Audit Section 1 Flashcards
Ethics / Prof Responsibilities / General Principles
1
Q
AFRF are adopted by who?
A
Those charged w/ governance
2
Q
Public Companies comply with PCAOB , Non public companies comply with:
A
AICPA’ Auditing Standards Board’s statement on auditing standards (SAS)
3
Q
Can Financial reporting frameworks affect the scope of an audit?
A
Yes
4
Q
GAGAS (Generall Accepted Governmental Auditing Standards) is also known as what
A
Yellowbook
5
Q
Single audits are divided into what two areas?
A
Compliance and financial
6
Q
Who has the authority to develop government wide guidelines?
A
Office of Management and Budget (OMB)
7
Q
Can a unit elect to have a program-specific audit?
A
Yes
8
Q
What is a program-specific audit?
A
Audit only the federal program and not the entity
9
Q
Does a single audit require a financial audit as well?
A
Yes
10
Q
When an auditor reports to those charge w/ governance, is this considered a management responsibility and therefore would make the auditor NOT independent?
A
Yes – make auditor not independent
11
Q
Does an auditor need to collect evidence for accuracy or completeness in a compilation?
A
No
12
Q
Is a compilation an attest engagement?
A
Yes
13
Q
When can an auditor perform a review?
A
ONLY when the auditor is set to audit the upcoming F/S or has audited the previous F/S
14
Q
What does the SEC require when an auditor performs a review of a public company?
A
They require a review report of the interim F/S if the accountant is independent (should be independent anyways)
15
Q
What is the purpose of an attestation engagement?
A
provide users of info that generally 3rd parties w/ an opinion/conclusion/finding regarding the reliability of a subject matter.
16
Q
PCAOB adopted what from the AICPA?
A
SSAE – Statements on Standards for Attest Engagements
17
Q
Is membership of the AICPA required?
A
No - voluntary
18
Q
Are reviewers of an engagement apart of an engagement team
A
yes
19
Q
What is a covered Member?
A
On engagement Team
Position to influence attest engagement
Partner/partner equivalent/manager that provides >10 hours of nonattest services to client
Firm
20
Q
Is the firm employee benfeit plan apart of the covered member criteria?
A
Yes
21
Q
Is a covered member a person who can influence accounting/financial polices of an entity?
A
Yes
22
Q
What is a joint closely held investment?
A
Auditor and client jointly own an investment that they exercise sig. influence over.
23
Q
What is a partner equivalent
A
Dont need partners approval to do things
Authority to sign firm;s name to an attest report
24
Q
Period of professional engagement begins when?
A
When engagement letter/other agreement to perform attest services is signed.
25
A member of the AICPA needs to be ____ and ____
Independent and objective
26
If threats are not at an acceptable level you should:
Talk to supervisor
Discuss with management in member's organizations
Consult w/ counsel
27
An advocacy threat to compliance mainly violates what?
Integrity and objectivity
28
What interpretation should an auditor/member apply if independent rule is absent?
Conceptual Framework For Independence
29
What interpretation should an auditor/member apply if objective/independent rule is absent?
Conceptual Framework for Members in public practice
30
Should an auditor document identified threats and document the safeguards applied?
Yes
31
What is an adverse interest threat?
Threat a member will not act w/ objectivity b/c the member's interests are opposite w/ the clients. (The auditor may be out to get the client because of some outside event) (Lawsuit, etc)
32
Advocacy threat, what is it?
The auditor/member promotes the client's interest to the point where his independence is compromised
33
Familiarity Threat
Close/long relationship w/ the client
34
Management Participation threat
Auditor takes on role of management. This threat is ONLY in public practice.
35
Self-interest Threat
Member tries to benefit financially from the client
36
Self-review threat
Member evaluates his own work
37
Undue Influence
Client threatens auditor to act a certain way. Black mail
38
Is a member's immediate family subject to the Independence rule?
Yes
39
When can an immediate family member of a covered member have a direct &/or material financial interest in a client
Member isn't involve in the engagement
Investment is unavoidable
Family member agrees to dispose the material/direct interest within 30 days
40
if a close relative is in a key position w/ the client, is independence impaired?
