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CPA AUD > Chapter 4 > Flashcards

Chapter 4 Flashcards

1
Q

What does sufficiency mean in terms of audit evidence?

A

Sufficiency is the extent of testing

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2
Q

What does appropriateness mean in terms of audit evidence?

A

Appropriateness relates to the nature of evidence.

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3
Q

What does relevance mean in terms of audit evidence?

A

It means that evidence provides support of a relevant assertion

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4
Q

What are the different levels of reliable audit evidence?

A
  1. Evidence obtained directly by the auditor (most reliable)
  2. Evidence obtained from outside the client
  3. Evidence that originated from outside the client, but was obtained from inside the client
  4. Evidence generated internally (least reliable)
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5
Q

What are management’s assertions that are represented in the financial statements?

A

Completeness

Ocurrence

Cutoff

Accuracy

Classification

Understandibility

Rights and obligations

Valuation

Existence

COCA-CURVE

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6
Q

What are the two categories of substantive tests?

A

Tests of details and analytical procedures

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7
Q

What are the different types of audit procedures?

A

Inquiry

Confirmation

Observation

Recalculation

Reperformance

Inspection of tangible assets

Inspection/examination of records or documents

Analytical procedures

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8
Q

What is tracing and what assertion is it associated with?

A

Going from the source documents to the books.

It is associated with completeness

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9
Q

What is vouching and what assertion is it associated with?

A

Going from the books to the source documents

Associated with existence/occurrence

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10
Q

When is it required to perform analytical procedures? When is is it optional?

A

During the planning phase and during the overall review phase, it is required

During substantive testing it is optional

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11
Q

What are the five basic types of comparisons?

A

Client vs industry

Related accounts

Actual vs budget

Financial vs nonfinancial

This year vs prior year

CRAFT

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12
Q

Are relationships between income statement accounts or balance sheet accounts more predictable?

A

Income statement accounts

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13
Q

What are the two audit approaches in terms of testing?

A

Test of balances: Used for the balance sheet. Many transactions, small dollar amounts

Test of transactions: Used for the income statement. Few transactions, large dollar amounts.

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14
Q

What is kiting?

A

A special type of fraud used by management to overstate cash and cash equivalent’s at the end of a period.

Company transfers cash from one account to another, but recognizes the increase in cash during the current period and the decrease in cash in the subsequent period.

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15
Q

What is a type of evidence required to be obtained for receivables?

A

External confirmations

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16
Q

What is a negative confirmation and what type of evidence does it provide?

A

A confirmation in which the customer is only asked to respond if the amount is incorrect

Provides implicit evidence

17
Q

What is a positive confirmation and what type of evidence does it provide?

A

A confirmation that asks the customer to verify the correctness of the amount on the confirmation

Provides explicit evidence

18
Q

What is a blank confirmation?

A

Special type of positive confirmation that requires to customer to provide an amount without being told what it is

19
Q

What is lapping?

A

Attempt to cover theft of receivables collection by posting collection from one customer to a different customer’s account.

20
Q

What is an audit program?

A

Step-by-step list of audit procedures that emphasizes account balances

REQUIRED for every GAAS audit

21
Q

What are the steps to drafting an audit program/plan?

A
  1. Identify a material class of transaction
  2. Identify the relevant assertions
  3. Identify all control activities that pertain to the relevant assertion. Evaluate if they are sufficient at preventing, detecting, or correcting a material misstatement.
  4. Decide on procedure of procedures that will provide sufficient appropriate evidence for the assertion.
  5. Evaluate whether evidence obtained supports one or more assertions or a different one.
  6. Prepare uditor programs with a lower risk on an incremental basis
22
Q

How long is the documentation completion period for audit documentation for a non-public company?

A

60 days following the report release date

23
Q

How long does the documentation retention period last for a non-public company?

A

At least 5 years from report release date

24
Q

Who owns audit documentation?

A

The auditor and it is confidential

25
Q

What are exceptions to confidentiality of audit documentation?

A

Valid subpoena

IRS admin subpoena

Court order

Quality control peer review

26
Q

What is an engagement completion document?

A

Document that identifies all significant findings and issues and is sufficiently specific for a review to obtain a thorough understanding.

Required for public company audits

27
Q

How long is the documentation completion period for a public company?

A

45 days from the report release date

28
Q

How long is the document retention period for a public company?

A

7 years

29
Q

What does management say it is responsible for in a management/client representation letter?

A

Preparation and fair presentation of the financial statements according to the applicable financial reporting framework

Design, implementation, and maintenance of internal controls relevant to the prep and fair presentation of financial statements

30
Q

What is one representation management CANNOT make in the management rep letter?

A

CANNOT claim that there have been no errors or fraud committed by employees. Can only say they were unaware or have committed no fraud themselves.

31
Q

What information is in an attorney’s letter to the auditor?

A

Info on litigation, claims, and assessments to corroborate with management’s info.

CPA AUD (9 decks)

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