Be Audit you can be

Question 1

Using negative AR confirmations requires:

Answer 1

a low risk of MM
a large number of small balances
an expected very low exception rate
no reason to believe that the recipients would not review them properly.

Question 2

what are negative confirms?

Answer 2

requires a response only if there is a problem with the balance

Question 3

what is a positive confirm?

Answer 3

requires a response whether the balance is correct or incorrect

Question 4

FOB shipping point

Answer 4

title passes when the goods are shipped

Question 5

An auditor should concentrate on key factors and assumptions when evaluating the reasonableness of acct estimates:

Answer 5

Significant to the acct estimate
Sensitive to variations
Deviations from historical patterns
Subjective and susceptible to misstatement and bias

Question 6

Observable inputs

Answer 6

Assumptions that market participants would use in pricing an asset or liability based on market data from sources independent of the reporting entity

Question 7

Unobservable inputs

Answer 7

the entity’s own judgments about what assumptions market participants would use.

Question 8

what is the purpose of a legal letter?

Answer 8

to obtain corroboration of mgmt’s representations to the auditor

Question 9

What if an attorney refuses to provide info in an inquiry letter?

Answer 9

Scope limitation. It would result in a disclaimer of a qualified opinion.

Question 10

What do the auditors do regarding legal discussions

Answer 10

discuss with mgmt the policies and procedures it has adopted for evaluating and accounting for litigation, claims, and assessments

Question 11

contingent liability

Answer 11

potential liability that may occur depending on the outcome of an uncertain future event. should be recorded in the acct records if it is probable and the amount can be reasonably estimated.

Question 12

Review report on Pro Forma Financial Info

Answer 12

“the historical condensed FSs are derived from the historical unaudited FS, which were reviewed by us, and of ABC co, which were reviewed by other accountants

Question 13

Letters for underwriters and certain other requestinig parties

Answer 13

“nothing came to our attention as a result of the foregoing procedures, however, that caused us to believe that any Material modifications should be made to the unaudited condensed FS, included in the reg. statement for them to be in conformity with GAAP.

Question 14

A purpose of a MRL is to

Answer 14

reduce the possibility of a misunderstanding concerning mgmt’s responsibility for the FS

Question 15

What period of time should an MRL cover?

Answer 15

Should address all periods covered by the auditors report. 2 periods being audited up through the report date

Question 16

MRL - fraud

Answer 16

Mgmt must acknowledge its responsibility for the design and implementation of programs and controls to prevent and detect fraud

Question 17

Arm’s length transaction

Answer 17

a transaction conducted on such terms between a willing buyer and seller who are unrelated and are acting independently of each other and pursuing their own best interest

Question 18

What is the auditors primary responsibility pertaining to related parties?

Answer 18

to ensure that disclosure of related party transactions in the FS is adequate

Question 19

an auditor would most likely modify an unqualified opinion if the entity’s FS include a footnote on related party transactions…

Answer 19

stating that a particular related party transaction occurred on terms equivalent to those that would have prevailed in an arms length transaction

Question 20

After issuing a report, an A has no obligation to make cont inquiries or perform other procedures concerning the FS unless

Answer 20

info that existed AT THE REPORT DATE and may affect the report comes to the As attention

Question 21

What is a type II subsequent event?

Answer 21

pertains to conditions that arose subsequent to the BS date and therefore do not require adjustment of the FSs

Question 22

The auditors report should not be dated..

Answer 22

earlier than the date on which the auditor has obtained sufficient appropriatae evidence to support an opinion.

Question 23

When a subsequent event occurs requiring adj of the FS but no disclosure if made,

Answer 23

the report will still be dated when sufficient audit evidence had been obtained ( the original report date)

Question 24

When the A concludes that there is a going concern issue

Answer 24

the A is required to consider the FS effects including the adequacy of the disclosure of the matters involved.

Question 25

What are indicators that an entity has sig. financial problems

Answer 25

the denial of usual trade credit from suppliers. Recurring capital losses
Working capital deficiencies
Negative cash flows from operating activities
Adverse key financial ratios

Question 26

The As consideration relating to mgmt’s plans for dealing with the adverse effects of these conditions most likely would include mgmt plans to

Answer 26

increase ownership equity thru:

Issuance and sale of addit. capital stock