Audit A5 Flashcards
MCQ-05389
In an audit of an issuer, the auditor must provide an opinion on which of the following?
I. The financial statements.
II. The audit committee’s oversight of financial reporting and internal control.
III. The effectiveness of internal control.
Choice “D” is correct. The auditor provides an opinion on the entity’s financial statements and on the effectiveness of internal control. The auditor is not required to
provide an opinion on the audit committee’s oversight (but is required to report to the board when such oversight is ineffective).
The practitioner’s report on agreed-upon procedures should include:
A. A statement that the sufficiency of the procedures is solely the responsibility of the practitioner.
B. A reference to the complete audited financial statements.
C. A description of procedures performed and related findings.
D. Disclosure of lack of independence, if the practitioner is not independent.
Choice “C” is correct. The practitioner’s report on agreed-upon procedures should include a description of procedures performed and related findings.
Choice “A” is incorrect. In an agreed-upon procedures engagement, the engaging party
(and not the practitioner) takes responsibility for the adequacy of the procedures for
their purposes.
Choice “B” is incorrect. The practitioner’s report on agreed-upon procedures does not
include a reference to the complete audited financial statements.
Choice “D” is incorrect. A practitioner must be independent to perform an agreed-upon
procedures engagement
Which of the following is not a role of the risk assessment in an integrated audit of a
nonissuer?
A. Concluding on the effectiveness of a given control.
B. Selecting controls to test.
C. Determining significant accounts and relevant assertions.
D. Determining evidence necessary to conclude on the effectiveness of a given
control.
Choice “A” is correct. The auditor’s conclusion on the operating effectiveness of a given control is not a role of the risk assessment process. The auditor’s conclusion on the
operating effectiveness of internal control occurs after the risk assessment process.
Choice “B” is incorrect. Selecting controls to test is part of the risk assessment process
in an integrated audit of a nonissuer.
Choice “C” is incorrect. Determining significant accounts and relevant assertions is part
of the risk assessment process in an integrated audit of a nonissuer.
Choice “D” is incorrect. Determining evidence necessary to conclude on the
effectiveness of a given control is part of the risk assessment process in an integrated
audit of a nonissuer.
When planning an audit of the effectiveness of the entity’s internal control in an integrated audit of a nonissuer, an auditor would be least likely to consider which of the following
factors?
A. The extent of recent changes in the entity and its operations.
B. Preliminary judgments about the effectiveness of internal control.
C. The evaluation of the operating effectiveness of the controls.
D. The type of available evidential matter pertaining to the effectiveness of the entity’s internal control.
Choice “C” is correct. When planning an audit of the effectiveness of the entity’s internal control in an integrated audit of a nonissuer, a practitioner would be least likely
to consider the evaluation of the operating effectiveness of the controls. The evaluation of the operating effectiveness of controls occurs after the planning stage.
Choice “A” is incorrect. When planning an audit of the effectiveness of the entity’s
internal control in an integrated audit of a nonissuer, a practitioner would likely consider
the extent of recent changes in the entity and its operations.
Choice “B” is incorrect. When planning an audit of the effectiveness of the entity’s
internal control in an integrated audit of a nonissuer, a practitioner would likely consider
preliminary judgments about the effectiveness of internal control.
Choice “D” is incorrect. When planning an audit of the effectiveness of the entity’s
internal control in an integrated audit of a nonissuer, a practitioner would likely consider
the type of available evidential matter pertaining to the effectiveness of the entity’s
internal control.
In an integrated audit of a nonissuer, an auditor should issue an adverse opinion on the effectiveness of an entity’s internal control in which of the following situations?
A. A material weakness exists.
B. The financial statements are misstated.
C. The entity may not continue as a going concern.
D. The auditor was asked by the client to provide the report to another practitioner.
Choice “A” is correct. An auditor should issue an adverse opinion on the effectiveness of internal control when a material weakness exists.
Choice “B” is incorrect. An auditor should issue a qualified or adverse opinion on the
financial statements when the financial statements are misstated.
Choice “C” is incorrect. Going concern affects the auditor’s report on the financial
statements, not the auditor’s report on the effectiveness of an entity’s internal control.
Choice “D” is incorrect. The client’s request to provide the report to another practitioner
would not affect an auditor’s opinion.
An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that:
A. Negative assurance is expressed on the prospective financial statements takenas a whole.
B. Responsibility for the adequacy of the procedures performed is taken by the accountant.
C. The prospective financial statements are also examined.
D. The accountant is independent from the responsible party
Choice “C” is incorrect. There is no requirement that the prospective financial statements be examined. In fact, the practitioner’s report on the application of agreedupon procedures states that the auditor did not perform an examination.
