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Audit Flashcards

1
Q

Who is considered a covered member (5)?

A
  1. Attest engagement members
  2. Individuals in a position to influence
  3. All partners is the same office
  4. Partner or manager providing more than 10 hours of service
  5. Employee benefit plan
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2
Q

Can close family members and immediate family members own stock in an audit client?

A

No, immediate family members. Close relatives if you know about it independence is impaired

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3
Q

When do you have to evaluate the underlying investments of mutual funds for independence concerns? `

A
  1. CFM owns more than 5%

2. Owns a financial interest in an un diversified mutual fund

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4
Q

When there is a going concern issue what modifications should be made to the report?

A

Include a Going Concern paragraph; can still issue an unmodified opinion

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5
Q

What is Kiting

A

Transferring cash between accounts to make it look like there is more cash then there actually is

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6
Q

What are the special purpose frameworks that can be reported on?

A
  1. Tax
  2. Cash
  3. Regulatory
  4. Contractual
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7
Q

What two special purpose frameworks require description of the framework and restriction of report

A
  1. Regulatory

2. Contractual

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8
Q

What frameworks require a EOM paragraph describing the framework?

A
  1. Regulatory - restricted use
  2. Contractual
  3. Tax
  4. Cash
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9
Q

What three things should an auditor obtain an understanding for for reporting using another country’s framework?

A
  1. Purpose for which the FS are prepared
  2. intended users
  3. Steps taken by management to determine if the framework is acceptable in the circumstances
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10
Q

When an auditor is auditing financials for use intended only outside of the U.S. what auditing framework should the auditor comply with?

A

GAAS except for the requirements related to the form and content of the auditor’s report

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11
Q

When an auditor is auditing financials for use intended both outside and inside of the U.S. what reporting framework should the auditor comply with?

A

Report with US form of report including an EOM that identifies the framework used, refers to the note describing that framework and states that the framework differs from GAAP

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12
Q

When an auditor is auditing financials for use intended only outside of the U.S. what reporting framework should the auditor comply with?

A

Either the US form of report including a reference to the note in the financials that describes the basis for reporting or the report in form and content of the other country

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13
Q

In order to accept an engagement to report on summary financial statements what must be true?

A
  1. Auditor must have audited the financials as a whole
  2. Criteria are acceptable
  3. Written agreement of responsibilities and form and content of report
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14
Q

What types of opinions are permitted in an engagement to report on summary financial opinions?

A
  1. Adverse

2. Unmodified

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15
Q

Return on equity ratio

A

Net income/average equity

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16
Q

What 8 things does management take responsibility for in the management representations letter related to financial statements?

A
  1. Fairness of FS
  2. Internal control of financial reporting
  3. Internal control to prevent/detect fraud
  4. Significant assumptions
  5. Related party transactions disclosure
  6. Subsequent event disclosure
  7. Uncorrected misstatements are immaterial
  8. Effects of litigation are properly disclosed
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17
Q

What 8 things does management take responsibility for in the management representations letter related to information provided?

A
  1. No restrictions on financial information or personnel
  2. All transactions have been recorded
  3. Assessment of fraud risk is available
  4. No material fraud
  5. No knowledge of suspected fraud
  6. All instances of non compliance have been disclosed
  7. No undisclosed litigation
  8. All related party transactions have been disclosed
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18
Q

If there is a going concern issue and disclosure is inadequate, what type of report should be issued?

A

Qualified or adverse

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19
Q

What is a type 1 error?

A

False rejection - relates to efficiency of audit

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20
Q

What is a type 2 error?

A

False acceptance - relates to effectiveness of audit

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21
Q

What are the three explicit factors that relate to sample size for attributes sampling and what is their relationship?

A
  1. Expected error rate - direct
  2. Tolerable rate - inverse
  3. Type 2 error - inverse
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22
Q

What are the four explicit factors that relate to sample size for variables sampling and what is their relationship?

A
  1. Estimated population standard deviation - direct
  2. Allowance for sampling risk - inverse
  3. Type 2 error - inverse
  4. Population size - direct
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23
Q

What is the difference between difference estimation and ratio estimation?

A

Difference estimation looks at the difference between the audit value less the book value and projects to the population ( est = ((av - bv)/sample) * population)

Ratio estimation looks at the audit value divided by the book value and projects the the population ( est = (av/sample bv)* pop BV)

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24
Q

What is Means per unit estimation?

