Audit Section 1 Flashcards
Provides the most authoritative guidance for the auditor of a nonissuer?
General guidance provided by a Statement on Auditing Standards
AICPA audit and accounting guides and SAS (Statement Auditing Standards) interpretations are
are interpretive publications that provide guidance regarding how SASs should be applied in specific situations. They are not as authoritative as SASs
In certain audit engagements, the auditor may be required to comply with auditing requirements in addition to GAAS. The auditor may conduct the audit in accordance with
Both GAAS and government auditing standards (GAGAS)
What identifies a requirement for audit evidence?
The term Appropriate. Because The auditor must obtain sufficient appropriate audit evidence to afford a reasonable basis for the opinion.
Auditing standards do not use the word in ______ describing the requirements for audit evidence; the term is _____ appropriate audit evidence
1) adequate
2) sufficient
Auditing standards use the word reasonable to describe
the type of assurance gained by the auditor as the basis for the opinion, and not to describe a specific requirement for audit evidence.
Auditing standards do not use the word disconfirming in describing
the requirements for audit
evidence.
Best describes what is meant by the term generally accepted auditing standards?
Measures of the quality of the auditor’s performance
To obtain reasonable assurance, an auditor should
plan the work and properly supervise assistants, as well as determine and apply appropriate materiality levels, identify and assess risks of material misstatement
Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of
professional skepticism
Which term used in Statements on Auditing Standards indicates a presumptively mandatory requirement?
The term “Should” it indicates a presumptively mandatory requirement, which must be followed in all cases in which the requirement is relevant,
The term must indicates
an unconditional requirement, which must be followed in all cases in which the requirement is relevant.
The term could would indicate
explanatory material that does not impose a professional requirement for performance.
The phrase “U.S. generally accepted accounting principles” is an accounting term that
Encompasses the conventions, rules, and procedures necessary to define U.S. accepted accounting practice at a particular time
statements correctly defines the term reasonable assurance?
A high, but not absolute, level of assurance to allow an auditor to detect a material misstatement.
An auditor of a nonissuer exercising professional skepticism with respect to the risks of material misstatement due to fraud will most appropriately:
Consider the reliability of information to be used as audit evidence.
Which of the following best describes what is meant by the term generally accepted auditing standards?
Measures of the quality of the auditor’s performance.
Before accepting an audit engagement, a CPA should evaluate whether conditions exist that raise questions as to the integrity of management. Which of the following conditions most likely would raise such questions?
The CPA will not be permitted to have access to sensitive information regarding the salaries of senior management.
A successor auditor most likely would make specific inquiries of the predecessor auditor regarding:
Disagreements with management as to auditing procedures.
The primary objective of an auditor when considering the acceptance of an initial audit engagement of a nonissuer is to:
Establish whether the preconditions for an audit are present.
Before accepting an engagement to audit a new client, a CPA is required to obtain:
The prospective client’s consent to make inquiries of the predecessor auditor.
A successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor’s:
1) Engagement Letter: NO
2) Working Papers: YES
In connection with an audit of a nonissuer, the auditor would ordinarily use an engagement letter to:
Specify any arrangements concerning the involvement of the company’s internal auditors on the audit.
Which of the following is an element of a CPA firm’s quality control system that should be considered in establishing its quality control policies and procedures?
Assigning personnel to engagements.
Compliance with laws and regulations falls under
the Code of Professional Conduct.
If an audit firm determines that a quality control review is required, but it has not yet been performed, what should an audit engagement partner do?
Refrain from issuing the audit report until after the quality control review has been completed.
The nature and extent of a CPA firm’s quality control policies and procedures depend on:
1) CPA Firm Size
2) Nature of the CPA Firms Practice
3) Cost Benefit Considerations
One of a CPA firm’s basic objectives is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through:
A system of quality control establishes policies and procedures that provide reasonable assurance of conforming with professional standards.
An auditor is required to establish an understanding with a client regarding the services to be performed for each engagement.
This understanding generally includes:
The auditor’s responsibility for ensuring that those charged with governance are aware of any significant deficiencies in internal control that come to the auditor’s attention.
Quality control standards
1) They apply to attestation engagements as well as to audit engagements.
2) A CPA firm is required to adopt a system of quality control.
3) Quality control standards relate to the firm’s practice as a whole.
The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to:
Minimize the likelihood of association with clients whose management lacks integrity.
Relationship between quality control standards and professional standards such as
GAAS
1) A firm that has not adopted an appropriate system of quality control may still be in compliance with professional standards with respect to individual engagements.