Yes
41
If a close relative has a financial interest w/ the client, is independent impaired?
Yes
42
If an auditor is an underwriter for a client, is independence impaired?
Yes
43
If an auditor is an honorary director or trustee of a Not for profit, is independent impaired?
NO
44
Can an auditor be able to vote on a board and still be independent?
No
45
If a position is CLEARLY honorary a member holds on the board, is independence impaired?
No
46
Before performing non-attest services for an attest client, what needs to be evaluated
Independence rule
47
Nonattest services provided prior to engagement, prior to the period of the F/S, or F/S were audited by a different firm during non attest services -- would this impair independence?
No
48
Do you communicate client's selection/application of accounting standards to clients governance?
No -- only management
49
Do you communicate accounting methods to clients management?
Yes
50
Do you communicate AJE that member has prepped/propposed to governance?
No -- to management
51
Do you communicate the form and content of the F/S to client's governance?
No -- management
52
Independence impaired if you perform appraisal/valuation/actuarial services on the F/S?
Yes -- cannot reduce to acceptable level
53
Independence impaired if you perform appraisal/valuation/actuarial services to tax planning/tax compliance/divorce proceedings?
No
54
Is foresnic accounting an attest or nonattest service?
Non attest
55
Forensic accounting consists of ___ services and ___ services
litigation and investigative
56
If a member agrees to be an expert witness for a client, is independence impaired?
Yes -- it conflicts w/ objectivity
57
Does being a fact witness impair indpendnence?
No
58
Would representing a client in court impair independence if it was to resolve a dispute?
Yes
59
Would representing a client in court impair independence if it was infront of a tax authority?
No
60
Can a member be a power of attorney and still be independent? Why?
Yes -- only limited to tax matters
61
General Standards rule includes what components?
States generally have DCSS (Department of child services (extra s)
Due professional Care
Competence
Supervision Planning
Sufficient Relevant Data
62
A member performing an audit/review/comp/consulting/tax/other professional services must comply with WHAT rule?
```
General Standards Rule
Due professional care
Competence
Supervision
Sufficient relevant data
```
63
If a departure from gaap exists on the F/S , can an auditor still form an opinion?
Yes and No.
Yes -- if the auditor can demonstrate that safeguards were applied
No -- auditor cannot demonstrate that safeguards were applied
64
If a client request the member's work products, can the member say no?
Yes and no.
Auditor can say no if there are unpaid fees.
65
What is a work product from a member?
deliverable assets to the client. Reports, etc.
66
Can a client request the auditor's wp?
They can request, but the auditor doesnt have to give it to them
67
If you give a client a work product document and they request it again, do you have to give it to them?
No
68
If you give a client a work product document and a natural disaster happens and they request another one, do you have to give it to them/
Yes
69
If a member has the ability to record an entry and chooses not to correct a material misleading instance....this is an act of what?
Act of discredibleness
70
Is an act discredible if a member doesn't follow the requirements of regulatory agencies?
Yes
71
If a member preps F/S for purpose of reporting to regulatory agencies/commissions/etc, should they follow the requirements of the agencies/commissions and gaap?
Yes
72
Is an act discredible if a member fails to comply w/ federal/state/local laws regarding the timely filing of tax returns & payroll?
Yes
73
What is a contingent fee?
A fee that is charged based off an event or result
74
Can a member charge a contingent fee if a client claimed their tax return had an omitted deduction?
No
75
Can you receive a commission/referral fee for a non-attest client?
Yes
76
Can you receive a commission/referral fee for an attest client?
No
77
Can 40% of owners of a CPA firm be non CPAS?
No -- at least 51% must be CPAs.
78
Can a Non-CPA owner of a firm assume the ulitmate responsibility?
No -- has to be a CPA
79
Can a non-cpa owner be non-active in the firm?
No -- the non-cpa has to be active.
80
What tiles can a non-cpa have?
