of the presentation; other words prospective fs may not be achieved. the report not include a difference between audit and examination. would include was not audited and does not give opinion.Just give reasonable assurance or positive assurance.

Although scope of audit of federal financial assistance vaires, they do have what in common; #3514; unders Single Audit Act, auditpr must determine if the auditee aka client has complied with laws, regulations, and provisions of the contract or grant agreement.

Materiality is set at program level and is not set by government entity that provided the assistance.

Two things set materiality; 1. programs that expend more than $750K and 2. and high risk progams that are deemed major.do not have to meet $750k threshold.

3391- an accountant is conduct a review (SSARS and limited procedures) becomes aware of a significant change in control activities . what would the accountant consider perform ; two choices with review; analytical procedures and inquire.

4358-A n accountant compilation (SSARS no limited procedures) reported on financial projections does not contain a range should have a statement that says; there will usually be a difference between projected and acutal rsults because evetn and circumstances do not occur as expected

2449- an accountant in a public practice is required to comply with SSAE when: testifying as an expert witness in accounting and/or compiling clients financial projections that present a hypothetical course of action; nethier there are no such SSAE standards or testifying or advocanting for clients and compiling is a SSAR compliance.

4932-what is least likely included in an examination report (SSAE, opinion postitve assurance) related to a financial projections; an indication that had the accountant performed additional procedures. other matter might have come to their attation that would have been reported. this is an agreed upon procedure report. not an examination.

Question 163

A4; M1 Revenue Cycle notes;

Answer 163

Revenue cycle= include sales revenue, receivables, and cash receipts

Expenditures; purchases, payables and cash disbursements

Cash; include cash receipts and cash disbrusemenrs

Inventory; perpetual inventory, physical count and manufacturing cost

Investments= debt and securities and income recieved from investments.

Other transactions’ PPE, payroll and personnel, and financing.

Revenue is the highest fraud risk

there are presumption that audit test and evaluate for RMM;

• early revenue recognition
• holding the books open past the close of the accounting period
• ficticious sales
• failure to record sales return
• side agreemens to alter sales terms for customers
• channeling stuff achive to convince distriburter to purchase more inventory than they need
• overstating recievale or understating allowance for uncollected.

Want to have strong internal controls on revenue cycles

do risk mitigation with segregation of duites on sales transactions;

• one dept or person; prepare sales orders via customers po. Sales orders need serial numbered
• …..; credit apporvals to determine grant credit to customer and how much and not to grant credit to customers. copies sent to shipping and biling
• ….; Shipments serial number or bill of laidnig need varify and send copies to customer and receivable set up.
• …billing; prepare serially number or sales invoice. shipping and invoice nubmer compared.
• … =accouniting; sales is entered into sales journal and receivable is recorded.

AR segregation functions

• Sales
• Collection of CR
• Uncollected AR
• Sales Returns with credit memo
• Sales Discount

Cash Reciepts Segregation functions based on ARC; Authorization, Recording and Custody

–Cashier; prepare reciept and make deposite; custody

-Acccounts rec dept.- enter reciept in ar sub ledger; recording

Accounting dept.[ enter reciepts in ar control accoutn ; recording

Best safegaurds of cash and rev sales; lockbox or cash registers.

Treausry - authorize depost.

all reciepts should match.

Specific procedures to obtain evdience of the revenue cycle and management assertions to fs

Auditing sales transactions; COVER U

Completeness of tranactions; trace up Shipping doc > invoice> Sales journal

Cutoff= make sure that sales were recorded in proper period. make sure no one is trying to boost revenue

Valuation, allocation and accuracy. check prices

Existence and occurance. Existence; Vouch down; Sales journal to invoice to shipping documents

Understanding and classification; examine a sample of sales invoices for proper classifications into appropriate rev account.

Audit Accounts(Recievable)

CVER

Completeness; trace up detail age trial balance to GL

Valuation, allocation and accuracy; results of confirmations, ,test accuracy of allw of bad debt and accounting est.

Existence and occurance; confirm sample of positive and negative ar confirmation.

Rights and obligations; review bank confirmation and debt agreement for liens on ar. inquire of management and review debt agreement and board minutes for evidence of ar have factored or sold.

Auditing Presentation; CVRU

Completeness; revenue Note to fs that all required disclosures related to ar have been included ;rev recognition rev reported by segments, related party ar

Valuation, allocation and accuracy, read notes to make sure information is correct

Rights, obligations and occurence; all pledge, lien and discounts have been disclosed

Understanding and Classification; read in all ar info to make sure it is understandable.

Question 164

A4 M1 Revenue Cycle MCQs Study notes

Answer 164

3144- Tracing a bills of lading to sales invoice would show completeness assertion that shipment to customer was invoiced.

4425-what is the least likely thing an auditor will do if he does not receive a reply from ar confirmation. he would not increase the assess of detection for valuation assertion. he is doing existence assertion and not valuation assertion

2638-what is not procedure in ic that would reduce the risk of errors in the billing process.

reconciling total sale invoice to ar subidisary ledger because this the entry dr ar cr sale thus this is in effective.

2647- auditors purpose of reviewing credit ratings with delinquent accounts is to obtain what assertion= valuation an allocation which shows valuation , allocation, adjustement and appropriate recording of assets, liab, revenue and expenses on the fnanical statements.

where as the assertion of understanding and classification information to describe , present and disclosed information on the fs.

2686- flowchart= sales invoices are across from credit memos are across from remittance

5499-what would improve the responses rate of ar confirmation = give customers detail on outstanding balances would asssit them in confirming numbers.

4992-what does not demonstrate appropriate seg of duties= a billing clerk prepares invoice(recording) and records the resulting increaese in ar (recording)

3222- flowchart ; what is generated by application program; credit memos and sales invoices

2493- what would an auditor to believe there is a material misstatement in the fs; when there are fewwe responses in confirmations; maybe fraud. this in an existience assertion.

8385- an auditor notice that bad debt expense is hire than normal industry what would auditor ecommend; this is due to credit are or lack of credit checks

5329=tracing sales invoices to shipping document show evidence of ;shipments to customers were actually shipped.

shipping documents to invoice = shipment to customers were properly billed.

2770= why are negative cofirmation of ar less effective than positive confirmation= since negative confirm are low risk, the audit would not care if customer do not respond. where as a high non respond positive confimation would suggest material misstatement.

2775= two assertion of ar confirmation are= rights and obligation and existence

not completeness = this deals with if the ar was unrecorded.

2776= the negative request for of confirmation used are; assess leve of risk low, number of small balance are many (too many to send out compared ot large balance), and consideration by the reciepient is likely.

2777=what procedure would auditor perform he did not received 2nd confirmation request; perform alternative procedure on ar such as inspect the shipping records documentation the merchandise sold to debtor or customers.

5883- what is the brest control for ensuring that sales are properly authorized when assessing control risk; get proper authorization from credit appproval before filling the order.

separating cash recipte depart form billi”ng is a segration of duties for theft. this question was on authorization.

11032(this is a pre test question) if the objective of the auditor is to test of details is to detect the overstatement of sales , he would trace transactions from= the sales journal to the shipping document. this is existence. tricky question because you would normally assimulate “tracing with completeness” can be used with existence as well. the key is overstating of sales this means it was recorded which would be a completeness assertion. however, this a existence assertion with the overstatement of sales.

2239-tracing shipping documents ot prenumber sales document is evidence of ; shipments were properly invoiced.

3127- comparable duties would be if the cashier recieves the remittance from the mailroom and deposits the checks.

2619-sound ic would have an employee that recieves the checks would ; make a duplicate listing of the checks

7613- if an audit is doing test of detail to determine if sale invoice are being record in correct accounts this would be an assertion of ; understanding and classification

if were tracing shipping documents to corresponding invoice and then to sales journal and ar subledger this would be completeness.

7620-when would test of client ar via positive confirmation be inappropriate; if majority of the accounts are small balance i.e. negative confirmations.