A

Looks at the average book value per the sample and projects to population (est = (av/n)*population n)

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25
What factors are considered in reliability factor in PPS sampling?
Type 2 error and number of overstatements
26
What three factors are required to determine sample size for PPS sampling?
1. reliability factor (tables) 2. population book value 3. Tolerable misstatement
27
What is the sample interval in PPS sampling?
Population book value / sample size
28
What does a systems analyst do?
Designs the IT system
29
What does a systems operator do?
Runs the IT system
30
What does a programmer do?
Writes the code for the IT system
31
What does a systems librarian do?
Keeps track of the programs and files
32
What is test data?
Dummy transactions with known errors of interest that are run through the programs that the client is using to test for errors in controls
33
Auditors who plan, direct or perform engagement procedures for an audit conducted under GAGAS need what two qualifications?
80 hours of CPE in every two year period 1. 24 hours of subject matter directly related to the government environment 2. 56 hours of subject matter that directly relates to auditor's professional expertise to conduct engagements
34
What additional reports does an audit under GAGAS require?
1. Written report on internal control - including a scope of auditor's testing 2. Written report on compliance with applicable laws and regulations
35
What four items must be included in the auditor's report under GAGAS for compliance with applicable laws and regulations?
1. Any known instances of fraud 2. Any known instances of illegal acts 3. Other identified violations of contracts or grans 4. Any known instances of abuse
36
To what entities does the Single Audit Act of 1984 apply?
State and local governmental entities that have expenditures of federal assistance aggregating at least 750,000
37
What is the auditor responsibility under the Single Audit Act of 1984?
Identify and audit each major program
38
What is an auditor's responsibility in regards to other information along with audited financial statements?
Read the information for any material inconsistencies with the financial statements
39
What is an auditor's responsibility when engaged to report on supplementary information?
Determine whether the supplementary information is fairly stated in all material respects in relation to the financials
40
What are the two preconditions for an engagement to report on supplementary information?
The auditor must have audited the financial statements and have issued either an unmodified or qualified opinion
41
Under PCAOB what are auditor's responsibilities related to required supplementary information?
1. Specifically test the supplemental information | 2. Report on the auditor's responsibilities and conclusion
42
What is the standard format of the PCAOB report?
1. Opinion on Financial Statements 2. Basis for Opinion a. management responsibility b. auditor responsibility c. registered with PCAOB e. accordance with PCAOB f. audit for reasonable assurance g. procedures to detect risk of material misstatement h. accounting policies i. audit provides reasonable basis for our opinion 3. Critical audit matters 4. Signature Block
43
In a well-designed system of internal control for IT, what following duties must be segregated?
1. systems analysis 2. programming 3. computer operations 4. transaction authorization 5. library functions 6. data control
44
PCAOB's auditing standards in an Audit of Internal Control over Financial Reporting that is Integrated with An Audit of Financials Statements states that, when there are restrictions on the scope of the engagement, the auditor should do one of what two things?
the auditor should withdraw from the engagement or disclaim an opinion.
45
How should segment information be handled under PCAOB?
Audited and not noted in report
46
When are tests of balance approaches more appropriate?
1. The number of transactions are high 2. The dollar amount per transaction is low 3. The acceptable level of detection risk is hight
47
When are tests of transaction approaches more appropriate?
1. The number of transactions are low 2. The dollar amount per transaction is hight 3. The acceptable level of detection risk is low
48
What is the upper deviation limit?
Sample deviation rate + allowance for sampling risk
49
When is stop and go sampling appropriate?
1. Expected deviation rate is low | 2. Sample is selected in dependent steps
50
When is discovery sampling appropriate?
1. Sample size is very small | 2. Expected deviation rate is extremely low or zero
51
When the likelihood of loss is probable how should the uncertainty be handled in the financials?
If the amount of loss is estimable - accrue and disclose | If the amount of loss is not estimable - disclose only
52
When the likelihood of loss is reasonably possible how should the uncertainty be handled in the financials?
Disclose only
53
When the likelihood of loss is remote how should the uncertainty be handled in the financials?
Neither accrue nor disclose
54
When in a set of comparative financial statements the prior period financial statements were not audited what is the appropriate response?
EOM paragraph with the nature of the prior period financials
55
When in a set of comparative financial statements the prior period financial statements the opinion differs from what was previously issued what is the appropriate response?
OM paragraph with the date of the previous report, the reasons for different opinion and that the opinion is amended
56
When in a set of comparative financial statements the prior period financial statements the prior year financials were audited by a predecessor auditor what was previously issued what is the appropriate response?
1. If predecessors opinion is reissued there will be two audit reports 2. If not reissued OM paragraph added
57
What is the auditor's responsibility for other information included in financials? (Procedures and report)
Evaluate for consistency with financials | If inconsistent other matter paragraph
58
What is the auditor's responsibility for required supplementary information included in financials? (Procedures and report)
Limited procedures - inquiry, compare to financials, and obtain management written representations Other matter paragraph that no opinion is expressed and if information has been omitted
59
What three elements are included in an auditor's written report under GAGAS?
1. Opinion on the FS 2. Report on internal control 3. Report on compliance
60
What three components are required on form AP for PCAOB audits?
1. Engagement partners name 2. Name, location and extent of participation of any other accounting firms with more than 5% of total audit hours 3. The number and extent of all other accounting firms with less than 5% of total audit hours
61
What is the auditor's responsibility related to summary financial statements? (Procedure and report)
1. Evaluate consistency and disclosure | 2. Express opinion on consistency with FS - unmodified or adverse only

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