Non CPAs are cheerleaders. They use POMS
Principal
Officer
Member
Shareholder
81
Can a non cpa owner have a regular membership to the AICPA?
NO
82
Securities Act of 1933 main objectives are
Provide info on securities offered for public sale
| Prohibit misrepresentation/fraud in sales of securities
83
If a company has an exemption with Regulation D, can securities be sold without registering with the SEC?
Yes
84
What regulation can securities be sold without registering with the SEC
Regulation D
85
Can an exempt security sale have to file a form D before a security?
No -- it can file afterwards
86
Rule 504 of regulation D provides an exemption from the registration requirement for sales up to $____ in any ___ month period.
Can these sales be advertised to the public?
Can the securities be resold by investors without registering
5 milllion / 12months
Not advertised to public
Cannot be resold without registering or w/o an exemption
87
Securities Exchange Act of 1934 created what
Securities Exchange Commission
88
SEC regulates securities on national exchanges & OTC stocks with more than $____ in assets and ____ or more shareholders
$10milllion 500 shareholders
89
What 4 reports are required by the SEC
10k
10q
8k
Proxy Statement
90
What does the 10k need to be accompanied by?
Auditor's report
91
10Q may be limited to what type of engagement?
Review
92
What type of engagement is for the 8k
no engagement necessary
93
Are proxy statements audited?
can they contain audited financial statemnets?
No they're not audited
| Yes they can contain audited f/s (not required)
94
Can public offerings be offered through mail?
no
95
can public offering be offered through interstate commerce?
no
96
Can someone sue the CPA that audited the f/s who acquires securities
yes
97
When can someone sue the CPA
if the f/s contain untrue statements
98
does the plaintiff have the burden to prove the CPA was negligent or fraudulent?
No
99
does the cpa have the burden to establish innocence
yes
100
Is simple negligence enough when sueing a cpa?
yes
101
A defense for a CPA is:
Plaintiff purchased securities after issuing a _____ statement and did not rely on ____
Generally available earnings statement
Registration statement
102
'rule 10b5 with the SEC does what?
Regulates securities exchanges listed and traded on exchanges
103
What is scienter
it means intent to deceive/perpetuate fraud
104
With scienter, is simple negligence enough to hold a CPA responsible?
No
105
Dodd Frank is also known as what type of protection
Investor Protection
106
Dodd frank is what type of reform?
Regulatory
107
Dodd frank created what type of committee
Investor Advisory Committee
108
Investor Advisory committees do what?
Consult w/ SEC on regulatory priorities
109
Is the SEC granted the authority to establish a ____ for brokers and dealers to require ___ of range of products offered to _____
fiduciary duty
disclosure
investors
110
Sarbanes Oxley Act of 2002 protects ___ by improving ___ and ___ reliability of corporate ____
Investors
Reliability
Accuracy
Disclosures
111
Sarbanes Oxley created what board?
PCAOB
| Public Company Accounting Oversight Board
112
What do CPA firms have to do w/ PCAOB
register with the PCAOB to perform attest services for public companies
113
Does the PCAOB have the authority to set/update/amend ethics standards?
Yes
114
PCAOB has the authority to conduct ____ inspections of each registered accounting firm
Compliance
115
If a CPA firm audits more than 100 issuers, how often does the PCAOB inspect them?
Audit >100 issuers are inspected annually
116
If a CPA firm audits less than 100 issuers, how often does the PCAOB inspect them?
Every 3 years
117
What does the PCAOB inspect?
Engagements/quality control system/supervisory conditions
118
What type of court can the PCAOB pursue?
Civil court
119
If a foreign accounting firm audits public companies, what does the PCAOB require
produce their workpapers
120
can pcaob approve a rule w/o the SEC's approval
no
121
Can CPA firms provide non attest services to public companies?
Yes -- only provide tax services
122
If the CPA firm can provide tax services, who approves this from the issuer?
Audit Committee
123
Is a disclosure required when performing a nonattest service to the issuer?
Yes it is required.
124
How often does the partner need to rotate out of the issuer's engagement?