Question 165

A4 -m1 Sim notes

Answer 165

Sim 2

Substantive procedure used for an audit objective based on assertion

4. Investments are properly valued at BS date; understand and classification

Determin that any impariments in the price of investments held by independent custodian.

7. Accounts rec. represents all amounts owned to the entity at the bs date

perform sales cut-off tests to obtain assurance that sales transactions and corresponding entries for inventoriess and COGS sold are recorded in the same period. this will show that entity shipped sales inventory to customer for owning of ar to be paid.

9. Accounts rec. are stated at net realize value;

review the aged trial balance for significant past due accounts to determine if accounts needs to be written off.

10. Accounts receivable are described and presented in the fs.

Review the ar trial bal. for amounts due from officers and employees.;

information of related parties should be disclosed in notes to fs.

14. Recorded property and equipment represents assets that actually exist at the bs date;

Physically examine all major property and equipment additions

Sim 3 Confirmation

if a positive confirmation was sent out and customer say that the cancelled the order and ar is not theres, auditor would verify and proposed adjusted book entry.

Sim 4

What would be the relevant assertion and procedures

2-4; After reviewing the bs. and corresponding docs, auditor found that the inventory bal. has incr. significantly over the prior years;

Relevant Assertion; Mgmt; Existence and occurance

Procedures; vouch=existence, observe,

5-7; auditor is concerned that the allw. uncollct as a % of ar has decr. even though sales has incr drastically over the prior pd. uncoll decr then sale decr

Relevant Assertion; mgmnt; valuation, accuracy and allocation

Procedures; auditor; review subsequent event, recalc,

8-10; when reviewing the ar subledgr, auditor found evidence that accts have been sold to a factoring co. but not removed from books

Relevant Assertion; rights and obligations

Procedures; inspect and exam, confirmation, review subsequent events,

11-13; in reviewing docs, auditor came across information that led hom to believe that a lawsuit filed against the co. may result in a settlement owed by co.

Relevant Assertion; understanding

Procedures; review of sub event, inquiry letter to lawyers

14-16’ when auditor was reviewing the last qtr rev., he noticed a significant upswing in sales towards the end of the dec. the upswing did not appear to exist in the prior yr.

Relevant Assertion; cutoff

Procedures; cutoff procedures, inspect and examin doc.

17-19; when reviewing the working cap. , auditor notice and incr the co. current ratio due to a significant decr in CL. CA remained unchanged in the prior year.

asset unchange liab decr

Relevant Assertion; completeness

Procedures; tracing = completeness, review sub event,

Sim 5;

Audit objective; receivables at y-e 2 are properly cutoff with respect to sales made at ye 2.

Subtantive proceder; Complete ; trace shipp docs to invoice to subledger ledger

ID last no. used in ye2 to firtst no used in year 3 for prenumbered shipping and sales invoices

Audit objective; Depreciation is fairly statement; valuation, accuracy and allocation; recalc ye depr exp

Review the process of assigning expected useful life to machinery and ask controller of assumptions changed.

Sim 6 flow chart of control process or doumenting cash collection steps

Question 166

A4-m2 notes Expenditure Cycle

Answer 166

Purchasing process;

Requision (program) depart - send a request for an assets or goods and services to - Purchasing department that negotiate best price, issue prenumer po, approved po with; quantity, description and price then multiple copies are sent to requistion department-vendor-receiving. Once order are receive, receiving department counts order; due to receiving dept get blank information in quantity. If description match po,then to goods are forwarded to requision dept.

AP department receive and match; receipt report, po, invoice for recording payment. For Segration duty purpose, AP clerk recorded invoice and AP Supervisor reviews AP for processing payment.

All matched information is put together in a vouch packet for Treasurer to approve payment and issue and sign check and mailed. Vouch packet is cancel and marked paid and sent back to AP to posting and filing.

Performing specifice audit procedures to obtain evidence of expenditure cycle;

For accounts payable, the completeness and accuracy (valuation, allocation and accurancy) assertions are generally more relevant than the existence and rights and obligation because the riks of understatement is greater than the risk of overstatement (AR and rev).

Account Payable ; Accounts assertions= CVER

Completeness; assessing unrecord liab. to cash disbursement; Trace up ap listing agree to GL; reveiw w/cash dist jan and feb.

Perform search of unrecorded liab. ID cash disb.related expensess incurred before y-e 12/31 to Jan cash distribut.

Obtain a sample of vendor statements and agree to vendor accounts. confirm y-e liab. give proof to accrue liab.

Valuation, Allocation, ACCURACY

obtain AP listing, foot to listing and agree to GL

Review the results of ap confirm

Obtain a sample of vendor statements and agree to vendor accounts. confirm y-e liab. give proof to accrue liab.

Existence and Occurance; Vouch inform from AP listing to Vouch package

Only use conf vendor statements when no statements available or IC is weak.

Confirmation are use for both completness and existence.

Rights and Obligation; review a sample of voucher package for presence of purchase req., po, receiving report and vendor invoice to verify ap are owned by entity.

Audit Purchase Transactions: COVER U;

Completeness; trace sample voucher to purchase journal

Cutoff; compare date on sample vouch to date the transaction were recorded in purch journal

Val, Allc and ACCURACY; mathematical accuracy of vendor invoice

Existence and Occurence; voucher authorization to receiving report

Understanding and Classification; auditor should verify the account classification of a sample of purchase.

Auditing Presentation and Disclosure; CVRU

Completeness; require all disclosures related to account payables and purchases in NTFS

such as payable by type; trade, officer, employee, affiliates and terms ST and LT

Purchase contracts and purchase committment

Related party

Expense by segments

Val, Allc, ACCURACY

read and footnotee other info related ot AP and purchase and determine accuracy

Rights and obligation and occurence;

compare disclosure to other audit evidence to ensure that all disclosed inform related to ap and purch

Understand and Classification; auditor should read all ap and purchase related disclosure/

Question 167

A4;m2 study mcqs

Answer 167

2640-what ic activity is not performed in the voucher payable department; accounting for unused prenumber po and receiving report.

3172-what is an effective control activity to detect vouchers that were prepared for the payment of goods that were not received; match’ po, receiving report and vendors invoice for each vouch in ap department

3180-determine whether ap are completed, an auditor performs a test to verify that all merchandise received is recorded. what document from match vouch should be used; look at the receiving to determine if merch have been received to pay.

3183-what ic procedure most likely addressess the completeness assertion for inventory; receiving reports and prenumber and reconcile to inventory recieved for ap payment.

2674-properly designed ic would have same employee that match invoice to receiving report would; recompute of vendor invoice competiable with authorization

3196- when shipping dept returns noncoming goods to vendor, the purchasing dept of vendor should send a debit memo to the accounting accounting dept

2942- to determine whether ap are complete, an auditor performs a test to verify that all merch received would use which match doc. receiving report to verify what was recieved to what was paid.

2942-what procedure would an auditor perform in searching for unrecorded liab. completeness; compare cash payment/disbursement occuring after the b/s date with ap tb.

2949-what audit procedure id unrecorded trade ap; reviewing cash disbursement/payment recorded to the b/s date to determine whether the related payble apply to the prior period.

2468- when using confirmation to provided evidence of the completeness assertion of ap the appropriate population doc. would you the list of vendors with previous business. yes.

2742- what procedure would an auditor least likely perform before b/s; confirm ap due to payment could be made after y-e due to accre liab.

5878-what procedure would detect a liab omission by management; review the purchase contract or legal documents for probable, possible or remote lawsuits. why wouldn’t checking the math accuracy of f/s be; there is a case that an liab omitted was not in the fs liab,

7160-would a weak segration of duties be a ap clerk that post vendor invoices it ap ledger and mails chech.; yes. mail checks should be done in the treasure office.

2606-for effective ic, the ap dept generally should; establish the agreement of vendor invoice, receiving report and po = match

2612-what procedure would an auditor perfomr in searching for unrecorded liab. vouch a sample of cash disbursement recorded just after the receiving report and vendor invoice. what was receive was recorded for payment.