An auditor is auditing a mutual fund company that uses a transfer agent to handle accounting for shareholders. Which of the following actions by the auditor would be most
efficient for obtaining information about the transfer agent’s internal controls?
A. Review prior-year workpapers to determine whether the number of transactions processed by the agent has materially increased.
B. Review a report on the design, implementation, and effectiveness of the transfer agent’s internal controls produced by the agent’s own auditor.
C. Perform tests of controls on a sample of the audited firm’s transactions through the agent.
D. Perform an audit on the internal control function of the agent.
Choice “B” is correct. Reports on the design, implementation, and operating effectiveness of the transfer agent’s internal controls (SOC 1 Type 2 Report) produced by the agent’s own auditor would be an efficient means of obtaining information about the transfer agent’s internal controls.
Choice “A” is incorrect. Whether or not the number of transactions processed by the
agent has materially increased (or decreased) is not relevant to obtaining information
about the transfer agent’s internal controls.
Choice “C” is incorrect. Performing tests of controls on a sample of the audited firm’s
transactions through the transfer agent would provide some information about the
transfer agent’s internal controls, but this would not be as efficient as reviewing the
reports from the agent’s own auditor.
Choice “D” is incorrect. Although performing an audit on the internal control function of
the transfer agent would provide information about the transfer agent’s internal
controls, this would not be as efficient as reviewing the reports from the agent’s own
auditor.
Which of the following professional services would be considered an attest engagement covered by the Statements on Standards for Attestation Engagements (SSAEs)?
A. The compilation of financial statements from a client’s accounting records.
B. An income tax engagement to prepare federal and state tax returns.
C. An engagement to report on management’s discussion and analysis (MD&A).
D. A management consulting engagement to provide EDP advice to a client.
Choice “C” is correct. An engagement to report on management’s discussion and analysis (MD&A) would be considered an attest engagement, because the accountant
is issuing an examination or review report on another party’s assertion.
Choice “A” is incorrect. Compilations are governed by Statements on Standards for
Accounting and Review Services (SSARS).
Choice “B” is incorrect. An income tax engagement to prepare federal and state tax
returns is not considered to be an attest engagement.
Choice “D” is incorrect. A management consulting engagement to provide EDP advice
to a client is not considered to be an attest engagement, because the accountant is not
issuing an examination, review, or agreed-upon procedures report on another party’s
assertion.
The audit team of issuer Kape Krafts Inc. evaluated both qualitative and quantitative risk factors as part of audit planning. The audit team should evaluate risk factors for:
A. Risk factors should be evaluated prior to accepting the engagement.
B. An audit of financial statements.
C. An audit of internal control.
D. Both an audit of financial statements and an audit of internal control.
Choice “D” is correct. The evaluation of risk factors is the same for both an audit of the financial statements and an audit of internal control.
Choice “A” is incorrect. Risk factors should be evaluated as part of planning the engagement.
Choices “B” and “C” are incorrect, based on the above explanation.
In an integrated audit of a nonissuer, if an auditor concludes that a material weakness exists as of the date specified in management’s assessment, the auditor should take which
of the following actions?
A. Disclaim an opinion.
B. Obtain written representations from management relating to such matters.
C. Communicate, in writing, to the entity’s outside legal counsel that the material weakness exists.
D. Issue an adverse opinion
Choice “D” is correct. The presence of a material weakness in internal control results in an adverse opinion.
Choice “A” is incorrect. A material weakness results in an adverse opinion. A scope limitation results in a disclaimer of opinion or withdrawal from the engagement.
Choice “B” is incorrect. Management is not required to include a written representation
confirming the auditor’s conclusion that a material weakness exists. However, management will include a written representation that management disclosed all
significant deficiencies and material weaknesses to the auditor.
Choice “C” is incorrect. An auditor should communicate, in writing, to management and to those charged with governance that the material weakness exists. There is no requirement that the auditor communicate a material weakness in writing to the entity’s outside legal counsel.
When auditing an entity’s financial statements in accordance with Government Auditing Standards (the Yellow Book), an auditor is required to report on:
I. Noteworthy accomplishments of the program.
II. The scope of the auditor’s testing of internal controls.
A. II only.
B. I only.
C. Neither I nor II.
D. Both I and II.
Choice “A” is correct. When auditing an entity’s financial statements in accordance with Government Auditing Standards, an auditor is required to report on the scope of the
auditor’s testing of internal control, but not on noteworthy accomplishments of the program.
Choices “B”, “D”, and “C” are incorrect, based on the above explanation.