Every 5 years
125
who is required to study and review potential effects of requiring mandatory rotation of a CPA firm?
Comptroller General of the US
126
Title III of SOX prohibits officer/directors to fraudulently influence/mislead a CPA
T/F
True
127
Do material correcting adjustments need to be disclosed when auditing a public company?
Yes
128
Can a public company extend credit or provide a loan to a director/officer?
NO
129
An internal control report is NOT required by the SEC annually?
T/F
False -- it is required
130
How often do public companies need to submit their I/C report?
Annually
131
Do senior financial officers require a separate code of ethics?
Yes
132
what does the SEC require if a code of ethics is not present for senior financial officers?
Need to disclose why not
133
An audit committee requires at least two members be a financial expert
T/F
false -- only requires ONE
134
What must be disclosed in "Plain English"
Material changes to the financial condition of the issuer
135
Is the PCAOB an agency of the United States Government?
No
136
Who created PCAOB
Sarbanes oxley
137
What is the purpose of the PCAOB
Oversee audits of issuers
138
How many people are on the PCAOB board
5
139
Who inspects registered public accounting firms?
PCAOB
140
Do audit firms have to register w/ the PCAOB in order to audit issuers?
Yes
141
How does registration with the PCOAB have to be sent?
electronically @ pcaobus.org
142
Violating the PCAOB is the same as violating _____
SEC
143
When auditing interim F/S for issuers, what standards are supposed to be followed?
GAAS
144
When auditing quality control for issuers, what standards are supposed to be followed
AICPA Auditing Standards Board Statements on Quality Control Standards
145
All interim standards follow what?
AICPA guidlines
146
The PCAOB adopted its own ___, ___, and ___
Auditing Standards, Ethics, Indepndence rules
147
To improve transparency, regarding the engagement partner & other firms....firms are now required to file for EACH ISSUER ____
Form AP - Auditor Reporting of Certain Audit Participants
148
What is included in the form AP - Auditor Reporting of Certain Audit Participants
Name of engagement Partner
| Name /location/extent of participation of each firm participating
149
How many days is the form AP supposed to be filed after the audit ____ is filed with the SEC
35 days
| Audit Report
150
How many days is the Form AP supposed to be filed for IPOs after the audit report?
10 days
151
For Government Accountability Office (GAO) , independence in ___ and independence of ___ is required
Mind
| Appearance
152
What does independence of mind mean
State of mind w/o being affect by influences
153
Independence in appearance is what
absence of a circumstance that would not compromise independence
154
What is a BIAS threat?
result of political/social view, an auditor takes a position that is not objective
155
What is a structural threat?
audit organizations placement within a gov. entity will impact the firm's ability to perform work & report results objectively
156
What rules do employee benefit plans follow for independence?
Department of Labor
157
Professional Skepticism is required by what general standards rule?
Due professional care
158
Should professional judgment be sensitive to the degree of uncertainty?
Yes
159
Professional Judgment should be made after the consideration of _______
Reasonable alternatives
160
How can confirmation be a bias for professional judgment?
Put more weight on information that is consistent with their thoughts
161
How Can overconfidence be a bias for professional judgment?
Overestimates their abilkity to perform tasks to make accurate assessments of risk/decisions.
It can affect the willingness to involve others (2nd opinion)
162
how can anchoring be a bias for professional judgment?
starting from a number and adjusting insufficiently away from the initial value to form a final judgment.
163
how can availability be a bias for professional judgment
auditor considers information easily/readily available more rather than information that is hard to get
164
the auditor must communicate w/ the predecessor auditor ____ accepting the engagement
Before
165
The auditor must ask the client to respond fully to the successor's inquiries
T/F
True
166
Can you contact the predecessor auditor after accepting?
Yes no prob
167
If multiple auditors are considering accepting the engagement, when can the predecessor auditor communicate to the potential successor?
