Audit 10

Question 1

When you issue an unmodified report and use a specialist - can you refer to them in your report?

Answer 1

NO - only if you modify your report

Question 2

Lapping- this is misappropriation that results in the overstatement of one customer’s account.

Answer 2

To accomplish a lapping scheme the same party would need to access to cash receipts and affect the recording. Example: opening mail and recording cash receipt.

Question 3

when you trace a sample of P.O and related R.R. to the purchase journal and the cash disbursements journal - the purpose of this substantive test is to . . .

Answer 3

Determine that purchases were properly recorded

Question 4

What is involved in the test data approach:

Answer 4

It is when you run data compiled by the auditor through the clients IT system under the auditor’s control.

• The data will contain certain errors and be used to determine if the client’s IT system will deal with them appropriately
• The test data will only include errors or conditions that the auditor wishes to test ( not all possible conditions
• It only need to include one example of each condition the auditor wishes to test.
• Test data are processes with the clients computer and the results are compared with the auditor’s predetermined results

Question 5

Service organizations - what is in the report

Answer 5

• It will include a reference to the service ro product covered by the report
• a description of the scope and nature of the auditor’s procedures
• an indication of the purpose of the engagement
• If you are engaged to report on policies and procedures and not efficiency - only express an opinion on policies and procedures
• You are only interested in the controls that pertain to what you are looking at - not all of them

Question 6

Which of these can you rely on the assistance of Internal auditors:

1) determining what control procedures the entity has in regard to the custody of inventory
2) determining whether or no inventory is properly recorded at lower of cost or marker
3) determining whether or not equipment reported on the balance sheet actually exists
4) determining whether or not the entity’s control procedure in regard to the custody of inventory are functioning as intended

Answer 6

1 - Yes - no judgement

2 - No - inventory at lower of cost or market is judgement

3- yes - no judgement

4 - Yes - no judgement

It is common for I/A to determine of controls are in place and functioning as intended

Question 7

What are example of things that an internal auditor can / can’t assist with:

Answer 7

• do assets exist - yes

- determining if something is properly reported - NO

Question 8

What is auditor’s responsibility for supplimentary info. when respired by GASB

Answer 8

must apply limited procedures - and report any deficiencies or omissions that they see

Question 9

What kind of opinion must you give when you have substantial doubt about a company’s going concern and they ARE inadequately disclosed

Answer 9

Qualified or Adverse

Question 10

An Agreed upon procedures report will indicate

Answer 10

That the subject matter is the responsibility of the client’s management

• the procedures performed were agreed -upon with specified partied
• Distribution of the report is restricted to those knowledgable about th agreement

Question 11

An Internal Auditor comparing securities in the bank safe deposit box with recorded investment tests what assertion

Answer 11

completeness - it insure that all securities were properly recorded

Question 12

The treasurer voices the acquisition of securities by comparing broker advices with canceled checks - what assertion

Answer 12

This is vouching from broker advices (b) to canceled checks (S) and tests existence

Question 13

Can a compilation be relied upon to disclose errors fraud or illegal acts

Answer 13

no - it does not have the extensive procedures required and they can be performed inconformity with any financial reporting framework

Question 14

When an auditor sets control risk at maximum - this means that internal control will Not be relied upon and the opinion will be based entirely upon evidence gather from substantive testing - what are the two primary reasons that the auditor would not rely on controls

Answer 14

1 - The I/C are weak

2 - If performing substantive tests is more efficient

Question 15

What is an example of inefficiency that would cause you to evade CR at max and not rely

Answer 15

Evaluating the effectiveness of policies and procedure is in efficient

Question 16

Any lack of integrity by management would prevent an auditor from doing what

Answer 16

accepting the engagement

Question 17

Should a successor auditor ask the predecessor to see their work papers relating to contingencies and internal control

Answer 17

Yes

Question 18

• Fraud involving colllusion
• A sample without evidence of fraud may not be representative of the population
• The evaluation of fraud risk factors requiring the use of judgement and is not precise

These are all examples that demonstrate

Answer 18

That though an audit is well planned and properly executed, a material misstatement due to fraud may not be detected

Question 19

When determining if communication with governance should be limited to the audit committee or should include the BoD - what kinds of factors with the auditor consider

Answer 19

• regulatory requirements
• the information that may be derived from the audit committee
• the nature of the matters to be communicated

Question 20

the auditor is required to obtain n understanding of internal control and will then decide whereto or not it appears that internal control can be relied upon - if you assess CR at the max - what must the auditor document

Answer 20

Their understanding of internal control