Day 23 Flashcards
How might an auditor test Fair Value Measurements and Disclosures?
- Verify quoted market prices
- Do MGMT’s significant assumptions provide a reasonable basis?
- Do modifications to observable info reflect assumptions made in the market?
- Evaluate the Valuation model
- Test underlying data
- Develop independent fair value estimates
- Review subsequent events
- Consider use of specialist
MCQ-02500
What attributes should the auditor consider when assessing client risks that may result in material misstatement sure to fraud?
- Type of Risk
- Significance of the Risk
- Likelihood of the Risk
- Pervasivness of the Risk
MCQ-07597
The auditor’s responsibility paragraph of the unmodified opinion audit report EXPLICITLY states that an audit includes:
“We identified and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks”
MCQ-14965
Define: Bill of Lading
Generated by the carrier
MCQ-03197
After identification of misstatements in the sample, the next step is to:
Project the detected error to the entire population
MCQ-06224
Finish the stmt that is EXPLICITLY written: “The audit is conducted in accordance with _______…“
“Auditing standards generally accepted in the United States of America”
MCQ-14965
Steps in applying Audit Data Analytics:
- Risk Assessment
- Test of Controls
- Substantive Procedures
- Concluding the Audit
MCQ-14561
Define: Regression Analysis
Evaluates relationships between variables, show the direction and strength of the relationship.
Typically utilizes SCATTER PLOTS
MCQ-14561
Define: Variance Analysis
Compares a Company’s forecasted or budgeted values against actual values.
Bullet Chart
MCQ-14561
Define: Financial Projection
What type of engagement is to examine an entity’s financial projection?
Financial Projections- are hypothetical, “WHAT-IF” prospective financial statements.
Agreed-Upon-Procedures and restrict the use of the report
MCQ-02514
Name the Auditor’s Responsibilities in an Attest Function (Opinion)
- Maintaining Professional Skepticism
- Complying with relevant ethical requirements
- Exercising Professional Judgement
- Obtaining SUFFICIENT APPROPRIATE audit evidence
- Complying with generally accepted auditing standards (GAAS)
MCQ-03333
Opinion Type: The FS fail to contain adequate disclosure of related party transactions
Qualified or Adverse
MCQ-02914
Opinion Type: The auditor is unable to determine the amounts associated with illegal acts committed by Mgmt
Disclaimer of Opinion
MCQ-02914
Opinion Type: The client refuses to permit its attorney to furnish information requested in a letter of audit inquiry
Disclaimer of Opinion
MCQ-02914
Opinion Type: The auditor is engaged after fiscal YE and is unable to observe physical inventories or apply alternative procedures to verify their balances
COULD RESULT IN A Disclaimer of Opinion DEPENDING ON THE MATERIALITY OF INVENTORY
MCQ-02914
In assessing the tolerable rate of deviation of a test of controls that was performed using statical sampling, an auditor should consider that:
Deviations from pertinent controls at a given rate ordinally result in misstatements at a lower rate.
“Sometimes a control is not working but that does NOT mean there is a dollar misstatement”
EX: Testing approval for sales orders and 50% were not approved, that does not mean sales income is off by 50%
MCQ-11048
Advantages of Statistical Sampling:
- Measure the sufficiency of the audit evidence
- Provide an objective basis for quantitatively evaluating sample results
- Design efficient sample
- Quantify sampling risk to limit risk to an acceptable level
MCQ-02600
Name the two requirements crucial to achieving audit efficiency and effectiveness with a computer are selecting what?
- Identification of the Appropriate Audit Tasks
and - Appropriate Software to perform the tasks
MCQ-03065
Define: Principal Owners in regards to Related Party Transactions
Principal Owners- Include owners of record or known Beneficial Owners owning 10% or more of voting interest
*NOTE: Form 4 is a required form for Principal Owners to be filed with SEC when they purchase or dispose of equity in an entity in which they own 10% or more.
TBS-002081
What should the auditor do when a Contingency that is “reasonably possible” and can be estimated?
Disclosed in the footnotes of the financial statements, but no entry is required
TBS-008110
What should the auditor do if a major customer filed for bankruptcy during the year under audit?
When a major customer files for bankruptcy, a loss is both probable and estimable = SHOULD BE RECORDED
DR Bad Debt (Operating Expenses) is recognized
CR Allowance for Doubtful Accts is increased
TBS-008110
A practitioner has examined a client’s compliance with debt covenants associated with a bank loan and is ready to issue a report. What standards apply?
Compliance Attestation Standards - apply for an Examination of a client’s compliance
MCQ-06239
What does the Completeness assertion relate to?
Completeness Assertion relates to the recording of all transactions
MCQ-03167
What procedure would the auditor most likely perform to test controls relating to mgmt’s assertion about completeness of cash receipts for cash sales at a retail outlet?
Observe the consistency of the employees’ use of cash registers and tapes
MCQ-03167
True or False: The auditor may report the absence of significant deficiencies to those charged with governance or management.
FALSE
The auditor may NOT report the absence
MCQ-08186
What should the auditor do when there is a scope limitation when auditing internal control?
Disclaim an opinion or withdrawl from the engagement
MCQ-05614
What should the auditor do when there is a material weakness in internal control?
Material Weakness = ADVERSE
MCQ-05614
What type of report: “The report may not be suitable for any other purposes and that users are responsible for determining whether the procedures performed are appropriate”
Agreed-Upon Procedures
“I-AM-SURE”
MCQ-15108
A justified departure from GAAP would result in what?
Emphasis-of-Matter Paragraph
MCQ-04437
A change in accounting principle that has a material effect on the FS would result in what?
Emphasis-of-Matter Paragraph
MCQ-04437
What procedure is most effective in reducing attestation risk?
Examination of evidence
MCQ-05468
What nonissuer engagements require a Mgmt Rep. Letter and what engagements do not?
DO NOT: Preparation and Compilation
DO: Review and Audits
MCQ-11009
“CAPE CORP”
Attestation Engagements: Common Concepts
Compliance with all attestation standards
Acceptance and continuance
Preconditions: (Independent, responsible party, subject mater is appropriate)
Engagement documentation standards
Change in terms of engagement
Others work = OK
Responsibility for quality control
Professional skepticism
MCQ-06503
What is Mgmt’s assertion in an MD&A presentation when they say “Nonfinancial data have been accurately derived from related records”
Consistency
MCQ-06503
Define: Predecessor Auditor
is an independent CPA from a different audit firm who was engaged to perform but did not complete an audit OR an independent CPA from a different audit firm who has reported on the most recent audited FS
MCQ-12554
Two assertions for which confirmation of AR balances provides primary evidence are:
- Rights and Obligations
- Existence
MCQ-02775
What are the auditor’s expanded responsibilities when performing an audit in accordance with 2 CFR 200 single audit?
Performance of additional procedures to test and report on compliance with laws, rules, regulations, and provisions of contracts or grant agreements that have a direct and material effect on major federal award programs
MCQ-03482