2614-an auditor trace a sample po and related receiving report to the purchase journal and cash disbursment. what is the purpose of this substantial audit procedures; to determine if purchases were properly recorded. this the match process for ap to record invoice.

7623- what is a function that represent a weakness in ic related to cash disbursment’; Treasure dept does not files the voucher packet. that is for ap

7644- is comfirmation a test of completeness and existence; yes

7630-an auditor is performing a preliminary assessment of ic over purchases. what would be considered improper segration of duties of purchases of a large client. po department prepare prenumber requision and obtain all required approval. po should only issue prenumber which consumate order with vendor after getting best deal. should be in charge of getting approval, that is requistion dept responsibility.

Question 168

A4;m3 Cash Cycle notes

Answer 168

Cash is the most high fraud risk lead by to fraud schemes; Lapping and Kitting

Lapping occurs when an employee withholds funds received by a customer for his personal use and fails to apply these CR to customer balance and apply another CR to customers account

Best safeguards;

• independent comparsion of recorded cr with funds deposited
• Separation of incoming CR from subsidiary ar remittance advice
• Comparison of detail of bank deposits and the detail of remittance

Provions of timely statement and bank recs.

-Confirmation of customer balances

Best safeguard is lockbox.

Kitting occurs when a check drawn on bank is deposited in another bank and no one record is made of the disbursement in the balance of the first bank until after y-e. Kitting maybe used for cash shortage or a pad a companys cash position. Kitting results in the intentional overstatement of cash in the fs.

Best detection for kitting is bank transfer schedule. bank to bank transfer at y-e this disbursement date on checkk and in GL for disbusing account should precede the receipt date noted by the bank and in the ledger for the receiving accout.

Evidence should exist that all deposits in transits and outstanding checks listed on bank rec at y-e cleared the next period. Best to use a bank cutoff statement.

Best ic is segregation of duties; ARC

Procedures to obtain audit evidence cash cycle;

Audit the Cash Balance+

:CVE

Completeness, Valuation, allocation, existence

bank confirmation and timely bank recs.

Auditing CR and CD; CVEU;

Completeness: trace; remittance advice to the CR journal and deposit slips.

Cutoff CR and CD shortly before and after y-e for recording in proper period.

Valuation. Allocation, Accuracy; from cr daily deposits, should foot the remittance advice and entries on the depsosit slip agree to CR journal and bank statement

CD. voucher packet should agree to po, receiving report and invoice, cancelled check and CD journal.

Existence and Occurance; vouch CR journal to remittance advice, deposit slip, and bank statement

vouch DR journal to cancelled cks, voucher package and bank statement

Understand and classification; examine a sample of remittance advices and cancell checks for recording in the proper account.

Audit Presentation and Disclosure; CVUR

Completeness; ensure that all related disclosure to cash have been included in note to fs. including; policy defining cash and cahs equiv, restricted cash and sinking funds, compensating bal.

Valuation , alloc. and accuracy; evidence to ensure that all disclosed info. related to cash has occured.

Understanding and class; the auditor should read all cash related disclosure to ensure that they are understandable.

Question 169

A4-m3 Sims

Answer 169

Sim 2; if there are no cash received but invoiced. Audit would do the procedures of indentifying the invoice that matches those in the open accounts rec table as of the end of the year. this would most likely be an outstanding ar.

Cash received greater than invoice amt. Determine if there are unrecorded sales. review sales number to ensure all booked to ar.

Sim 1; Bank rec notes; old checks later than 2 month prior to y-e should be written off., the other reconcile line item can be blank if no activities,

Other reconcile items in book should be detailted. this is unsubstantiate in current status. there should not be any yr3 financial info in yr 2 bank rec.

If book infor is in correct due to aged DIT or stale checks , then was not in aggreement with bank balance at 12/31/y2

Question 170

A4-m3 Cash cycle mcqs study

Answer 170

5472; what cash transfer result in a misstatement of cash at 12/31/20x1

3140; illustrate a transfer that would be a DIT at 12/31/x1

DR date CR Date

Per bk Per bnk per bk per bnk

ck# 101 12/30 1/4 12/30 1/3

202 1/3 1/2 12/30 12/31

303 12/31 1/3 1/2 1/2

404 1/2 1/2 1/2 12/31

DIT is Cks 101 and 103. DIT is a disbursement posted in one accounting pd and receipt in another accounting period.

3161;what ic procedure would most likely deter lapping of collections from customer; segration of duties between CR and AR posting. Any verification and comparing could still show lapping.

DR date DR date CR date CR date

per bk per bnk per bk per bnk

a. 12/31/x1 1/5/x2 12/31/x1 1/4/x2
b. 1/4/x2 1/11/x2 1/4/x2 1/4/x2
c. 12/31/x1 1/4/x2 12/31/x1 12/31/x
d. 1/4/x2 1/5/x2 12/31/x2 1/4/x2

The cash disburse date per bk does 1/5/x2 does not tie to the Cash disb date per bk 12/31/x2. the bk transf je is dr bank trns per bk and cr bank trns to another as of 1/4/x2 or 12/31/x1.

2937; what is the reason the auditor sends a standard confirmation request to financial institution; to corroborate information regarding deposit and loans

2824-what is the purpose of the procedure to send standard bank confirmation- to seek information about contingent liab and security agreements and deposit account balances.

2826-the primary evidence on cash balances is documented in the ; bank reconciliation, which reconcile cash per bank to cash per book.

3135-which of the follow cks might be kitting

DR date CR Date

Per bk Per bnk per bk per bnk

ck# 101 12/30 1/4 12/30 1/3

202 1/3 1/2 12/30 12/31

303 12/31 1/3 1/2 1/2

404 1/2 1/2 1/2 12/31

Question 171

A4-m4 Inventory cycle notes

Answer 171

Inventory should be segregated into the following duties;

Purchasing

Recieving

Warehouse

Shipping

Auditing Inventory balance to obtain evidence procedures used. in the inventory cycle

auditor should observe both the beg. and end

Question 172

A4-m4 inventory mcqs study

Answer 172

4974- can observation be used for both the assertion of completion and existence; Yes; revidence of physical existence

4897-what procedure is most likely to understanding and classification ( disclosures) of the fs with respect to inventory; confirming pledge and loan assigments both have to be disclosed

2488-what ic would be most likely used to maintain accurate inventory records’; periodical count to adjust pepeptual inventory due to periodical done at end of year.

6865- the test of tags to listing would determine whether; test of completion to determine if tags were included in listing. i,e, recorded

7161-what management assertion states that all inventory on hand is reflected in inventory y-e balance, test of completion; done through observation, test inventory count and trace tags to report sheet

6713-what would be a good procedure to for completion assertion as it applies to inventory; performing procedure of cutoff in shipping and receiving to verify what inventory has been included or excluded,

Also remember trace from tag to quantity is existence.

7657- what is and is not a test of valuation, alloc and accuracy; is; inquiry about obsolete and damage good, ;

examine vendor invoices; and performing test on price for inventory sample

is not; inquiry about consign; this is an assetion of completion.

Question 173

A4 ; m4 sims inventory

Answer 173

Sim 1; See hard copy solution notes

Inventory terms;

Bill of laiding a/r; agreement between shipper and customer . Customer a/p receives bill of laiding

FOB shipping; this mean shipper reduce inventory and there is a sales CR and COGS DR of inventory when shipped.

FOB destination means shipper can not reduce inventory until customer receives inventory.

Exclusion ; if auditor count is hire than client count then auditor would verify the exclusior be it sales , purchase, or returns

inclusion ; if auditor count is lower than client count then auditor would verify the inclusion be it sales , purchase, or returns

Question 174

A4 - M5 MCQs study (read book notes)

Answer 174

4726-if an auditor scans investment records before and after the period to determine if transfers have been recorded in correct category this would be a assertion of ; Understanding and classification and valuation because want to know true fmv.

