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CPA Exam - AUD V1.0 > Daily Cumulative Review > Flashcards

Daily Cumulative Review Flashcards

Prepare for the AUD Exam.

1
Q

How should a change in accounting principles inseparable from a change in accounting estimate be accounted for?

A

Change in accounting estimate.

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2
Q

When materiality is revised, what also must be revised?

A

Materiality for transactions, account balances, or disclosures.

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3
Q

What may materiality affect in terms of procedures?

A

Nature, Timing and Extent of procedures.

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4
Q

What may an auditor also perform at the same time, when obtaining an understanding on internal controls to be more efficient?

A

Perform test of controls.

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5
Q

What is the affect of the risk on incorrect rejection combined with incorrectly assessing control risk too high?

A

An inefficient audit.

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6
Q

What three things should be documented when the auditor believes there is substantial doubt about entity’s ability to continue as a going concern?

A
  1. Conditions that arose to the situation
  2. Conclusion on alleviation or not
  3. the effect on the auditor’s conclusion on the report.
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7
Q

How should an auditor efficiently proceed an audit of (1) Balance Sheet account that had multiple transactions and (2) another Balance Sheet account had a few transactions?

A
  1. Focus on ending balance
  2. Focus on the transactions
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8
Q

When would an auditor consider not performing test of effectiveness of controls?

A
  1. Substantive testing is faster
  2. Design of controls inadequate
  3. Not possible
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9
Q

What does data mining allow users to do?

A
  1. Obtain data themselves
  2. Diagnostic analytics
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10
Q

What requires modification of a report during a review of F/S?

A
  1. Not following GAAP
  2. Not disclosing or hiding disclosures to mislead
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11
Q

What is the relationship between population variability and sample size?

A

Direct.

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12
Q

What is the relationship between risk of incorrect acceptance and sample size?

A

Inverse.

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13
Q

To whom does the auditor of an issuer report critical accounting policies and practices used?

A

Audit Committee.

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14
Q

What is the effect on maximum deviation rate, tolerable rate, and deviation rate when control risk is assessed high?

A
  1. Maximum deviation rate is greater than tolerable rate
  2. Deviation rate is greater than tolerable rate
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15
Q

What segregation of duties are violated if a supervisor approves timesheets and distributes checks?

A
  1. Authorization
  2. Custody
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16
Q

What are three examples of acts discreditable according to the AICPA?

A
  1. Failure to return client documents
  2. Negligence
  3. Lack of timeliness for deadlines
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17
Q

What should the auditor do when documentation is only retained for a short period of time?

A

Perform tests throughout the year.

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18
Q

What are the formulas where an auditor sees whether they can or cannot rely on a control? Provide the formula for cannot?

A
  1. Sampling deviation rate - Allowance for sampling risk >= Tolerable deviation rate
    or…
  2. Sampling deviation rate > Tolerable deviation rate - Allowance for sampling risk
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19
Q

What should the auditor use the 5 components of internal control (COSO) for?

A

Identify and evaluate controls.

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20
Q

What type of an engagement would use restrictive language in the report?

A

Compliance based on the F/S audit.

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21
Q

What are the steps to calculating a sample size using PPS (3 steps)?

A
  1. Reliability factor (table)
  2. Sampling interval (tolerable misstatement/reliability factor)
  3. Total population/sampling interval
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22
Q

What disagreements and significant audit adjustments should be communicated to governance?

A
  • All issues (even resolved)
  • All adjustments (booked or not)
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23
Q

When an auditor issues an adverse or a disclaimer opinion on the F/S, when should the auditor issue a report on compliance if it is in connection with the F/S?

A

Noncompliance is identified. Negative assurance is expressed on a compliance report

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24
Q

What should the auditor consider and discuss with the client when accepting an audit engagement near year-end or after?

A

Limitations that may lead to a qualified or a disclaimer of opinion.

