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OLD CPA Exam Materials > AUDIT - MINE > Flashcards

AUDIT - MINE Flashcards

1
Q

In what situations do SSARS apply?

A

situations in which an accountant submits unaudited financial statements of a nonissuer to a client (i.e., a compilation or review)

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2
Q

Can compilations be performed when the financial statements of the client can reasonably be expected to be used by a third party? If yes, are there any additional requirements?

A

Yes. A compilation report is required.

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3
Q

Is independence required for a compilation?

A

No

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4
Q

What does an auditor do when he uses “test data” to test the client’s computer system?

A

A set of dummy transactions is developed by the auditor and processed by the client’s computer programs.

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5
Q

What is an advantage of generalized computer audit packages?

A

They can be used for audits of clients that use different computer equipment and file formats.

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6
Q

What is “code review?”

A

This technique involves actual analysis of the program’s processing routines.

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7
Q

What is an advantage of code review?

A

detailed understanding of the program

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8
Q

What is a disadvantage of code review?

A

It is time consuming and requires a high level of computer expertise.

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9
Q

When are parallel simulation and controlled reprocessing likely to be more effective?

A

in an environment that does not involve continuous auditing

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10
Q

What are “embedded audit modules?”

A

programmed routines incorporated directly into an application program that will help auditors perform audit functions such as calculations

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11
Q

What type of test allows for continuous monitoring?

A

embedded audit modules

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12
Q

Is the rate of misstatements generally lower or higher than the deviation rate? Why?

A

Lower. A deviation from a control procedure does not necessarily result in a misstatement.

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13
Q

Risk assessments are based on expectations arising from… (5 things)

A

(1) prior period information, (2) budgets/forecasts vs. actual, (3) relationships among elements of financial information, (4) industry information, and (5) non financial information

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14
Q

What type of asset is NOT likely to be tested via confirmation?

A

PP&E

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15
Q

Relationships between _______(IS_or_BS)_____ accounts tend to be more predictable.

A

Income Statement accounts

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16
Q

Why are letters of audit inquiry sent to the client’s lawyer(s)?

A

as a means of obtaining corroboration of the information furnished by management concerning litigation, claims, and assessments

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17
Q

What do the two types of service auditor reports do?

A

(1) The first type of auditor service report says whether the service organization controls have been implemented. (2) The second type, which cannot be released until after the first type, is issued when the effectiveness of controls has been tested.

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18
Q

What is the point of the second type of service auditor report?

A

The opinion on the effectiveness of the controls provides the user auditor a basis for reducing the assessment of control risk.

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19
Q

If financial statements do not have appropriate names (e.g., a cash basis taxpayer has a “balance sheet” and “income statement”), what action should the auditor take?

A

Modify the report to disclose the reservations about the titles.

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20
Q

For non-public company standard audit reports, consistency of accounting principles is ___plicit while reasonableness of accounting estimates is ___plicit. (IMplicit or EXplicit)

A

implicit, explicit

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21
Q

International Auditing Standard require an opinion on financial statements. (True/False)

A

True

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22
Q

International Auditing Standards require an opinion on internal control. (True/False)

A

False

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23
Q

In order to establish the correctness of accounts payable cutoff, an auditor would be most likely to coordinate cutoff test with ___________. (What test?)

A

physical inventory observation

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24
Q

Who maintains records of debenture transactions?

A

the trustee

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25
Q

In a compilation, an auditor who is not independent _____ accept the engagement. (may or may not)

A

may

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26
Q

In a compilation, if the auditor is not independent, he _____ disclose the lack of independence and ____ disclose why he lacks independence. (must/may)

A

must, may

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27
Q

Is modification of the report necessary when changing a review to a compilation or visa versa?

A

no

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28
Q

What is an advantage of value-added network for EDI transactions?

A

You can review transactions submitted for processing and compare to the related output.

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29
Q

What does the “join” command mean?

A

combination of tables or parts of tables

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30
Q

What is data definition language used to do? (2 things)

A

(1) define a database, including creating, altering, and deleting tables and (2) establishing various constraints

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31
Q

What is the major reason the difference and ratio estimation methods would be expected to produce audit efficiency?

A

The variability of the populations of differences or ratios is less than that of the populations of book values or audit values.