2391- if auditor is recording the count of negotiable securities on his worksheets. what other information is included in his worksheet. that the he returned the information back to the client. via client rep letter.

2796-what is the best controls that will give the greatest assurance that securities held as investments are safegaurded; access of securities requires two signatures of designated officials.

6209-what are the ways an auditor would validate securities held by clients in an active market

1. evaluate and approately applied base on GAAP
2. Appropriate for the environment in which the entity operates
3. Appropriate for the debt or equtiy security being valued.

7643- what would be a weak ic of investment; if the securities are held in the treasurers office ; they should be in a safeguarded place.

7645-if during the audit and auditor is in the review of investment and inquire of management about liens of securities this would be an assertions of ; Rights and obligations.

7625 - 4B12 –> write in what the auditor would do to test each of these assertions.

7626 - 4B13 –> “ “ (in general when testing existence and occurrence, you are looking at other agreement docs or invoices. There’s no calculation involved)

7627 - all the other three didn’t make sense

7639 - keyword is “sufficiently” which pertains to completeness, also can write in 4B13 about all four options

4435 - key thing in this question was that “preparing checks” doesn’t mean they are signed. Signed checks are assets. Unsigned checks is recordkeeping. Also payment here meant cash because it’s a cash receipts clerk. If it was a check, it would have been fine.

2396 - new additions would be existence

2692 - same question but completeness is an option. Review that answer!

2663 - put in notes that note can be current and noncurrent, thus checking renewal means classification

2410 - can explain

2413 - review depreciation concept to explain

2446 - notate all four options

2447 - *Vouch for existence (voucher shows deal existed) and trace for completeness (trace a circle to complete)

2475 - write them in 4B12-13

2486 - direct labor hours are punch in and punch out cards

2762 - makes sense

8154 - makes sense

2823 - repeat

Question 175

A4-M5 Sims

Answer 175

See Hard copy notes

Question 176

A6-Other Transactions MCQs Study ( Read book notes)

Answer 176

2692-an audited is testing the PPE bal. in the GL and examining the a new additiions lists (report sheet) on an analysis of plant and equipment. He is getting evidence on the assertions of ; Existense; he is vouching back by way of looking at the PPE GL balance to new addition list (report sheet) analsys form and looking for ppe.

2762-when would an auditor extend substantive testing of payroll; when overpayment are discovered in performing test of details.

2663-an auditor is reviewing a note payable after the b/s sheet is getting evindence of assertions; understanding and classification. what are the terms of the debt and was it classified, l-t or s-t.

would not be completion which would be transaction occuring in the peroid of audit

4435-what would be an inppropriate seg of duties; cash receipt clerk that credit custer account when payment is recieved. cash receipt clerk has custody of checks. should not record.

8154-what procedure woul an auditor complete to test existence of ppe; vouch back; obtain a listing of all current ye additions (report sheet) vouch back to significant invoices and determine place in service.

2486-what ic most likely would prevent dl form being charged to manufacuring oh; use of time ticketss to record actual labor worked on production orders.

2413-what would satiisfy an auditor about significant debits to accum dep; plant assets were retired. DR accum dep and CR PPE

2447-what would an auditor do to search for unreorded FA; inspect the property ledger and the insurance and tax record and then tour the facilty; look to see if assets are not on insurance premiums and tax payments

2823-in testing unrecorded retirement of PPE and auditor would; Select items of PPE from the accounting records and then tour the facility; tracing old equipment in the records to actual equipment.

2410-a weakness in ic over recording retirement of PPE may cause an auditor to; select items from the pppe accounting records and locate them in the plant. this is the most effective way to test.

2446= when control risk is low, substantive risk most likely applied would be limited to applying analytical procedures and recalculating the accruals; CR low= DR high = substantive test low

2475- in auditing payroll an auditor most likely would; comparr payroll cost i,e, DL to standard or budget. i.e substantive testing via analytical procedures

7626-an auditor is planning the test of detail of debt transactions. in order to find existence and occurance he would; existence = vouch back= examine big to small= review BOD minutes to obtain evidence of new agreement and then inspect new agreement.

7627; testing valuation related to stockholders equity transactions, the auditor may complete what substance test; = test of detail or analytical procedures; he would analyze the client’s RE by reivewing property of direct entries to the RE account starting with the date of the previous audit = analytical procedures.

7625-when auditing the presentation and disclosure of clients payroll, auditor reads footnotes and other infor. to determine if all disclosure are presented in appropriate amounts. this would be Accuracy

Not Understandability and classification want to undestand and where was payroll applied.

7639- audit reveiwed the footnotes for PPE presentation and disclosure to determine the Depr method, and estimated useful life used by client. this is the assertion of ; completeness when the PPE are in the footnotes the auditor would test them for completeness.

Disclosure and Presentatio

Completion

Depr methods used and useful life

Depr exp for the period

Balance of each class of capital assets by nature or function

Accum depr allw by class or in total

Liens and mortgages

Capitla and operating leases

Valuations,alloc and accuracy; read footnotes and othe infor to determine info is accurate

Rights and oblg’; inquire of management and reivew loan docs, minutes, and other docs to determine FA have been pledge or collateralized

Understanding and class; auditor should read for understanding and classifiction of FA

Question 177

A4 -M7 notes

Answer 177

The key audit responsibility is to view clients opening balances for material misstatements.

Key points in going concern in EOM is subtantial doubt and going concerns. dates and time period are not in EOM paragraph.

Going concern for a Reasonable period of time and financial reporting framework used FASB the issuance of fs plus 1 yr.

GASB; FS date + 1yr. plus qtr year

non applicable GAAP or cash basis and tax basis; issuance fs plus one year.

The procedures to examine going concerns are:ADMITS

Analytical procedure

Debt compliance[ convenants

BOD or shareholders Minutes

Inquiry of clients legal counsel for lawsuits

Third parties to provide financial support

Subsequent events/after y-

Factors that may indicate substantial doubt of going concerns FINE

Financial Difficulty; loan defaults, denial of usual trade creditss, debt restructuring, disposal of asset, noncompliance with capital requirments

Intenal matters; work stoppage, labor difficulty, substantial dependency on a particular project, uneconomic l-t committments, significant revision of ops.

Negative trends; recurrent lossses, working capital deficits, negative cF, adverse financial ratios

External matters; legal proceedings, new legislation, loss of key franchise, license or patent, loss of principal customer of supplier, natural disaters.

Clients response to mitigate Substantial doubt; 4Ps

Plan to borrow money or restructure debt

Plan to sell a sell assets

Plans to delay or reduce expenditures

Plans to increase ownership; cash infusion.

Mitigating factors must include both intent and ability to carry out the planned.

Documentation requirement for going concern; condition of events that gave rise to going concern

Any mitigating factors that the auditor consider signiificant

Audit work to perform to evaluate plan

auditor conclusion about whether substantial doubt remains or is alleviated

the effect of the auditors conclusion on the evaluation of the financial statement and related disclosure and resulting reports

Going concerns considerations; if in auditor judgements; the going concerns disclosures are inadequate, via departure from GAAP, may result in qualified material or adverse very material opinion.

if management is unwilling to perform or extend it evaluation to meet period of time required for financial reporting framework request by auditor , auditor should is a qualified material or adverse very material opinion.

if fs have been prepared using going concern framework, which is inappropriate, the auditor gives an adverse opinion.

if the audit doubts about going concerns have been removed prior paragraph is not needed.

Audit should communicate with those charged with governance on going concern.

Question 178

A4-m7 Mcqs study questions

Answer 178

4980-would sent an inquiry letter to clients attorney on litigaton. Would the inquire talk to the appropriateness of management f/s disclosures. No. this is an evaluation done by the auditor.

2545-an attorney refusal to furnish the informaiton request by auditor would be considered a; limitation of scope of the audit that would stop an unmodified opinion.

5358-if auditor has substantial doubt of clients going conercne because of probable discontinuance of ops. he would express an qualifiied opinion if ; information about the going concern is not disclosed. the is a GAAP departure. FYI just because an is substantial doubt on going concern does not mean they can’t get a unmod. opinion.