ONLY WHEN A SUCCESSOR IS CHOSEN (auditor accepted)
168
An auditor should not finalize formal acceptance of the engagement until the communications w/ the predecessor are completed
T/F
True
169
Can an auditor propose to accept, but finalize the acceptance after communication the acceptance (can reject if they dont talk to predecessor)
Yes they can
170
should the successor review the predecessors w/p?
Yes
171
should the successor make reference to the report of the predecessor?
NO
172
can an auditor be asked to "reaudit" previously audited f/s?
Yes
173
is a successor required to communicate w/ predecessor for a review/compilation?
NOPE
174
Can a compilation engagement on pro form f/s be a separate engagement?
Yes
175
inquiries required for compilation? For Review?
Compilation: no
review: yes
176
independence for compilation? for review?
compilation: no
review: lack of independence = cant issue review report
177
rep letter for compilation? review?
Compilation: no
Review: yes
178
identify AFRF in engagement letter?
yes
179
who signs the engagement letter -- management or governance?
either or
180
Should engagement letter of compilation address:
Material Departure of AFRF
All disclosures will be omitted
References to Supplementary info
Yes
181
Form and content addressed in engagement letter for review and audits?
Yes
182
If auditor takes responsibility to design, implement, and maintenance of I/C ... engagement letter should be ___
modified stating the responsibility the auditor is doing this
183
can you reduce the engagement (audit to review, etc) if a restriction on the scope of audit is imposed by the client or other circumstances?
Yes
184
Auditor should prep documentation so a ____ who has no previous experience can understand
experienced auditor
185
The auditor has ___ days after the report release date to have a final audit file for non issuers
how many days for issuers?
60 for nonissuers
| 45 for issuers
186
For compilation/reviews: At a minimum, preparation engagement documentation include:
Engagement letter
copy of F/S the accountant prepared
if departure from AFRF, must disclose why and how alt procedures were sufficient
187
Minimum documentation for compilations include
engagement letter
copy of f/s
accountant's report
if departure from AFRF, must disclose why and how alt procedures were sufficient
188
Minimum documentation for a pro forma compilation
engagement letter
results of procedures performed
copy of pro forma info
copy of accountant's report
189
review engagements should be performed so an experienced ____ can understand
accountant -- NOT auditor
190
if a company prepares it F/S on an income tax basis, how do you quanitify the effects
you dont have to
191
Do you communicate the scope/timing of audit to governance?
yes
192
Do you communicate allocation of responsibilities
| between management and governance to governance?
yes
193
communicate concept of materiality to governance?
Yes
194
Scope of audit to commjunicate w/ governance:
RMMIME
Risk of material misstatement (RMM)
Internal Control
Materiality
Extent of use of internal auditor
195
Communicate the attitute/awareness/action of governance concerning the I/C and detection of fraud?
Yes
196
Communicate actions taken in response to developments in financial reporting/law/acct standards
yes
197
How should sig deficiencies / material weaknesses be communicated to governance?
WRITING
198
How should sig deficiencies / material weaknesses be communicated to governance from the PY?
WRITING
199
How long can written communication be delayed (max time to wait) after the report release?
Note: earlier the better
60 days
200
What does the audit report release date mean?
Entity can use the auditor's report in connection w/ the f/s
201
what should written communication regarding I/C include in the letter to governance regarding I/C?
that auditor doesnt express opinion on I/c -- only on the f/s
202
Should the auditor include the definition of material weakness / sig deficiencies in the written communications to governance ?
Yes
203
Is the written communication to governance regarding I/C restricted or nonrestricted?
RESTRICTED
204
Should the auditor write that no sig deficiencies were found?
No
205
Should the auditor write that no material weaknesses were found?
Should - no
| Can - yes, IF requested by governance
206
Should the auditor include potential effects of sig deficencies/material weaknesses?
Yes
207
Should the auditor communicate to governance: auditor's views about accounting practices, accounting policeis, estimates, and f/s disclosures
yes
208
Should the auditor not include IMMATERIAL misstatements when communicating to governance?
No -- it should include immaterial misstatements. Only preclude trivial misstatements
209
Should the auditor communicate material & corrected misstatements for the CY?
