Audit 3

Question 1

During Planning the auditor is required to

Answer 1

S-trategy must be developed for the audit
P-lan for the audit must be developed
O
R-isk assessment procedures must be performed to obtain understanding of the entity which includes IC
K-nowledge of the client’s business and industry must be obtained

Question 2

The Nature, Extent and Timing(NET) of the supervision depends on

Answer 2

Q-ualifications of the assistants
                         -
S-ize of the entity
C-omplexity of the entity
A-ssessed risks of material misstatement
N-ature of the work assigned

Question 3

Cycle test 3 categories

Answer 3

T-ransactions
B-alances of accounts
D-isclosures

Question 4

Types of Cycles

Answer 4

P-ayroll
I-nventory
P-P&E
E-xpenditure
R-evenue

F-inancing
&
I-nvestments

Question 5

Required Contents of Engagement letter

Answer 5

S-cope of the audit
O-bjective
R-esponsibilities of the auditor/management
T-iming of audit procedures

F-orm and content of report
A-statement that because of the inherent limitations of an audit
T-iming of audit procedures

S-ervices additional to be rendered
L-iability restrictions if applicable
O-ther auditors
B-illing

S-ubsequent events must be informed to auditor
P-redecessor auditor
F-ramework: Identify applicable financial reporting framework

FOR THE SUN PROTECTION OF YOKOZUNA

Question 6

Assessing risk of material misstatement

Answer 6

I-nternal control, and environment-obtain an understanding
M-aterial misstatement-assess the risk(ID types of potential misstatements)

A-ssessed level of risk response(NET)

C-ontrol testing
P-erform substantive testing
A-udit Evidence-evaluate appropriateness and sufficiency

Question 7

F/S risks

Answer 7

C-ontrol environment
L-ack of qualified personnel in financial reporting roles
A-pplication and selection of significant accounting policies
P-reparing process the F/S

Question 8

Required Documentation of an audit

Answer 8

Key elements- of the understanding of the entity and its environment

A-ssessment of the risks of material misstatements
M-ore extensive tests/documentation for more complex entities
I-dentified risks and related controls evaluated by the auditor
D-iscussion among the audit team members

Question 9

Documentation may include any item the auditor can FIND

Answer 9

F-lowchart
I-nternal Control Questionnaire or Checklists
N-arrative
D-ocumentation

Question 10

The 6 main F/S assertions(Assertions made by management)

Answer 10

C-ompleteness
O-ff(Cut-Off)
V-aluation, allocation, and accuracy
E-xistance and occurance
R-ights and obligations
U-nderstandability and classification

Question 11

PCAOB standards state that the F/S assertions are

Answer 11

C-ompletness
E-xistence
O-ccurance

A-llocation
P-resentation
R-ights
O-bligations
V-aluation
E-bought a letter
D-isclosure

Question 12

AR=

Answer 12

[Risk of Material Misstatement (Inherent Risk X Detection Risk)(Client’s system)] X Detection Risk

Question 13

Fraud types

Answer 13

Fraudulent Financial reporting

Misappropriation of assets

Question 14

Fraud risk Factors

Answer 14

R-ationalization
I-ncentives/pressure
O-pportunity

Question 15

Identifying Risks

Answer 15

S-ignificance of the risk 
L-ikelihood of the risk
                  E
P-ervasiveness of the risk(Transactions as a whole or individual accounts)
T-ype of risk(does it involve FFR or MA)

Question 16

There is a presumption that the following 2 types of risk exist in every audit

Answer 16

Improper revenue recognition

Management override of controls

Question 17

The auditor is required to respond to the results of the fraud risk assessment on 3 levels

Answer 17

O-verall, General response
R-esponse encompassing Specific Audit procedures
R-esponse Addressing risks Related to Management Override

Question 18

CPA must communicate with/to:

Answer 18

C-ircumstances (special)
L-egal: To comply with certain legal and regulatory requirements
O
G-overnmental: To agencies involving governmental assistance
S-uccessor auditors(with permission from client)
S-ubpoena: In response to subpoena

Question 19

Entities’ objectives may be divided into 3 categories

Answer 19

R-eliability of financial reporting-F/S fraud
E-ffectiveness and efficiency of operations-Asset Misappropriation
C-ompliance with applicable laws and regulations-Corruption

Question 20

5 Components of internal control(COSO framework)

Answer 20

C-ontrol environment
R-isk Assessment 
I-nformation and Communication Systems
M-onitoring
E-xisting Control Activities

Question 21

Control Activities in a strong system of internal control

Answer 21

P-renumbering documents
A-uthorization of transactions
I-ndependent checks to maintain asset accountability
D-ocumentation

T-imely and appropriate performance reviews
I-nformation processing controls
P-hysical controls for safeguarding assets
S-egregation of duties

Question 22

Documentation may include any item the auditor can FIND

Answer 22

F-lowchart
I-nternal Control Questionnaire or Checklists
N-arrative
D-ocumentation

Question 23

5 areas of IT that need to be separated(segregation of duties)

Answer 23

C-ontrol group
O-perators
P-rogrammers
A-nalyst(system)
L-ibrarian

Question 24

2 types of service auditor’s reports

Answer 24

Type1- report on design & implementation of service organization’s controls(NO ASSURANCE)(does not reduce control risk)

Type 2- Report on the Design, implementation, and Operating Effectiveness of a service organization’s controls

Question 25

Levels of responses

Answer 25

O-verall response to address F/S level risks
A-ssertion Response: at the relevant assertion level
S-ignificant risk: Response to significant risks

Question 26

Hierarchy of audit evidence

Answer 26

A-uditor’s direct knowledge and observation
E-xternal Evidence
I-nternal Evidence
O-ral Evidence
U-know the vowels for audit evidence

Question 27

Types of Substantive tests

Answer 27

$ balances
D-isclosure amounts
R-atios
A-nalytical procedures
T-ransaction totals

Question 28

The results of further audit procedures may lead the auditor to

Answer 28

Reassess the risks of material misstatements

Identify control activities

Identify misstatements as a result of substantive procedures

Question 29

Documentation requirements should contain

Answer 29

R-esponse overall
N-ET
L-inkage of those audit procedures 
R-esults of audit procedures
C-onclusions reached