4979-what procedure would an auditor not use in evaluating accounting estimates: via management letter has disclosure. no disclosure is in the management letter.

would use;

subsequent events to determine est.

Develop independent est.

Determine how mangement develop est.

2569-what assumptions would auditor used in evaluation reasonable accounting est. Auditor looking for things theat don’t look normal; deviation of historical patters; significant to the est.; sensitive to variation of est., subject to susceptible to misstatement and bias.

2695-what is not true about accounting est.; an accounting est. is an approxiamation of past events that can be determined on a timely cost-effective basise. if this were true, would not need estimate.

4717-who would recieve this letter; in connection with the audit of our fs, management has prepared, and funrnished to our auditors a description and evaluation of certain contingencies. audit letter to legal councel to corroberate management assetion of litigattions.

2992-an auditor concludes there is substantial doubt on entity going concern for a reasonable time period, if the entity disclosure is adequate, the auditor may report; disclaimer of opinion of going concern

With adequate disclosures= unmodified with EOM or disclaimer.

Unadequate; qualified or adverse

3213-what condition would have an auditor to have substantial doubt of going concern ob busisness; cash flow from ops is negative.

Significant party transaction sb disclosed but are not reasons for substantial doubt going concern.

2559-what audit porcedure would assis’ t an auditor in substantial doubt of gooing concern; confirm wiht third party the details of arrangement to maintain financial support for the entity.

4705-what procedure should auditor perform concerning litigation, claim and assessments; these are managment’s matters, should obtain from management that is hase disclosed all unasserted claims that its lawyer has advised are probable of assertion

5843-what would be least likely included in attorney letter to auditor; an evaluation of client’s ability as a going concern. this is an auditor responsibility.

2379-what situation would an auditor choose between expressing a qualified opinion an averse opinion; gaap departure is material, and inadequetly disclosed = qualified or adverse.

8941-what statement in an attorney letter would need futher investigation.; these are vague responses; i.e. it is our opinion that the company will be able to assert meritorious defense to this actions

7634-should a client include review of derivitive transactions reflected on the quarter-end balance sheet do id contengencies; no if they are refleted on the balance then they are not contingiciency. the are not repoted but should or should be reported based on probable, possible and remote.

Question 179

A4 - m7 sims notes

Question 180

A4-m9 mcqs

Answer 180

5359: what matters would materiality limits apply; instance of management fraud. (1) no mention in the fraud section on materiality. (2) 2552- there is no mentional of materiality on availability of BOD and shareholders minutes

2513-what should be included in the rep letter; that the belief that misstatements id by the auditor and not corrected are immaterial.

6194-when doing a comparitive fs does all financial years covered be included in the rep letter. yes.

Question 181

A4-m9 notes

Answer 181

Management Rep. Letter: auditor prepares letter which is printed on clients letterhead and signed by client’s CEO and CFO

Purpose of letter; to confirm representation explicit and implicit given to auditor.

reduce the possibility of missunderstanding concerning matters that are subject of the representation.

Letter should be the same date and the audit report

management letter should be the report based on the last piece evidence

auditor must recieve the rep letter to issue a umod or unqualified opinion. refusal by management to furnish would result in disclaimer or withdrawal.

letter should speak on the

representation

materiality related to fs’

Doubt about the reliality of rep. letter.

Contents of managemnt ltr.

Should include following infor, in rep letter

fs. management responsibility the fair presentation of fs and design, implemenation, and maintenance of ic relative to fair presentation of fs and free from material misstatement due to fraud.

Completeness of informaition ; management gave all relevant information

Fraud= ic

Law and regualaiton; id suspected noncompliance

uncorrected misstatement are immaterial

litiagation and claims all known possible litigation and claims have disclosed and disclosed of applicable financial reporting framework.

Estimates are reasonalbe

Related parties are disclosed

Subsequent events

Additional representation

Question 182

A4 M8 Misstatement and internal control deficiencies

Answer 182

8692-auditor is most likely that a misstatement id during an audit is below quantitative materiality limits is qualitative material if it; if it change operation results from net loss to net income (controls quality and not $ misstatements)

6221-immaterial discoved by the auditor in prior year will be evaluate how in the current year; considered in the evaluation of audit findings in the current year because it may become material.

6813-under PCABO standards what does not represent an example of management basis; adjusting unexpired insurance do prepaid insurance.

is management bais: decr allw doubt when there has been no change.

Selective correction of misstatement when brought to their attention by auditor

id by mamagement of additional adj. entries the offset misstatements

the audit procedure on materiality and thresholds are based on = not materiality id are less than tolerable misstatement.

3706-what is not an example of a deficiency in the design of ic that may be a significant deciency of material weakness= not a design deficiency but still a significant deficiency or material weakness would be a deficiency in the operation of control. this mean the design is correct just a operation deficiency= observation deviation rate that exceeds the auditors expected rate.

3929-what would not be considered evidence of failure in the operation of ic. = not a failure in operation controls would say that design of controls have failed Insufficiecy of consciouseness is a design of control failure where as control consciouness is postive design in control

Question 183

A4-m8 Sims

Answer 183

See paper notes

Question 184

A4-m10 mcqs study questions:

Answer 184

2570-when communicating ic related matters in a fs audit of non-issurers. an auditor report issued on significant deficiencies should indicates; for non issuer, the purpose of the audit was to report on the fs and not to provide assurance on ic.

5390-what is the vest describe responsibilities of auditor to report significant deficiencies and material witness of fs auditor of non issuer: required to communicate both to management of governance.

2737-what statement is correct concerning an auditors required communications with those charged iwht governance; should include disagrement with management about significant audit adjustments, whether or not satifactory resolved auditor is not required to make communication before audit fs as long as it is communicated in timely fashion. for issurer, SEC communication must be filed with audit fs report.

2576-what matters is an auditor required to communicate to those with governance; the process used by management in formulating sensitive accounting est. and the basis for conclustion regarding reasonable of est.

6876-what is a correct statement regarding nature and timing of communications between an accounting firm performing and initial audit of issure and the issurer audit committee; prior to engagement, firm should decribe in writing about independence.

4382-what matters in a fs audit is most appropriate to communitate with those charge with governance; an overview of the planned scope and timing of the audit.

4626-what is an auditor not required to communicate to those charged with governance; not required to communicate t those charged with governance the degree of reliance place onthe management rep. letter.

3079-what statement concerning material weakness and significant deficiency is correct with fs audit for non issurer; all material weakness are significant defeciencies. because material weakness in ic is important to merit attention by those charge with governance.

5009-what is not true about significant deficiencies in ic; auditor is not required to search for significant deficiency but if id should report.

2470-what of the following statement is correct concerning significant def. in ic with respect to fs audit for non issurer. auditor may communicate significant deficiencie during an audit and after completiing this is due to timing.

5387-a control deficiency would be considered a material weakness when the likelyhood that potential fs misstatement will not be prevented, or detected/corrected, and the magnitude of such misstatement are at minimum; Likelihood = Reasonable and magnitude=material

2530-what matters would an auditor most likely considered to be a significant def. in ic to communicated to management and governance.; evidence of a lack of objectivity by those responsible for accounting decision due to bias in fs.

6031- when is deficiency in operation exist. when a good design of ic is not being executed.

3874- what is not a reason why mostr companies have estab. an audit committee; SEC requires companies to have a audit comm. not true they recommend.

3727- a small company that has one emplyee, handling all CR duties and one emplyee reveiwing and approving would this be a case of compensating controls and bad segregation of duites; YES

3736-does other deficiency not significant def or material weak need to be communicated when management indicated that these control cost out weigh ic. should audit commicate these deficiencies in current year. NO

Question 185

A4, A5, A6 Test Study

Areas also to restudy: A4;M1, M4, and M6

A5; m2 and m4

A6; m8 and m9

Answer 185

4704-what procedure would an auditor most likely perform to obtain assurance the slow-moving and obsolete items included in inventories are properly id; examining an analysis of inventory turnover; this is a way to value inventory.