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32
Q

When the population deviation rate increases, the sample size ______ while the planned assessed level of control risk ______. (increases/decreases/stays the same)

A

increases, stays the same

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33
Q

What is “precision?”

A

The auditor evaluates the sampling results by calculating the possible error in either direction.

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34
Q

What are the 4 categories of computer assisted audit techniques (CAAT) for tests of controls?

A

(1) program analysis, (2) program testing, (3) continuous testing, and (4) review of operating systems and other systems software

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35
Q

What are the five program analysis techniques?

A

(1) code review, (2) comparison programs, (3) flowcharting software, (4) program tracing and mapping, and (5) snapshot

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36
Q

Are program analysis techniques used often? Why or why not?

A

They are not used often, because they are relatively time consuming and require a high level of computer expertise.

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37
Q

What is the purpose of comparison programs?

A

to allow the auditor to compare computerized files

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38
Q

How is flowcharting software used?

A

to produce a flowchart of the program’s logic and may be used both in a mainframe and microcomputer environment

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39
Q

What is program tracing and mapping?

A

a technique in which each instruction executed is listed along with control information affecting the instruction. It identifies sections of code that can be “entered” and thus are executable.

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40
Q

What is the purpose of program tracing and mapping?

A

It allows the auditor to recognize logic sequences or dormant sections of code which may be a potential source of abuse.

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41
Q

What does the snapshot technique do?

A

It “takes a picture” of the status of program execution, intermediate results, or transaction data at specified processing points in the program processing. This technique helps analyze the processing logic of specific programs.

42
Q

What is program testing?

A

It involves the use of auditor controlled actual or simulated data. It provides direct evidence about the operation of programs and programmed controls.

43
Q

What are the four techniques for program testing?

A

(1) test data (2) integrated test facility (ITF), (3) parallel simulation, and (4) controlled reprocessing

44
Q

What is the test data technique?

A

A set of dummy transactions is developed by the auditor and processed by the client’s computer programs to determine whether the controls which the auditor intends to test (not necessarily all controls) to restrict control risk are operating effectively.

45
Q

What are four possible problems with the test data approach?

A

(1) making certain the test data i not included in th client’s accounting records, (2) determining that the program tested is actually used by the client to processing data, (3) adequately developing test data for every possible control and (4) developing adequate data to test key controls may be extremely time consuming

46
Q

What is the integrates test facility (ITF) technique?

A

This method introduces dummy transactions into a system in the midst of live transactions and is usually built into the system during the initial design.

47
Q

What is the parallel simulation technique?

A

Parallel simulation processes actual client data through an auditor’s generalized audit software program and frequently though not necessarily, the auditor’s computer. Then, the auditor compares the outputs.

48
Q

What are four limitations of the parallel simulation technique?

A

(1) the time it takes to build an exact duplicate of the client’s system, (2) incompatibility between auditor and client software, (3) tracing differences between the two sets of outputs to differences in the programs may be difficult, and (4) the time involved n processing large quantities of data

49
Q

What is the controlled reprocessing technique?

A

a variation of parallel simulation that processes actual client data through a copy of the client’s application program. Then, the auditor compares the outputs.

50
Q

What are three limitations of the controlled reprocessing technique?

A

(1) determining that the copy of the program is identical to that currently being used by the client, (2) keeping current with changes to the program, and (3) the time involved in processing large quantities of data

51
Q

What is the purpose of utilizing continuous (or concurrent) testing techniques?

A

Advanced computer systems, particularly those utilizing EDI, sometimes do not retain permanent audit trails, thus requiring capture of audit data as transactions are processed.

52
Q

What are the four techniques for continuous (or concurrent) testing?

A

(1) embedded audit modules and audit hooks, (2) systems control audit review files (SCARF), (3) extended records, and (4) transaction tagging

53
Q

What are embedded audit modules and audit hooks?

A

Embedded audit modules are programmed routines incorporated into an application program that are deigned to perform an audit function such as calculation or a logging activity. An audit hook is an exit point in an application program that allows an auditor to subsequently add an audit module (or particular instructions) by activating the hook to transfer control to an audit module.

54
Q

What is the disadvantage of embedded audit modules?

A

It is often impractical due to the necessity of the auditor being involved in systems design of the application being monitored.

55
Q

What is the Systems Control Audit Review Files (SCARF) technique?

