Audit Deck 3

Question 1

In assessing the tolerable deviation rate using statistical sampling, do deviations at a given rate usually mean misstatements are actually at a higher or a lower rate?

Answer 1

Lower Rate

Question 2

What should an accountant do if they believe the financial statements are materially misstated in a compilation engagement?

Answer 2

Obtain the additional or revised information need to correct the financial statements

Question 3

Is a change in estimate accounted for retrospectively or prospectively?

Answer 3

Prospectively

Question 4

Is a change in accounting principle account for retrospectively or prospectively?

Answer 4

Retrospectively

Question 5

What is the formula for Inventory Turnover?

Answer 5

COGS / ((Beginning Inventory + Ending Inventory) / 2)

Question 6

How do you calculate COGS?

Answer 6

Beginning Inventory + Purchases - Ending Inventory

Question 7

How is the existence assertion verified?

Answer 7

By vouching from the records and statements back to the supporting documents

Question 8

What type of investment can a CPA have in a client that would NOT be considered a direct financial interest?

Answer 8

An investment held through a nonclient regulated mutual fund

Question 9

What does an auditor need to assess when examining an entity’s compliance with specified requirements?

Answer 9

Attestation Risk (CONTROL RISK, Inherent Risk, Detection Risk)

Question 10

Why does an auditor obtain an understanding of an entity’s information and communication system?

Answer 10

1. To Understand how transactions are initiated, processed and reported
2. Understand the financial reporting process
3. Means used to communicate financial reporting roles and responsibilities

Question 11

What is a review engagement mainly based on?

Answer 11

Inquiry and analytical procedures perform by the auditor

Question 12

The vouchers payable department typically doesn’t perform:

Answer 12

Accounting for unused prenumbered purchase orders and receiving reports

Question 13

When an auditor increases the planned level of control risk because certain control activities were determined ineffective, the auditor would need to reduce detection risk. How would they reduce detection risk?

Answer 13

By increasing the extent of tests of details

Question 14

Does the expected deviation rate vary directly or inversely with sample size?

Answer 14

Directly

Question 15

Does the tolerable rate vary directly or inversely with sample size?

Answer 15

Inversely

Question 16

What does an auditor need an understanding of during a financial statement audit?

Answer 16

An understanding of internal control relevant to an entity’s financial reporting objective

Question 17

When an accountant is performing agreed-upon procedures, do they have to be independent even though they are providing NO assurance?

Answer 17

Yes, they must be independent

Question 18

When an auditor reports on internal control during a FINANCIAL STATEMENT audit, does the auditor need to include a statement that restricts the use of the report?

Answer 18

Yes, they need to restrict the use of the report

Question 19

Ration estimation sampling is most effective when there is a correlation between the audit amounts and the _____?

Answer 19

Book Values

Question 20

When receiving reports are prenumbered and then periodically reconciled to inventory records, this helps determine that all goods received have been recorded in inventory. Which assertion does this cover?

Answer 20

Completeness Assertion

Question 21

How many years do Lead Audit Partners have to take off as a “time-out” before they can serve on an engagement again? (after they had been the lead partner for 5 years.)

Answer 21

5 years of “time-out”

Question 22

If the auditor agrees with a change in accounting principle and wants to issue an unmodified opinion, do they need to include an emphasis-of-matter paragraph concerning the change?

Answer 22

Yes. (Even though they are issuing an unmodified opinion, they need to include an emphasis-of-matter paragraph documenting the change in accounting principle.)

Question 23

If management does not want to include “management discussion and analysis” in their annual report (this is required to be included per the SEC, but NOT per GAAP), what kind of report does an auditor issue?

Answer 23

Unqualified with Explanatory Paragraph (just remember, if it’s required by SEC but not GAAP, you can still have an unmodified/unqualified opinion, but you need to explain that it was not included)

Question 24

Without stratification, if you using a sampling interval to select a sample from a population, the equation would be Population / _______? (make sure to round UP the answer)

Answer 24

The sampling interval

Question 25

WITH stratification when using a sampling interval, you take out the biggest numbers of the population and count them each individually, then take the rest of the population and divide the Remaining population by _______?

Answer 25

The sampling interval

Question 26

If cash was received, but there was no corresponding invoice, it’s likely that there was no sale and instead, it could have something to do with disposals of _____ and _____ assets.

Answer 26

Property
Fixed

Question 27

Financial projections are only available for ______ use.

Answer 27

Limited

Question 28

The following factors are a part of?
1. Communication and enforcement of integrity and ethical values
2. Commitment to competence
3 Participation of those charged with governance
4. Management’s philosophy and operating style
5. Organizational structure
6. Assignment of authority, responsibility, and accountability
7. Human resource policies and practices

Answer 28

CONTROL ENVIRONMENT

Question 29

Would an auditor issue a qualified opinion if there was a scope limitation?

Answer 29

NO (they would either issue a DISCLAIMER of OPINION or withdraw)

Question 30

Would an auditor issue a qualified opinion if there was a material weakness in internal control?

Answer 30

NO (they would issue an ADVERSE opinion)