11073-a client has a valid reason for requesting that a certain ar that auditor has selected for confirmation not be confirmed. under these circumstances the auditor should; do an alternative procedure to confirm by verifying account balance by inspecting the bank statments to the CR reports. always verify the account selected do not substitute.

2760 - the purpose of segration of duites of hiring personnel and distibuting payroll checks is to separtate; ARC; authorization of transaction from custody of assets

3216- on the flowchart with sale trans-CR trans- GL trans and GL masterfie- would AR file be here= yes.because affect be all.

2811-what control is most likely to prevent im proper disposition of equipment; SEG of dutie ARC; those authorizing dispose and those authorizing to approve removal work order.

7638-if an auditor is deciding not to use positive confirmation. what would be the least likely reason; look at last year results

2833-the scope of an audit is not restricted when an attorneys responses to an auditors as a results of a client letters of an auditors limits response to; when an attorney response is limited to matters tho which the attorney has given substantive attention in the form of legal representation and considered individuallu or collectively to be material.

2412-the confirmation of customers ar rarley provides reliable evidence about the completeness assertion because; completeness provide record of transaction. customer would be incline to report understatement of ar.

2505- a examination of a financial forecast is the professional service involved in= examination is like an audit; audit = examine = evaluation. evaluating the preparation of fs forecast and support underlying management assumptions; evaluate prep of prospective fs and evaluate the presentation of prospective fs in conformity with AICPA guidelines and issuing and examination report.

8423- to ensure that the auditor report for an issuer is prepared in accordance with Section 404 of the SOX act 2002, the report must; attest to an report on the ic assessment made by the management of issuer. due to management is responsible for design, assessment and implementation and effectiveness of ic, SOX require management assessment.

3808–what is not correct regarding control deficiencies in an integrated audit of non issuer; communicate of material weak and significat def is restricted. This is not the case with integrated audit. Just with audit of fs.

7171-what circumstances would a covered member independence be impaired with respect to non issuer client; member owns municipal untility bonds issued by a client, and the bond are not material to be member’s wealth. financial interest = impaired whether material or immaterial.= violation of the Indepence rule.

if trustee in investment held by client yes.

Question 186

Pratice test 3-6 4-26-20

Study:

A3: M3

A4: M3, M6

A5: M7

A6: M6, M9

Answer 186

2586-what information should be considered when considering tolerable deviation rate for test of control: allowable risk of assessing too low, expected deviation rate. Never average dollar value. this is $ value risk.

2711-auditor would id contigent liab through ; AEIO; external factors lawyers inquiry letter and bank confirmation via endorser loan and open credits. Never AP confirmation thise are existing liabilites.

2530-what matters would an auditor most likely consider to be a significant deficiency in ic to be communicated to management and governance; evidence of lack of objectivity by management in accounting decisions. this could represent ic significant deficiency in fs due to management bias. remember a recurring losses that may indicate going concern is not is ic deficiency.

6350- what is an example of inherent risk that an auditor should considered. technology development that may render inventory obsolete. new tech my have error and omission in implementatio that my result in fs material misstatement.

posting unauthorized je= control risk

incorrect formula used to calculate lifo = control risk

inaccurate physical count of inventory = control risk.

6874-what statement would not normally be included in a rep letter for a review of interim fs (issurer)

Not in rep letter: we understand that a review consist of principally performing analytical procedures and inquires

What is in rep letter: what happen and what was needed to do review:

• management mande avalable all financial records and related data
• to best of management knowledge and beliefs no events have occured subsequent to the bs and thorugh data of this letter that would require adjustment to or disclose in the interim fs
• we acknowledge our responsibility for the design and implementation of programs and controls to prevent and dedect fraud

2740-the sampling unit in a test of controls pertaining to the existence of payroll transactions ordinarily is a vouch back from the Payroll register to a source document ( time card)

4352- for pcaob, at least how often should a registered public accounting co. be inspected by pcaob.

every three years for accounting co with 100 or less client issurers

more than 100 issurer= annually

4448- Government auditing standard require what fore ic reports; a written ic report in every audit. also within the ic report a separate id of those reportable conditions that are significant enough to be a material weakness.

Question 187

Practice Test 4-30-20 A4-A5-A6

Answer 187

3752- would financial statement have not been audited or reviewed and the accountant does not express an opinion be explicit statements in a compilation reports.

yes;

Implicit are accounting est or accouting records

5832 - what procedure would an auditor follow litigation inquire; AEIO; Discuss with management its policies and procedures for id and evaluating litigations.

6033- an examination report on compliance governed by SSAE would include: remember an examination is like an audit. it would give an opinion on whether entity complied in all material aspects, with the applicable compliance requirement. postive assurance

2915 auditor concludes a client is in substantial doubt of going concern . finanical statement are adequete (modified) discosed difficulty. Auditors reports under US Auditor standards by

Include in EOM paragraph

Specifically use the word going concern and substantial doubt. unmodified opinion is appropriate.

3748-what is not included in an accountants standard report on compilation of entitys f/s; no assurance, opinion, no limited,.

should not include : a statement that the accountant does not express an opinion but express only limited assurance.

should inclide:A statement that the accountant has not audited or reviewed the fs.

• management is responsible for fs
• statement that performed unders SSARS promulgated by the standards of Accounting and Review Services Committee of AICPA.

2784- an auditor testing l-t investments would use analytical review as the primary audit procedure to ascertain the reasonableness of the ;completeness of recorded investment income in relation to investment amount . analytical review = completeness

Existence = inspection

valuation and allocation = use list price to verify via NYSE

Classification ; base on g/l of appropriate accounting principles

0182; a practione report on AUP taht is in the form of procedures and finding shoulc contain; Aup no assurance , no opinion, no limited . disclaim of opinion on the subject matter

5358; an audiotor has substanital doubt about an entity going coern because of probable discontinuance of ops, he would express an qualified opinion when, information inadequate. information of entity going concern is not disclosed. Required to be disclosed peer GAAP if not could lead to qualified or adverse opinion.

Question 188

Practice test 4-6 5-2-20

Answer 188

2612-what procedures would an auditor most likely perform in searching for unrecorded liabilities; vouch a sample cash disbursement record just after y-e to recieving and vendor invoices. this would be the best comparison pf cash payments after b/s date related to related recieving report. Any payments made before y-e reflect a liab. that should have been recorded.

2680-an auditor tests controls of obtainting credit approval before shipping goods to customers in support of management assertion of ; valuation and allocation of ar to customers account are accurate.

this is not existence; vouching a ledger to a source document.

4748-what factor would auditor least likely to consider when reporting on compliance with aspects of contractural agreement in connection with fs in accordance to SAS. when reporting on compliance, auditor will report on negative assurance and not an opinion. audit will give opinion of fs, user will get the compliance report, and what ever applicable convenants to the report and audit procedures completed.

6841-can a compilation report include an omission of gaap, the accountant must indicate the omission and; state if the disclosure were included, they might influence the user conclusion. account must aknowledge the report is not to mislead the user.

there is no internal use restrictions.

2934-what is the internal control for voucher payment; approved voucher, prenumber po, and a prenumbered receiving report. auditor would select for unauthorized expenditures by getting the voucher package that has a cancelled check.

3768-audit firm is planning the audit and will staff auditor what would audit firm instruct staff auditor to consider about client. Economic conditions, prior knowledge of ic, complexity of ops and previous communication deficiency for the overall strategy and planning with staff auditor.

3857- a subsequent event of ic was discovered before date of the audit report. what is not an auditors responsibility regarding the subsequent event in a integrated audit; does not have to perform test of controls of the subsequent event. just have to iquire of management, examine documents, and get written rep letter.

6317- during an egagement review. accountant becomes aware of a material departure from GAAP. Account modifiies the report because managment will not revised the fs. would is accountant to do. reivew ; independent, limited assurance, no opinion, does analytical procedures and inquiry.; would disclose the departure in a separate paragrahp. this paragraph should appear, after the Accountants conclusion. And be headed Know Departure from Accounting Principles Generally Accepted of the US.