2) The adoption of quality control standards increases the likelihood of compliance with professional standards on individual engagements.
3) Quality control standards relate to the conduct of a firm’s entire practice, whereas professional standards such as GAAS relate to the conduct of an individual engagement.
Auditor’s documentation of the risk assessment during an audit of a nonissuer
The form and extent of the documentation should be influenced by the nature, size, and complexity of the entity and its internal control.
Audit documentation requirements
The auditor should document findings that could result in a modification of the auditor’s report.
Required documentation in an audit in accordance with generally accepted auditing standards?
1) The auditor’s assessment of the risk of material misstatement.
2) An engagement letter.
3) A written audit program describing audit procedures to be performed.
What is the maximum number of days in which a nonissuer’s auditor should complete the assembly of the final audit file following the report release date?
60 days
Audit documentation should be prepared in enough detail so that:
An experienced auditor who has no previous connection with the audit can understand the procedures performed and the evidence obtained.
Working papers should include
the procedures that are applied and the conclusions reached in an audit engagement.
The management representation letter is where
the client asserts that all material matters have been adequately disclosed to the auditor.
Sufficient and appropriate documentation
Sufficient and appropriate documentation should include evidence that the audit working papers have been reviewed.
The audit documentation that makes up the current file most likely would include
a copy of the bank reconciliation as it is applicable to the current period under audit.
Permanent File Includes
1) Pension Plan Contract
2) Articles of Incorporation
3) Flowchart of the Internal Control
Which best describes the documentation completion date?
Forty-five days from the report release date, based on PCAOB standards.
Documentation completion date is
Sixty days following the report release date.
Retention period under PCAOB standards.
Seven Years
Retention period under SAS rules for the auditors of nonissuers.
Five years
What kind of organizations are most likely to require a SOC 1
Service organizations that may impact their entities internal controls over financial reporting
Service organizations that have cyber security concerns need a
SOC 2 report which focuses on organizations non financial reporting controls as they relate to security, availability, processing, integrity, confidentiality, and privacy system
What procedure might an auditor perform to determine the extent to which they can use the work of an IT auditor
reviewing the IT auditors professional qualifications and experience
When testing authorization of disbursements the appropriate population to sample is
purchase orders because they should be authorized before purchase is made
When performing analytical procedures near the end of the audit engagement this is an attempt to
confirm their understanding of entity’s business and industry and assess overall consistency of financial statements
When testing companies controls over cash disbursements and you expect a high rate of control deviations the most suitable sampling method is
Attribute Sampling because it is suitable to estimate the rate of control deviations even with a high rate
Auditor notes R&D costs have decreased significantly even though the company have launched new projects this suggests
R&D costs decreasing despite new projects suggests potential underreporting of the costs
Three main objectives of COSO
Financial Reliability, Risk Management, Compliance with laws and regulations
Auditor finds material weakness in internal controls over FINANCIAL REPORTING is a
Adverse Opinion
Which organizations rules extend certain provisions to the sponsor of single employer plan?
Both DOL and AICPA extend certain provisions
While testing interest expense in financial statements of substantial bank loan you notice interest expense decreased despite an increase in loan balance you should
check the terms and conditions of the loan agreements
On an auditors report the page includes the names of CEO and CFO as well as chart of income for last fifteen years this is
other information which is information that is presented in financials that is voluntarily presented
The page presents income statements, the statement of cash flow, and the statement of retained earnings that is required by SEC but not GAAP this is
basic financial statements
Quarterly results that is required by SEC but not GAAP is
Required Supplementary information which is not part of the basic financial statements however a designated accounting standards setter deems it necessary
Types of audit opinions
Unqualified Opinion= Clean Public Opinion
Unmodified Opinion= Clean Private Opinion
Qualified Opinion= Material misstatement but not pervasive
Adverse Opinion= Material GAAP Misstatement that is pervasive
Disclaimer of Opinion= Material GAAS Misstatement that is pervasive
Adverse Interest Threat
Threat where a member will not act with objectivity because the members interest are opposed to the clients interest
Advocacy Threat
member promotes clients interest to an extent that members objectivity or independence is compromised
Familiarity Threat
excessively accepting clients work or products and becoming overly sympathetic to clients interests
Management Participation Threat
member takes on the role of client management or assumes management responsibilities
Self Interest Threat
auditor could benefit financially
Self Review Threat
member is required to evaluate the results of a previous judgment made or service performed by them or supervised by them
Undue Influence Threat
members judgment is subordinated or compromised due to external pressures or influences
Ratio scale
establish the order of values and equality of intervals between values and calculation of mean, median and mode
