Audit Evidence and Reports

Question 1

How would a sample size be affected if there is an increase in tolerable misstatement?

Answer 1

Decrease in Sample Size

Question 2

How would a sample size be affected if there is an increase in Control Risk?

Answer 2

Increase in Sample Size

Question 3

When should negative confirmation of accounts receivable balances be used?

Answer 3

(1) the combined assessed level of inherent and control risk is low
(2) a large number of small balances is involved
(3) the auditor has no reason to believe that the recipients of the requests are unlikely to give them consideration.

Question 4

If the entity adequately discloses issues relating to going concern, how should the auditor address this in the auditor’s report?

Answer 4

the auditor’s report is required to include an emphasis-of-matter paragraph that specifically uses the phrase “going concern”

Question 5

What type of audit procedures are performed during a Review engagement?

Answer 5

• Inquiries

- Analytical Procedures

Question 6

Can an auditor accept an engagement with a client that omits their statement of cash flows?

Answer 6

Yes, but explain to that client that the opinion will be qualified.

Question 7

Is an accountant required to obtain a written letter of management’s representation for a Compilation and/or Review?

Answer 7

Compilation - No

Review - Yes

Question 8

Is an accountant required to obtain an understanding of the client’s internal controls for a Compilation and/or Review?

Answer 8

Compilation - No

Review - No

Question 9

Comparative financial statements include the financial statements of a prior period which were examined by a predecessor auditor, whose report is not presented. If the predecessor auditor’s report was qualified, the successor auditor should….?

Answer 9

Disclose the reasons for any qualification included in the predecessor auditor’s opinion.

Professional standards require that when the predecessor auditor’s opinion was other than unmodified, the successor should describe the nature of any reasons for the qualification.

Question 10

What should be the title of an auditor’s report under AICPA versus PCAOB?

Answer 10

PCAOB - Report of Independent Registered Public Accounting Firm

AICPA - Report of Independent Auditor

Question 11

What’s wrong in this scenario?

Auditor instructed the client’s personnel to prepare a standard bank confirmation request for a bank account that had been closed during the year. After the client’s treasurer had signed the request, it was mailed by the assistant treasurer.

Answer 11

Allowing the client to mail the confirmation directly violated the requirement that the confirmations remain under the auditor’s control. The auditor is unable to ascertain whether the confirmation reached the proper party.

Question 12

Which section (paragraph) of the audit report includes a statement that the auditor believes that the audit evidence obtained is sufficient?

Answer 12

Auditor’s Responsibility

Question 13

What is the auditor’s primary concern when examining the stockholders’ equity section of the balance sheet?

Answer 13

That proper authorization exists for transactions affecting the capital stock account.

Question 14

Does SSARS require that the compilation report be printed on the accountant’s letterhead and that the report be manually signed by the accountant?

Answer 14

No

Question 15

What is the primary responsibility of a stock registrar?

Answer 15

Prevent any over issuance of stock, and thereby verify that the stock is issued properly.

Question 16

What is an operational audit?

Answer 16

Determine whether an entity’s specific operating units are functioning efficiently and effectively.

Question 17

What are the 4 conditions that must be met for the auditor to examine internal control in an integrated audit, per AICPA?

Answer 17

1. Management must accept responsibility for the effectiveness of the entity’s internal control over financial reporting
2. Management must evaluate the effectiveness of the entity’s internal control using suitable and available criteria
3. Management must support its assessment about the effectiveness of the entity’s internal control with sufficient documentation
4. Management must provide its written assessment about the effectiveness of the entity’s internal control over financial reporting in a report that accompanies the auditor’s report

Question 18

Is a review an attest or assurance engagement?

Answer 18

Both

Question 19

What is the auditor’s responsibility for “other information” included in the annual report to stockholders which contains financial statements and the auditor’s report?

Answer 19

The auditor has no obligation to corroborate the “other information,” but should read the “other information” to determine whether it is materially inconsistent with the financial statements.

Question 20

What standards should a CPA firm apply in a review of pro forma financial information?

Answer 20

Statements on Standards for Attestation Engagements