Review does not express and opinion (i.e. positive assurance, positive or negative assurance.

2410- a weakness in ic over recording retirement of equipment may cause an auditor to; this test of controls: and not substantive testing.

Select equipment items from accounting records and locate them in the plant to know if they are still being used. Weakness is issue with recording of retired equipment. No tracing, or inspecting and tracing, no reviewing ledger. all are substantive.

Question 189

Practice test 4-6 5-10-20

Study=

a4-m2

a5- m2 m8

a6- m8 m9

Answer 189

7704-if comparing dates of transaction to actual to vouchers and recorded dates this would be the assertion of Cutoff

3488- a cpa firm is performing an audit engagement on a town in accordance with 2 CFR 200 single audit. how are major programs determined. Would apply the risk-based approach.

Risk base auditing allows auditor to test as little as 20% of federal program or as much as 40% of total programs

Program in excess of $750K are generally considered to a major grants but is not inclusive of major programs

there no judgement of major progara with the Office of the inspector general.

6115- non audit services of less than five percent of total revenues from the audit client do not need audit committee pre approval. and other non and audit services including tax services do.

5804-according to the AICPA Code of Professional Conduct, what financial interest in the clients during the engagagement would impairs the Cpa’s independents. Direct and Material indirect financial interests.

5624- AICPA code of professional conduct : independent rules does not consider what circumstance to be a lack of independence; if an auditor’s brother in-law father is the controller of the client being audited.

According AICAP Code, close relative are members spouse who hold key positions. close relatives are parents, siblings, or nondependent children. brother in-laws or family member of brother in-laws are not.

7623-what functions represents a weakness in ic related to cash disbursements. think ARC must be done separatley. A treasurer returns voucher package to ap dept. for cancellation of vouchers. Weak Ic. Treasurer should paid voucher, cancell voucher and mail checks out and the return voucher to ap dept.

3172-what is the most effective control activity to detect vouchers that were prepared for payments for goods that were not recived. doing the full checks and balance of the voucher process payment procedures: match po, receiving report and vendor’s invoice to each vocher in ap dept.

8424-in an integrative audit an auditor would issue a adverse opinion on the effective on ic for a material weakness. the financial audit opinion would be a separate adverse opinion on misstatement of the fs.

Question 190

Practice test 4-6 5-10-20 b

a4- m1, m4, m6, m7

a5; m1

a6; m3,

Answer 190

2974-when compiling a projected fs the accountant shoul include a paragraph that describe results may not be achieved and limitation on the usefulness of the projections. no mention of accounting principles used by management.

2652-what ic most likely would assure that all bills are correctly posted to the ar ledger. the auditor would compare the daily sale summaries (sales that happen and batched that day) to the daily posting of a/r this is credit sales that were posted to a/r batch.

8404- in an integrative audit of issure what would not be considered a entity level control;entity level control exist independent of audit done by entity such as executive committee process for assessing business risk, BOD control to monitor Audit committee, management estab. controls to monitor ops.

Auditor assessment of IA is not an entity level control.

5374-what would be the most reliable procedure to test existance of an outside inventory location. observing inventory is the best and most reliable that inventory exist. confirmation would provide rights and obligation but not existence. Need to see it EXISTENCE

7646-what assertion has recalculation in it, the assertion of valuation, allowance and accuracy.

3714-what is a control deficiency that would not be considered a material weakness; and inadequate design of IT control this is a deficiency in the design of the control not a material weakness.

Some examples of material weaknesses: fraud by management or employees, ineffective oversight of governance, audit team id a material weakness that was not client control did not detect.

2702-what objective does the auditor have in evaluating accounting estimates; is to determine whether the estimates are reasonable for the circumstances in the conformity of GAAP.

there objective woud not be to determine bias because most estimate are subjective in nature and thus subject to bias.

2410-a weakness in ic over recording retirement of equipment may cause an auditor to determine if assets are still in uses. would select certan FA from accounting records and locate them in the plant.

No sense of reviewing ledger to determne whether depreciation is taken. because there could be FA that are fully depreciated but not retired and still being used.

6681- an accountant is in engage to review the fs on non issuer taht contains serveral departures from GAAP. Management is unwilling to revise fs. audit believes that standard review is inadequate to communicate deficiencies. what should accountant do; withdraw from the engagement and provide not further services.

Management unwillingness to revise the fs is not a reasonable basis for change in engagement. FYI entity should change the engagement and not auditor. this is based on justifiable reasons.

Question 191

Practice Test 4-5-6 5-18-20

A4; M3, M5, M7,

A5; M1, M2, M4, M7

A6: M3,

Answer 191

7642- What is not a required cash disclosure of completion; does not have to breakdown specific balance between Petty cash and ST Cash investments

Require: policy in defining cash and cash equivalent

Compensating balances

Specific restrictions on cash including sinking fund requirements

6234-would an auditor accept a letter by client legal councel to determine loss contigency that did not give specific amounts.

Yes. Remember management writes the letter to legal counsel due it needs to approve release of information. Auditor review the letter and mail it to legal. Then legal counsel responds to Auditor.

4932-what is least likely to be included in an examination report related to a financial projection:

a statement “ that had the accountants perform additional procedures, other matters might have come to their attention that have been report> This is a statement in Agreed Upon Procedure. This an examination of projections

Examination projections include:intended solely for the information of specified parties

An opinion that projections is presented in conformity with AICPA guidelines

An opinion that the underlying assumptions are suitably supported and provide a reasonable basis for management projections

8427- what statement are correct on how an auditor can obtain an understanding of thel ikely sources of potential misstatement in an integrated audit for nonissure

-Integratvie = fs and icfr

controls that management, Design, implemented and maintain to ID misstatement

undertanding houw transactions are authorized, processed and recorded should be achieved.

Walkthroughs are frequently the most effetive way or understanding sources of misstatemts

Top-down approch= entity level = fs and ic

What is not:

Evaluation of entitys IT risk and controls should ber per utilziing an approach other than top-down’ not true should utilze top down approach selecting controls to test both FS and IC.

Top down; Entity level

IC= control evironment, Management overide, company risk assessment of process, Central processing, monitoring ops, monitoring controls, period ending financial results, and Policies that address signiificant business controls and risk managent. Nothing outside of the entity.

1. FS Level
2. Accounts , transactions, and disclosure
3. Management Assertions; COVERU

6034-what assertion is a report of ic over complice:

the auditor opinion is to express on compliance and not opinion of the operation effective on ic over compliance. so there will be a disclaimer on this

4628-what are some of the GAGAS prescribe addition standards compared to SAS

Direct reporting of illegal acts and reporting on ic a written report on ic every fs audit and a specific reporting over ic over compliance but not on the operating effectiveness. This is disclaimed.

3800-what is an auditors responsibilty if a previous reported ic weakness is subsequently eliminated and management engages an independent auditor to attest to the improvment

Attestment = examine ; like an audit = can express an opinion. auditor would express an opinion of the specific to examine,,ie., whether the weakness still has been eliminated.

4938- an accountant compile report o the unaudited fs should:

Should disclaim an opinion that: the accountant does not express an opinion on the fs. Remember his is not expressing an disclaimed opinion which can not be done with compilation.

5726-an auditor is testing the reasonableness of dividen income from investmetnts. what is the most likely way he would compute to verify amount recieved.

Electronically assessing the details of dividend records on the internet. most efficient.

Would not confirm withe clients registr. would be time consuming

Question 192

Practice test 4-5-6 5-12-20

Study; a4; m1 and m8

a5; m4

a6; m1

Answer 192

5745-An practiioner has been engagaed to perform AUP via SSAE to prospective FS. what condition must be met.

The practioner and specified parties must agree upon the procedures and criteria to be performed by the pactioner.