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25
What are the procedures for testing the Completeness assertion?
Tracing, Analytical Procedures, & Observation
26
What are procedure(s) for testing the Cutoff assertion and what is an example?
Analyzing transactions before and after year end, e.g., comparing purchase voucher packages to a journal entry
27
What are procedures for testing the Valuation, Allocation, and Accuracy assertion?
Inspection, Footing, Recalculation, & Reconciliation
28
What are procedures for testing the Existence and Occurrence assertion?
Confirmation, Observations/Inspection/Examination, & Vouching
29
What are procedure(s) for testing Rights & Obligations assertion?
Inspection
30
What are procedures for testing Understandability of Presentation and Classification assertion?
Inspection, Review, & Inquiry with management
31
COSO (Treadway Commission), a private initiative issued "The Framework" for what purpose?
To help business assess internal controls
32
What is an entity level control?
Pervasive effect on company's internal control
33
What type of sampling method is used for test of controls?
Attribute
34
What are three considerations when designing CY audit procedures over ICFR?
1. Changes to key controls 2. PY control testing results 3. Nature, Timing, Extent of PY procedures
35
A misstatement effecting an audit client's ability to meet their loan covenant is what type of relevant factor?
Qualitative
36
To qualify for hedge treatment, an entity needs to disclose a number of transactions, what is one of those transactions an auditor should examine through contracts?
Risk exposure
37
What are engagements that should contain a restricted use paragraph?
* Compliance in connection with F/S * Financial Projections * Pro forma FS * Comfort letter
38
What type of engagement does SSARs (Statement on Standard for Accounting and Review Services) apply to?
Preparations, Compilations, and Reviews
39
Why do deviations from controls not affect the risk of material misstatements?
* Control deviations do not correlate with misstatement, i.e., 50% deviation does not equal 50% misstatement * Deviations lead to the auditor changing N.T.E. of testing which leads to the conclusion of the point above
40
For a review which includes the current period and the prior period, what timeline of management should provide management representation for the periods?
Current
41
What type of audit evidence would an auditor request for material inventory held under a custodian?
Confirmation from custodian
42
Why are blank confirmation preferable when the confirming party has a high chance of not devoting the proper attention to a positive confirmation?
Have to fill-out rather than sign and send
43
in a SOC 1 Type 1 audit, what should the auditor's report contain a description of?
Scope and procedures performed
44
What is the box of a bank confirmation where an auditor may identify contingent liabilities?
Exceptions and comments, e.g., loan endorsements, credit letters, etc.
45
In a consignment sale, the customer has a few days to return the product without payment, what type of transaction is this considered?
Arms-length
46
How should the auditor respond to a high risk of material misstatement on inventory due to misappropriation?
Perform procedures at year-end
47
Per GAGAS, what are some topics referenced for ethics?
* Public interest * Integrity * Objectivity * Resources and position * Professional behavior
48
What is an auditor required to assess in both an audit of an issuer and non-issuer besides the Financial Statements?
Risk of fraud
49
Why may compensating balance arrangements be maintained for?
Related party transactions
50
What should the auditor do when Fraud Risk is high?
Lower detection risk by altering the Nature, Timing, and Extent of audit procedures. Note: Don't think of this in terms of the audit risk formula, but rather than definition of detection risk
51
What can be a reasonable effect of not recording an immaterial 'illegal' payment?
Lead to contingent liability or material loss of revenue
52
When is reviewing financial statements and related notes usually performed in the audit process?
Concluding Audit
53
What should be present when an auditor is asked to provide on compliance in connection with audited Financial Statements?
a. The auditor should've audited the F/S b. Negative assurance is expressed on compliance
54
What component of COSO is disseminating information belong to?
Information and Communication
55
What will exceed actual GDP during an economic recession?
Potential GDP
56
Why is the bank reconciliation the primary-evidence regarding the year-end cash balance?
Reconciliations the Bank to the Financial Statements (Books)
57
What type of evidence does an A/R confirmation provide?
Corroborating evidence
58
An an auditor is asked to prepare Financial Statements for the follow?: * To be included in a financial plan * To be solely submitted to tax authorities * Along with litigation proceedings that are pending or could be ongoing * Along with business valuation services What do all of these have in common?
Do not fall within SSARs
59
What are three reasons why analytical procedures applied during the review stage?
* Going Concern evaluation * FS presentation * Assessing conclusion
60
If the disclosures for a going concern are adequate, but the going concern hasn't been alleviated, what should be included in the audit report?
Separate paragraph
61
What factors would make the auditor assess control risk too low as a result of test of controls?
Control risk from sample < Operating Effectiveness of controls
62
What factors would make the auditor assess control risk too high as a result of test of controls?
Control risk from sample > Operating Effectiveness of controls
63
Attesting and reporting on management's assertion on the effectiveness of internal controls is a part of what section of SOX Act of 2002?
Section 404
64
Record counts being employed for sales before being entered in AIS is a control activity for what type of assertion?
Completeness
65
What are factors impacting the efficiency and effectiveness of applying analytical procedures?
a. Precise expectations b. Understanding of relationships between data c. Data is available and reliable
66
In a report on compliance with laws and regulations, what should be disclosed in the report concerning instances of fraud or illegal acts?
Material instances discovered should be disclosed.
67
Where are analytical procedures required to be performed?
Planning and concluding (review) stage
68
What should the auditor focus on when evaluating the reasonableness of a client's accounting estimates?
a. Variation sensitivity b. Deviations from historical patterns b. Subjective c. Susceptible to bias
69
What is the purpose of performing a test of details as a substantive test?
To detect material misstatement

CPA Exam - AUD V1.0 (3 decks)

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