Yes
210
Communicate representations the auditor is requesting from management to governance (management rep letter)
Yes
211
Should the auditor not ask about consultations w/ other accountants when communicating to governance
NO -always ask about possible other consultations
212
What type of issues should the auditor communicate to governance
signifciant
213
Communicate delays from management to gov
T/F
T
214
The auditor can distinguish two types of misstatements
what are they
known/factual misstatements
| likely/judgmental misstatements
215
What are likely/judgmental misstatements?
Difference between managemnet and auditor judgments
| Auditor calculating projected known misstatements after finishing a sample
216
If management doesn't correct all misstatements that are above triviality the auditor must obtain what
an understanding on why not making hte corrections
217
Should the auditor communicate the effect of not correcting misstatements from the CY and the PY?
Yes
218
Should fraud be communicated even if its extremely tiny
yes
219
If fraud is taken at the employee level, who do you communicate fraud to
upper mangement
220
if fraud is taken at the management level, whodo you communicate fraud to
governace
221
How should noncompliance be communicated
written or oral
222
what should the auditor do if noncompliance is communicated orally
document in w/p
223
how should sig. findings be communicated to governance
written
224
If a sig. finding arose during the audit, but was corrected, how should it be communicated to governance
it doesnt need to be communicated
225
Can meeting minutes be used to document oral communication w/ governance
yes
226
for review engagements, if management cant provide info that supports F/S are not materially misstated due to fraud or noncompliance, the auditor should:
obtain legal advice and consider withdrawal
227
for review engagements, if auditor expects to include emphasis of matter or other matter paragraph , auditor should communicate this to ____
management
228
what matters can arise when looking at interim f/s for ISSUERS
include a material modification to interim f/s
whether the need to modify disclosures regarding i/c
entity
entity filed 10-qsb or 10-q before completion of review
229
what elements should a firm have relating to quality control
Harlem has horrible quality control
```
Human resource
Acceptance/continuance of engagement
Relevant ethical requirements
Leadership responsibility for quality w/in the firm
Engagement performance
Monitoring
```
230
Who takes ultimate responsibility for quality on each engagement
engagement partner
231
Appropriate competence includes the capacity to apply professional ___
judgment
232
Auditor w/ final responsibility for an audit should communicate w/ mebers of audit team regarding _____
the susceptibility of entity's f/s to material misstatement
233
When should an auditor evaluate the auditor's compliance w/ ethical requiremnets
beginning of engagement (planning)
234
When firms enter to audit governmental facilities, GAGAS requires these firms to supply:
Firms most recent peer review report
| Subsequent peer review reports during period of contract
235
auditors performing work under GAGAS must complete
every 2 years: at least 24 hrs of cpe directly for gov auditing.
People who charge 20% or more of their time to GAGAS assignments must complete 80 hrs every 2 years in CPE for gov auditing
236
Is planning the audit done throughout the audit
yes
237
What should an auditor do when audits a company for the first time (inital audit) in relation to activities
expand activities due to no previous experience
238
Which is more detailed: audit plan vs audit strategy
audit plan
239
Audit strategy identifies matters to address, audit plan documents the matters addressed in the strategy
t/f
True
240
is an engagement plan required for nonaudits
no
241
to understand the entity/environment, it should include
Measurements & Review of entity's financial performance
t/f
True
242
to understand the entity/environment, it should include understanding I/C
t/f
True
243
Should an accountant have an UNDERSTANDING of I/C when performing a review?
no
244
audit risk is also called
attestation risk
245
what does the risk assessment process do
identify, anlyze, and manage risk relevant to F/S
246
examples of contorl activities
segregation of duties, authorization, safeguarding, performance review
247
is performance review a control activity
yes
248
Why is monitoring performed
to ensure controls continue to operate effectively
249
what should the auditor consider when judging which controls to assess
materiality, size of entity, nature of business, complexity of operation, legal requirements
250
What 2 assertions are relevant when the auditor intends to design and perform further audit procedures
completeness and accuracy
251
Is preparing f/s a nonattest engagement
yes
252
is the auditor required to verify accuracy and completeness of info when prepping f/s
no
253
in an examination engagement, should the auditor understand i/c
yes
254
is audit risk applicable to agreed-upon procedures
no
255
what framework defines i/c
COSO - committee of sponsoring organizations
256
auditor should evaluate the ___ of controls and determine whether they have been properly ___
design
| implemented
257
controls over management override are called
entity-wide controls
258
controls related to control environment are called
entity-wide controls
259
the design and implementation of fraud prevention and detection programs is part of the ____
control environment
260
how should the auditor evaluate the entity's risk assessment process. Understanding what?