6286-when is an accountant not required to comply with SSARS; under SSARS accountant are engaged to prepare, compile or review FS and not

when reproducing clients prepared fs without modification

when preparing je’s

4955- when an auditor determines high level of control risk on revenue cycles. what will give him most likely the risk (RMM due to fraud or error) to the assessment;

Control risk; ic RMM = due to fraud or error;

sales manager does not enforce the clients policies regarding authorization and approval of sales transactions

6221-if a misstatment (due to fraud or error) was discovered by auditor were immaterial in the aggregage in prior yr. how such misstaterment be handle the current audit;

Considered in the evaluation of audit finding in the current year. focus is to correct misstatement existing on bs. because it could material in the current year. no control testing need in the currrent year on prior immateriality

Question 193

Practice Test 4-5-6 5-20-20

A4-M1, M4, M7

A5-m1

Answer 193

3144= Tracing bills of lading sales invoices provides evidence that:

Bill of lading ( shipping documents) are tracing of evidence that shipments to customer were invoiced

6713-what procedure would provide the appropriate for the completeness assertion as it applies to inventory

Performing cutoff procedures provides the assurance that goods ( shipped or recieveed) are appropriately incluuded or excluded from inventory = completeness = looking for unrecorded transactions.

Tracing inventory back from tag listsing to physical is extistance. not necessary to use the key word “vouch back” just look to see if “back” is in the sentence. Exam Trick. read the sentence for clairity.

8941-what statement that is recieved from attorrny require further investigation;

a statement such as “will be able to assert meritious defense to this action” souund vague

not vauge ; the possible liab. in this proceeding is nominal in amount;

5329- tracing copies of sales invoices to shipping documents

Sales billed to customer were shipped

Tracing shipped document back to sale invoice = invoice was recorded

3922-what are the correct order steps in top down approach when using control test

1. evaluate risk at fs level

2 consider control at the entity level ( non external)

3. then focus on accounts, disclosures, and assertions for which there is a reasonable possibility of material misstatement due to fraud and errorr.

Question 194

Pretest 5-22-20

A1-m7,m8,m12

A2, m3, m4,m5,m6,

A3: m1, m3, m5.m9

A4; m1, m4,m5

A5; m2, m4, m8

A6; m4, m6,m7,

Answer 194

10292-what is the precedessor responsibility when his previosus audit with no changes is part of comparative fs with current statement

Perform limited procedures; reading current fs

get rep letter from sucessor and management

current fs to prior fs

10235- can an auditor express an opinion on the fs taken as a whole or express an opinion on certain section of the fs or not express and opinion at all.

Yes. he can express an opinion on the BS as long a he is he is not engenege to express opinion of fs as a whole and ther is adverse or disclaimer infor. this peicemeal.

he can express disclaim opinion of is and sfc, but render unmod on b/s

and he claim disclaim or adverse opinion of set of fs.

The objective of the auditor is to preent missinterpretation of the degree of responsibility assumed by the auditor

9879- as the accesssable level f detection risk decrease this would change;

AR= IR up * CR up * DR down* Subtantial testing up

Better evidence must be obtained to achieve a lower detection.

If Dectect increase = then AR= IR down* CR down * DR up* substantial test down. better evidence must be lower DR.

Assess level of control risk via to high or to low is a evaluation of clients controls to determine RMM which is done before finding acceptable DR.

10280-what is tust about a/r confirmation:

auditor would want to send confirmion base on single transactions than entire balances this way customer can evaluate the confirmation request better. Confirm is based on existence and rights but not valuation. Just be client owe balance does not mean they are going to pay it.

10241-if auditor is examining two set of FS one with a 5% grow based on historical data the other with a 10% base on new product. what is accountants report on examination

5% is are a financial forecast based on expected historical information and the 10% is a projection based on hypothetical release of a new project (restricted) both are appropriate for limit use and results my not be achieved statement. there is no possivie assurance

9890-what is the most likely ic procedure disigned to detect errors and irregularities concerning the custody of inventory.

Comparing inventory records with physical inventory may detect discrepancies of custody of inventory.

Doing a approval of je ( good for record keeping), segregation of general account to cost accountant ( good for record keeping), reconciliatio of WIP with job cost sheet (good for record keeping)

10234-what is the Single Audit Act dollar requirement:

Federal Grants that expends more than $750K and not Recieved more than $750K ( what you spend)

10247-when client makes extensive use of IT, the auditor should consider the effects this may have on IC. what is the least likely affected.

What it would not affect would be the audit objective with respect to evaluation iC.

It would more likely affect audit eval of

CRIME

assess level of CR becaue evaluation clients RMM

Which would affect audit procuedures.

9913-what type of evidence is most reliable in an audit and least reliable

Evidence hiarchey: AIEOU

Auditor Direct Personal Knowlede and Obseration

External Evidence

Internal Evidence

Oral Evidence

Other stuff to know

Importance of effective controls; strong ic

Documentary evidence

Consistenc of evidence

Info produce by client

Most reliable: can not be manipulated

Vendor invoice: external

Cancel check: External

Bank statement obtain from client; External

Least reliable

PO: internal can be manipulated

9930-what is trus about the requried procedure in a review of annual fs

Review requirements:

Mangament letter,

Inquire and analytical procedures

limited assurance

Independents

Obtain understanding of operation

Not required

Fraud assessment

corraboration of managment’s material est. is audit procedures

communicating with predessor accountant

understand understanding of ic ( in an interim fs review required via PCAOB)

confirming ar

10266- an auditor is doing the current audit fs and becomes aware of evidence that would effect prior ye audti that he did. how should he handle

Since the current audit is on the fs as a any infor must be true so the auditor must update the infor from previous audit. regardless of review about whether audit standard have been followed.

10249-during the audit planning what is required by auditor on Ic;

Understanding MR of DIM and Documenting understanding of DIMs

AUDITOR IS NOT REQUIRED TO EVALUATE THE OPERATING EFFECTIVENESS OF CONTROLS IN THE PLANNING PROCESS.

9938-accountant may report on AUP applied to specific elements, accounts, or items of fs provided that accountant is independent, should not provide and opinion, or any assurance (postive, negative or limited). the specified party or client is responsible for the procedures.

9920-what information should the independent auditor assess on the IA competency;

Professional certs, educationanl level and professional exp., quality of auditor audit documentation, IA audit plan, audit procedures, IA function applies a systematic (IA policy manual) or discipline approach in quality contro.

Assessing Objectivity:

organizational status of the IA, policy prohibiting IA lacks independent

10318; what is true about a comfort letter.

A review of interim fs is required before comfort letter is issued

Comfort is for restriect use

Sent to underwriter of specific requesting parties

Provide negative assurance regarding unadited fs

Rquesting party must provide the auditor with an attorneys letter or a representation letter.

9924-auditor is using varible sampling for inventory balance. in 2007 the audit sample size was 112 itmes in 2008 number of units, tolerable misstatement, and required confidence were the same as 2007, however the population variability increased due to introduction of new product line. for 2008 what is the reqired sample siz

2008 sample size would be larger than the population variability increaese which as a direct effect on sample size.

10303-what statement on an non issuer ic on the audit on ic is included’;

A report of Ic = icfr which is not restricted. only if if was in audit of fs would it be restricted.

A statement should be on; 1. inherent limitation on misstatement may occur and not be detected and 2. Projectiong of the evaluation of ic to future periods are subject to the risk that ith ic may become inadequate.

10302-what would least like cause auditor to reject a client

Client unwilling to send out ar confirmation that may inconvienient cleints. Audit could do alternative procedures.

Would influence ; not be able to supply financial information even if due to IT malfunction would influence.

9905 In planning the audit, auditor should considered materiality for fs as a whole in terms of;

the smallest level of misstatement that could be considered material to any of the fs. Remember, materiality, the smallest hurts.

10258- a special report on fs prepared on cash basis (ocboa) should include

A statement that the audit was conducted in accordance with GAAS.

Special reports due require EOM paragraph but does not give a breif exapanation. it refers users to the Notes that discuss cash basis accounting