A

A SCARF is a log, usually created by an embedded audit module, used to collect information for subsequent review and analysis. The auditor determines the appropriate criteria for review, and the SCARF selects that type of transaction, dollar limit, or other characteristic.

56
Q

What is the extended records technique?

A

It attaches additional audit data which would not otherwise be saved to regular historic records and thereby helps to provide a more complete audit trail. The extended record information may subsequently be analyzed.

57
Q

What is the transaction tagging technique?

A

Tagging is a technique in which an identifier providing a transaction with a special designation is added to the transaction record. The tag is often used to allow logging of transactions or snapshot activities.

58
Q

What are the three techniques for review of operating systems and other systems software?

A

(1) job accounting data/operating system logs, (2) library management software, and (3) access control and security software

59
Q

What is the jobs accounting data/operating system logs technique?

A

Either the operating system or additional software packages that track particular functions generate logs that include reports of the resources used by the computer system. The auditor can use these to review the work processed, to determine whether unauthorized applications were processed, and to determine that authorized applications were processed properly.

60
Q

What is the library management software technique?

A

Software logs changes in programs, program modules, job control language, and other processing activities.

61
Q

What is the access control and security software technique?

A

Software supplements the physical and control measures relating the computer and is particularly helpful in online environments or in systems with data communications because of difficulties of physically securing computers. It restricts access to computers to authorized personnel through techniques such as allowing certain users with “read-only” access or through the use of encryption. An auditor may perform tests of effectiveness of the use of sch software.

62
Q

If the control appears effective, test of controls will be performed when ___(1)___ OR when ___(2)___.

A

(1) when the auditor’s risk assessment includes an expectation of operating effectiveness of controls because the likelihood of material misstatement is lower if the control operates effectively. (2) when substantive procedures alone do not provide sufficient audit evidence

63
Q

The AICPA has established three types of examination services that result in three types of CPA reports on service organizations. What is the SOC 1 report?

A

restricted use reports on controls at a service organization relevant to a user entity’s control over financial reporting

64
Q

The AICPA has established three types of examination services that result in three types of CPA reports on service organizations. What is the SOC 2 report?

A

restricted use reports on controls at a service organization related to security, availability, processing integrity, confidentiality, and/or privacy

65
Q

The AICPA has established three types of examination services that result in three types of CPA reports on service organizations. What is the SOC 3 report?

A

general use SysTrust reports related to security, availability, processing integrity, and/or confidentiality.

66
Q

What is the difference between a SOC 2 report and a SOC 3 report?

A

A SOC 2 report is limited use. A SOC 3 report is general use.

67
Q

The basic objectives of acceptance and continuance of client relationships is to provide reasonable assurance that the firm will undertake to continue relationships and engagements only where the firm: (3 things)

A

(1) has considered client integrity, (2) is competent to perform the engagement, and (3) can comply with legal and ethical requirements.

68
Q

At which two points must an auditor consider materiality?

A

(1) planning the audit and designing audit procedures and (2) evaluating audit results

69
Q

Can materiality be non-quantitative?

A

Yes

70
Q

Are measures of materiality for evaluation the same or different than measures of materiality for planning?

A

different

71
Q

When a material weakness results in an adverse opinion, and the company makes an effort to correct the weakness, what can the company do?

A

The company may voluntarily engage the auditors to report on whether the material weakness continues to exist.

72
Q

PCAOB Standard 4 defines the approach by which the auditors report on whether a material weakness continues to exist. What is this approach? (4 Steps)

A

(1) Management gathers evidence, including documentation that the material weakness no longer exists. (2) Management prepares a report indicating that the weakness no longer exists. (3) Auditors plan and perform an engagement emphasizing controls over the material weakness. (4) The auditor issues a report indicating that the material weakness “no longer exists” or “exists” as of the date of management’s assertion.

73
Q

Whose standards require an audit of internal control? (PCAOB and/or IAASB)

A

PCAOB only

74
Q

Whose standards allow reference to another auditor? (PCAOB and/or IAASB)

A

PCAOB only

75
Q

Whose standards are more detailed? (PCAOB or IAASB)

A

PCAOB

76
Q

What is the going concern period for the PCAOB? IAASB?

A

PCAOB - up to twelve months; IAASB - at least twelve months

77
Q

Whose standards are based on a risk assessment approach? (PCAOB and/or IAASB)

A

IAASB, only

78
Q

Define “database.”