```
how entity:
identifies business risk relvant to financial reporting
estimates significance of risks
assess likelihood of their occurrence
actions taken to manage them
```
261
smaller entities may not have a formal risk assessment process, the auditor should___
discuss w/ management how they identify and treat identified risks
262
information system is an entity's
ERP system and the controls within
263
should the auditor obtain an understanding of how IT affects control activities that are relevant to planning the audit
NO
264
management is responsible for maintaining i/c to ensure controls are operating effectively.... this is called
monitoring
265
in relation to monitoring the auditor should obtain an understanding of:
activitieis the entity uses to monitor controls of financial reporting
sources of info related to monitoring activities
266
should the auditor understand how the entity presents the transactions and disclosures in the f/s
yes
267
the auditor should document the entity's business____ and information ___
business process
| information flow
268
evaluating the design of a control means to:
determine if its capable of preventing/detecting/correcting misstatements
269
Implementation of a control means that a control ____ and the entity is using it
exists
270
auditor should determine if the control satisfies the objective and can effectively prevent/detect/correct misstatements
t/f
true
271
is inquiry alone sufficient to evaluate the design of a control
no
272
can you inspect documents to understand & evaluate the design of a control
yes
273
is understanding a control sufficient to serve as saying it is operating effectively
no -- need to test the control
274
when a service organization initiate, executes, and does the accounting processing of the user organization's transactions, the user organization should
not implement i/c policies over these transactions
275
Where can you obtain info about the nature of services provided by a service organization?
Entities have to TRUST the service organization
```
The contract
Reports by service auditors
User manual
System overview
Technical manual
```
276
if a user auditor (the auditor auditing the company that uses aservice organization) cannot obtain information about the service organization, the auditor should
have the entity using the service organization contact the service company to obtain the info.
277
Can the user auditor go to the service organization and perform auditing procedures to obtain the info they need?
yes
278
If the auditor cannot obtain evidence to achieve the objective, they should
qualify opinion or disclaim due to scope limitation
279
IT can reduce the risk that contorls will be circumvented
true
280
IT can enhance the ability to achieve effective segregation of duties by implementing ____
security controls
281
IT can pose as a risk for an entity's I/C due to processing what kind of data
inaccurate
282
Risk assessment in an IT environment is the inclusion of a ____ of control over _____ and unauthorized _____
strict policy
changes in programs
access to dataincludes clear lines of ____ and ____
283
Control environment in an IT environment includes clear lines of ____ and ____
authority and responsibility
284
what is an enhanced need when considering control activities for IT
physical controls
285
The auditor needs to understand how ____ processing of transactions is resolved
incorrect
286
Can ineffective general controls cause misstatements
no, but can allow misstatements to occur and not be detected
287
What are general controls
policies and procedures that relate to many applications and support application controls
288
What are application controls
achieve specific control objectives related to specific accounting tasks
they relate to the use to initiate, authorize, record, and process, and report transactions
289
Application controls are categorized into 3 categories
Input controls
Processing Controls
Output Controls
290
How should an auditor perform procedures against management override
JE testing
Review accounting estimates
Unusual transactions
291
Is the auditor required to assess RMM of f/s due to fraud
yes
292
Fraud triangle:
| RIO
Rationalization
Incentive
Opportunity
293
Accounts/transactions that have high inherent risk can also have ____ risk due to ____
fraud
| manipulation
294
auditor should always assume a risk to revenue. The risk would be
revenue recognition
295
an auditor should always inquire with ____ about fraud
management
296
Why should an auditor inquire with management about fraud
often fraud is revealed through inquiries
297
should the auditor obtain how the audit committee exercises oversight of mitigating fraud risks
yes
298
The auditor should ask the internal auditors if they:
performed procedures to detect fraud
| if they think fraud is occurring
299
auditor should involve employees who:
intiate, authorize, process, record transactions & have some authority
300
should the auditor interview people regarding fraud who are in operations not directly involved in the financial reporting process
yes
301
Should the auditor interview in house legal counsel regarding fraud
yes
302
check fro mfraud on compilations?
