Day 12

Question 1

Under the SEC’s rules when does the Lead Audit Partner need to rotate off the audit? When do the other Audit Partners need to rotate off the Audit?

Answer 1

Lead Audit Partner = 5 years

Other Audit Partners = 7 years

Question 2

Under the SEC’s rules, how long is the “Time-Out” period for the Lead Audit Partner?

Answer 2

5 years

Question 3

When is a Disclaimer of Opinion issued?

Answer 3

1. Scope Limitation
2. When the Auditor is not independent
3. When the FS are not audited

Question 4

According to the Dept. of Labor (DOL), the auditor must be:

Answer 4

Independent for the purposes of examining financial information required to be filed annually with the DOL

Question 5

When does the communication of significant deficiencies occur with a FS audit and an audit of internal controls?

Answer 5

FS Audit = 60 days of Report Release Date

Internal Control Audit = Report Release Date

Question 6

What audit procedure would help the auditor in identifying related party transactions?

Answer 6

Reviewing confirmation of loans receivable and payable for indications of guarantees

Question 7

According to the SEC, what non-audit services will impair the Auditor’s independence?

Answer 7

1. Bookkeeping services/other accounting records or FS
2. Financial Info design and implementation
3. Actuarial Services
4. Mgmt / HR Functions
5. Broker / Dealer / Investment advisor
6. Legal Services

Question 8

Sample Deviation Rate + Allowance for Sampling Risk =

Answer 8

Upper Deviation Rate

Question 9

What would be a consideration in planning an Auditor’s sample for a test of controls?

Answer 9

the Auditor’s Allowable Risk of Assessing Control Risk Too Low

Question 10

Define: Presumptively Mandatory Requirement

Answer 10

MUST be followed in all cases where the requirement is relevant, except in rare circumstances

Question 11

When a single year FS are presented, an auditor ordinarily would express an Unmodified Opinion with NO Emphasis-of-Matter or Other Matter paragraph if the:

Answer 11

PY FS were audited by another CPA whose report was Unmodified and is not presented

Question 12

What would heighten an Auditor’s concern about the RMM in an entity’s FS?

Answer 12

The Entity’s industry is experiencing a decline in customer demand

Question 13

An Examination Report should provide what type of assurance?

Answer 13

Positive Assurance

Question 14

What type of Opinion should be issued when there is a departure from the Applicable Financial Reporting Framework?

Answer 14

Disclose or Withdraw

DO NOT issue Adverse

Question 15

Compilation Requirements:

Answer 15

1. Nonissuer / Private Company
2. No Assurance
3. Independence = not required
4. Must disclose if not independent

Question 16

What circumstances would result in a Disclaimer of Opinion?

Answer 16

1. Auditor is unable to determine the amounts associated with illegal acts committed by MGMT
2. Auditor is engaged after fiscal Year-End and is unable to observe physical inventory counts
3. The client refuses to permit its attorney to furnish information requested by the Auditor

Question 17

What should the Auditor do when a Service Organization is part of an entity’s Internal Control?

Answer 17

Test the entity’s relevant controls over the activities of the Service Organization

This allows the Auditor to obtain evidence that controls are operating effectively

Question 18

What is included in MGMT’s Written Rep. Letter?

Answer 18

1. Acknowledges MGMT’s responsibility for establishing and maintaining effective Internal Controls
2. States MGMT’s assessment as of a specific date
3. Affirms MGMT did not rely on the Auditor’s procedures
4. MGMT has disclosed all deficiencies in design and operations
5. Describes fraud resulting in material misstatement
6. States whether there were any significant changes to Internal Control AFTER the as-of-date of the report

Question 19

What contributes most to a Strong Control Environment?

Answer 19

MGMT adheres to Internal Control Policies

STRONG TONE AT THE TOP