Audit 3

Question 1

What type of scope limitation would cause management not to issue an unmodified opinion?

Answer 1

If management refuses to accept responsibility for the fair presentation of the FS, would preclude issuance of a standard report.

Question 2

What should the current auditor ask of the predecessor auditor?

Answer 2

If anything bears on managements integrity, disagreements with management, the reason for the change in auditor.

Question 3

Who should initiate communication with the predecessor auditor?

Answer 3

The successor auditor with managements permission.

Question 4

A general understanding that will be established with the client includes…

Answer 4

the auditors responsibility for ensuring that those charged with governance are aware of any significant deficiencies in internal controls that come to the auditors attention.

Question 5

What would a successor auditor ask the predecessor auditor after accepting the engagement?

Answer 5

matters that may facilitate the evaluation of financial reporting consistency between the current and prior years.

Question 6

What does the auditor assess during the planning stage of the audit?

Answer 6

The auditor assess the financial statement accounts likely to contain a misstatement and the conditions that require extension of audit tests.

Question 7

Internal Auditors may affect the independent auditors work..

Answer 7

They affect the NET, including procedures the auditor performs when obtaining an understanding of the entity Internal control, when assessing risk, and when performing substantive procedures

Question 8

What is included in the initial planning of the audit?

Answer 8

The auditor considers the extent of involvement of the clients internal auditors?

Question 9

what is materiality considered?

Answer 9

Materiality is the smallest aggregate level of misstatements that could be considered material to any one of the financial statements.

Question 10

What happens when there is a decrease in the amount of misstatement in a class of transaction that an auditor will tolerate?

Answer 10

A decrease in the amount of misstatements that an auditor will tolerate will cause planned procedures to be performed closer to the balance sheet date.

Question 11

To properly plan an audit what are the five components of Internal control?

Answer 11

Control environment, risk assessment, information and communication, monitoring, and existing control activities.

Question 12

Before applying substantive procedures an entities accounts receivable at interim the auditor should..

Answer 12

assess the difficulty in controlling incremental audit risk. Need to assess the risk and see if additional audit procedures will be sufficient to extend interim conclusions to year end.

Question 13

the acceptable level of detection risk is inversely related to..

Answer 13

the assurance provided by substantive testing.

Question 14

What risk can be changed by the auditors discretion?

Answer 14

Detection Risk. Inherent and control risk exist independently of the financial statements audit and cannot be changed by the auditor.

Question 15

When would an auditor confirm the terms of a large complex sale?

Answer 15

When the inherent and control risk are high, then detection risk will be low and they will need to perform more reliable auditing procedures.

Question 16

What is an example of factual misstatements?

Answer 16

clerical error, difference between classification of a reported FS and the classification according to GAAP, or inaccuracy in processing data.

Question 17

What is projected misstatements?

Answer 17

It is the auditors best estimate of misstatement in a population taken from misstatements identified in the audit sample/.

Question 18

what is directly related to an increase in control risk?

Answer 18

an increase in the test of details.

Question 19

When should the auditor determine if fraud risk factors are present?

Answer 19

During the planning stage the auditor is required to discuss potential misstatements due to fraud.

Question 20

what type of journal entries indicate override of controls?

Answer 20

post-closing journal entries, journal entries to accounts rarely used, or made by individuals who normally dont post JE.

Question 21

What is one thing the auditor considers during every stage of the audit?

Answer 21

the auditor should consider the assessment of the risk of material misstatement and whether the results of audit procedures affect the assessment of misstatement due to fraud.

Question 22

what is an indication of intentional misstatement?

Answer 22

missing or unavailable documents or electronic evidence that is not readily available.

Question 23

What are some actions the auditor can take to identify acts of noncompliance?

Answer 23

They can read the board minutes, make inquiries of management and legal counsel, or perform test of details on transactions.

Question 24

if the client does not take remedial action that the auditor considers necessary for the circumstances, even if they are immaterial. what should the auditor do?

Answer 24

the auditor should withdrawal and disassociate from the FS.

Question 25

What is the risk assessment nemonic?

Answer 25

“IM A CPA”

• obtain understanding of Internal Controls
• assess the material misstatements
• respond to assessed level
• test internal controls
• perform substantive procedures
• evaluate appropriateness of audit evidence obtained.

Question 26

What provides evidence about whether an entity’s internal controls are suitably designed to detect misstatements?

Answer 26

observation and inspection.

ex- observing personnel applying control activities

Question 27

in conducting an audit of a service organization, what is something to consider?

Answer 27

They must consider the effect that the user organization on the service organization and if they have complementary controls that are necessary to achieve stated objectives.

Question 28

what indicates that segregation of duties is not operating correctly?

Answer 28

If an employee is in the position to record and conceal fraudulent transactions. (opportunity to perpetrate and conceal errors or fraud)

Question 29

what is the ultimate purpose of assessing control risk?

Answer 29

It contributes to the auditors evaluation of whether material misstatements in the financial statements exist.

Question 30

What are not to be considered part of the clients information system?

Answer 30

services performed by another organization are not considered a part of the info. system if they are limited to executing transactions specifically authorized by the client. Ex- sale of investment securities by an external broker.

Question 31

An auditor should obtain sufficient knowledge of an entity’s information system relevant to financial reporting to understand…

Answer 31

the types of transactions processed, and how transactions are initiated, recorded, and summarized. This includes preparation of accounting estimates.

Question 32

What does knowledge about the design of Internal controls prove?

Answer 32

knowledge about the design and implementation of relevant controls are used to identify potential misstatements that could occur.

Question 33

What is involved in a walk through?

Answer 33

following a transaction from its origination until it is reflected in the financial statements.

Question 34

What type of control best describes procedures to ensure appropriate system software acquisition?

Answer 34

General controls are policies and procedures that relate to many applications and support the effective functioning and proper operating of the information system.

Question 35

What is the objective of test of details performed as test of controls?

Answer 35

The objective is to evaluate whether the internal controls are operating effectively.

Question 36

Can inquiry alone be sufficient to support a lower assessed level of control risk?

Answer 36

No, observation and re-performance are also needed.

Question 37

what is not part of understanding internal controls?

Answer 37

The auditor does not need to obtain knowledge about the operating effectiveness of controls.

Question 38

When would an auditor not need to test detail for the entire year under audit at year end?

Answer 38

If the substantive procedures at interim identified no exceptions.

Question 39

what is a dual-purpose test?

Answer 39

test of controls that are performed at the same time as test of details on the same transaction.