no
303
check for fraud on reviews?
Only inquire if management is aware of raud
304
corroborate management's response with other evidence in a REVIEW?
No
305
in an examination should an auditor inquire about fraud
yes
306
how should an auditor evaluate RMM
understanding entity & environment
understanding i/c
considering classes of transactions/accounts/disclosures in the F/s
307
Risk assessment procedures help the auditor to
understand i/c and entity's environment
308
how should an auditor perform risk assessment procedures
observe/inspect
analytical procedures
inquiry
309
auditor should use risk assessment procedures to detremine
NTE of audit procedures
310
RMM affects what kind of risk
Detection
311
More RMM, the ___ the detection risk
lower
312
Test of controls reduce the need for substantive procedures
True
313
do effective internal controls reduce the risk of material misstatement?
Yes
314
The higher the risk of material misstatement, the more ____ and ___ is the audit evidence
relevant and reliable
315
An auditor can perform test of controls or sbustantive procedures at an interim date or period-end
true
316
Thee higher the RMM, the more likely the auditor may decide to test substantive procedures at YE or period end
True
317
The auditor will increase the extent the higher ____ goes up
RMM
318
if RMM at a relevant assertion level is a sig. risk, the auditor should perform ____ that are specifically responsive to that risk
substantive procedures
319
if management has not responded by implementing controls, this should be communicated to
governance
320
If a test only consists of substantive procedures, then ____ should be incorporated
tests of details
321
the purpose of using a specialist to obtain sufficient appropriate evidence about items ___ to the f/s for which the auditor does not have knowledge
Material
322
Do you reference a specialist in an unmodified report?
No
323
Do you reference a specialist in a modified report?
Only if its relevant to the understanding why the report is modified
324
what must the report indicate when referencing a specialist?
That it did not reduce the auditor's responsibility
325
Can the auditor use the work used by internal auditors?
yes -- it can reduce or change the work needed by the auditor
326
does an auditor have to obtain an understanding of the internal auditor function?
yes
327
can the work of internal auditor's affect the overall risk assessment of the auditor?
Yes
328
can the auditor use the internal auditors test of controls to reduce the xtent of control testing procedures
yes
329
How can internal auditors reduce substantive testing for theexternal auditor?
Internal auditors can already have confirmed AR accounts -- therefore auditor can reduce the amount of AR accounts
330
the report of the auditor is hared responsibility with internal auditors
t/f
false -- only auditors responsibility
331
if the auditor uses internal auditors work, the auditor must look at the internal auditors
workpapers
332
the internal auditor can assist the auditor with the NTE
True
333
if the auditor uses the internal auditors work, the auditor shall direct, supervise, and ____ the work performed by the internal auditors
review
334
The auditor should recognize that internal auditors are NOT
independent
335
The auditor should pull ____ from the internal auditor to ensure quality
audit evidence for some work performed
336
Tax and pension laws are examples of
laws and regulations that have direct effect on determination of material amounts and disclosures in the f.s
337
can an auditor communicate noncompliance to parties outside the entity if it is identified or suspected
yes
338
can an auditor communicate noncompliance to parties outside the entity if it is identified or suspected IN A REIVEW
no
only management
if management is noncompliance, then governance (written or oral)
339
Greater RMM arise from accounting estimates from: (3)
interpretation of accounting principles
complex and subjective judgment
assumption of future events
340
Net realizable value is an example of
estimates