A

a collection of interrelated files, ordinarily most of which are stored online

79
Q

Define “database system.”

A

computer hardware and software that enables the database(s) to be implemented

80
Q

Define “database management system.”

A

Software that provides a facility for communications between various application programs (e.g. payroll preparation program) and the database (e.g. a payroll master file containing the earnings records of the employees)

81
Q

Define “data independence.”

A

basic to database systems in this concept which separates the data from the related application programs

82
Q

Define “structured query language (SQL).”

A

the most common language used for creating and querying relational databases. has three types of commands

83
Q

Define “data definition language.”

A

one of the three types of SQL commands. It is used to define a database, including creating, querying, and deleting tables and establishing various constraints.

84
Q

Define “data manipulation language.”

A

one of the three types of SQL commands. It is used to maintain and query a database, including updating, inserting in, modifying, and querying (asking for data).

85
Q

Define “data control language.”

A

one of the three types of SQL commands. It is used to control a database, including which users have various privileges (e.g., who is able to read from and write to various portions of the database)

86
Q

What is the “hierarchical” database structure?

A

The data elements at level 1 “own” the elements at the next lower level (think of an organization chart in which one manager supervises several assistance who in turn each supervise several lower level employees.)

87
Q

What is the “networked” database structure?

A

Each data element can have several owners and can own several other elements (think of a matrix-type structure in which various relationships can be supported)

88
Q

What is the “relational” database structure?

A

A database with the logical structure of a group of related spreadsheets. Each row represents a record, which is an accumulation of all fields related to the same identifier or key; each column represents a field common to all of the records. Relational databases have in many situations largely replaced earlier developed hierarchical and networked databases.

89
Q

What is the “object-oriented” database structure?

A

Information (attributes and methods) are included in structures called object classes. This is the newest database management system technology.

90
Q

What is the “object-relational” database structure?

A

includes both relational and object-oriented features

91
Q

What is the “distributed” database structure?

A

A single database that is spread physically across computers in multiple locations that are connected by a data communications link. (The structure of the database is most frequently relational, object-oriented, or object-relational.)

92
Q

What functions are performed by generalized audit software (GAS)? (9 things)

A

(1) record extraction (copies records that meet certain criteria),
(2) sort (e.g., in ascending or descending order),
(3) summarization (e.g. by customer account number, inventory turnover statistics, or duplicate sales orders),
(4) field statistics (e.g. net value, total of all debit or credit values, number of records, etc.),
(5) file comparison (e.g., compare payroll details with personnel records or compare current and prior period inventory files)
(6) Gap detection/duplicate detection (i.e., find missing or duplicate records)
(7) Sampling
(8) Calculation
(9) Exportation (select and application that has been performed using GAS and export to another file format.)

93
Q

Who includes section titles in audit reports? (PCAOB and/or IAASB)

A

IAASB only

94
Q

The DOL conduct most of its financial performance audits in accordance with what standards?

A

Government Auditing Standards

95
Q

What is the GAO’s mission?

A

to support Congress in meeting its constitutional responsibilities and to help improve the performance and ensure the accountability of the federal government.

96
Q

What 5 things does the GAO do?

A

(1) audit agency operations to determine whether federal funds are being spent efficiently and effectively, (2) investigating allegations of illegal and improper activities, (3) reporting on how well government programs meet their objectives, (4) performing policy analysis and outlining various options for Congress, and (5) issuing legal decisions and opinions

97
Q

The GAO develops additional requirements for audits of organizations that receive federal assistance as part of the Government Auditing Standards. What are these sometimes called?

A

Yellow Book

98
Q

The GAO also has independence requirements. They are similar to the AICPA restrictions, but some requirements are more restrictive than those of the AICPA. What is an example of the more restrictive requirements?

A

The CPA firm cannot allow personnel working on nonattest engagements to also work on the audit.

99
Q

What standards did the PCAOB NOT adopt and why?

A

It did not adopt the Accounting and Review Service Standards, because they deal with nonpublic entities while the PCAOB deals with public entities.

100
Q

What do “further audit procedures” include?

A

tests of controls and substantive procedures

101
Q

What is a risk factor relating to misappropriation of assets?

A

large amounts of cash on hand

OLD CPA Exam Materials (9 decks)

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