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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
Q

What are the procedures for testing the Completeness assertion?

A

Tracing, Analytical Procedures, & Observation

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26
Q

What are procedure(s) for testing the Cutoff assertion and what is an example?

A

Analyzing transactions before and after year end, e.g., comparing purchase voucher packages to a journal entry

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27
Q

What are procedures for testing the Valuation, Allocation, and Accuracy assertion?

A

Inspection, Footing, Recalculation, & Reconciliation

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28
Q

What are procedures for testing the Existence and Occurrence assertion?

A

Confirmation, Observations/Inspection/Examination, & Vouching

29
Q

What are procedure(s) for testing Rights & Obligations assertion?

A

Inspection

30
Q

What are procedures for testing Understandability of Presentation and Classification assertion?

A

Inspection, Review, & Inquiry with management

31
Q

COSO (Treadway Commission), a private initiative issued “The Framework” for what purpose?

A

To help business assess internal controls

32
Q

What is an entity level control?

A

Pervasive effect on company’s internal control

33
Q

What type of sampling method is used for test of controls?

A

Attribute

34
Q

What are three considerations when designing CY audit procedures over ICFR?

A
  1. Changes to key controls
  2. PY control testing results
  3. Nature, Timing, Extent of PY procedures
35
Q

A misstatement effecting an audit client’s ability to meet their loan covenant is what type of relevant factor?

A

Qualitative

36
Q

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?

A

Risk exposure

37
Q

What are engagements that should contain a restricted use paragraph?

A
  • Compliance in connection with F/S
  • Financial Projections
  • Pro forma FS
  • Comfort letter
38
Q

What type of engagement does SSARs (Statement on Standard for Accounting and Review Services) apply to?

A

Preparations, Compilations, and Reviews

39
Q

Why do deviations from controls not affect the risk of material misstatements?

A
  • 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
Q

For a review which includes the current period and the prior period, what timeline of management should provide management representation for the periods?

A

Current

41
Q

What type of audit evidence would an auditor request for material inventory held under a custodian?

A

Confirmation from custodian

42
Q

Why are blank confirmation preferable when the confirming party has a high chance of not devoting the proper attention to a positive confirmation?

A

Have to fill-out rather than sign and send

43
Q

in a SOC 1 Type 1 audit, what should the auditor’s report contain a description of?

A

Scope and procedures performed

44
Q

What is the box of a bank confirmation where an auditor may identify contingent liabilities?

A

Exceptions and comments, e.g., loan endorsements, credit letters, etc.

45
Q

In a consignment sale, the customer has a few days to return the product without payment, what type of transaction is this considered?

A

Arms-length

46
Q

How should the auditor respond to a high risk of material misstatement on inventory due to misappropriation?

A

Perform procedures at year-end

47
Q

Per GAGAS, what are some topics referenced for ethics?

A
  • Public interest
  • Integrity
  • Objectivity
  • Resources and position
  • Professional behavior
48
Q

What is an auditor required to assess in both an audit of an issuer and non-issuer besides the Financial Statements?

A

Risk of fraud

49
Q

Why may compensating balance arrangements be maintained for?

A

Related party transactions

50
Q

What should the auditor do when Fraud Risk is high?

A

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
Q

What can be a reasonable effect of not recording an immaterial ‘illegal’ payment?

A

Lead to contingent liability or material loss of revenue

52
Q

When is reviewing financial statements and related notes usually performed in the audit process?

A

Concluding Audit

53
Q

What should be present when an auditor is asked to provide on compliance in connection with audited Financial Statements?

A

a. The auditor should’ve audited the F/S
b. Negative assurance is expressed on compliance

54
Q

What component of COSO is disseminating information belong to?

A

Information and Communication

55
Q

What will exceed actual GDP during an economic recession?

A

Potential GDP

56
Q

Why is the bank reconciliation the primary-evidence regarding the year-end cash balance?

A

Reconciliations the Bank to the Financial Statements (Books)

57
Q

What type of evidence does an A/R confirmation provide?

A

Corroborating evidence

58
Q

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?

A

Do not fall within SSARs

59
Q

What are three reasons why analytical procedures applied during the review stage?

A
  • Going Concern evaluation
  • FS presentation
  • Assessing conclusion
60
Q

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?

A

Separate paragraph

61
Q

What factors would make the auditor assess control risk too low as a result of test of controls?

A

Control risk from sample < Operating Effectiveness of controls

62
Q

What factors would make the auditor assess control risk too high as a result of test of controls?

A

Control risk from sample > Operating Effectiveness of controls

63
Q

Attesting and reporting on management’s assertion on the effectiveness of internal controls is a part of what section of SOX Act of 2002?

A

Section 404

64
Q

Record counts being employed for sales before being entered in AIS is a control activity for what type of assertion?

A

Completeness

65
Q

What are factors impacting the efficiency and effectiveness of applying analytical procedures?

A

a. Precise expectations
b. Understanding of relationships between data
c. Data is available and reliable

66
Q

In a report on compliance with laws and regulations, what should be disclosed in the report concerning instances of fraud or illegal acts?

A

Material instances discovered should be disclosed.

67
Q

Where are analytical procedures required to be performed?

A

Planning and concluding (review) stage

68
Q

What should the auditor focus on when evaluating the reasonableness of a client’s accounting estimates?

A

a. Variation sensitivity
b. Deviations from historical patterns
b. Subjective
c. Susceptible to bias

69
Q

What is the purpose of performing a test of details as a substantive test?

A

To detect material misstatement

CPA Exam - AUD V1.0 (3 decks)

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