Deck 2 Flashcards
MCQ
An auditor is determining the sample size for an inventory observation using mean-per-unit estimation, which is a variables sampling plan. To calculate the required sample size, the auditor usually determines the
Variability in the dollar
amounts of inventory items Risk of incorrect acceptance
- Yes Yes
- Yes No
- No Yes
- No No
Both are included
The risk of incorrect acceptance is included as well as the variability in the dollar amounts of inventory
An engagement in which a CPA considers security, availability, processing integrity, online privacy, and/or confidentiality over any type of defined electronic system is most likely to consider which of the following types of engagements?
- Internal control over financial reporting.
- SysTrust.
- Web-site Associate
- WebTrust
SysTrust
That is the definition of a systrust.
WebTrust deals more directly with company websites.
A CPA is engaged to audit the financial statements of a nonissuer. After the audit begins, the client’s management questions the extent of procedures and objects to the confirmation of certain contracts. The client asks the accountant to change the scope of the engagement from an audit to a review. Under these circumstances, the accountant should do each of the following except
- Issue an accountant’s review report with a separate paragraph discussing the change in engagement scope.
- Consider the additional audit effort and cost required to complete the audit.
- Evaluate the possibility that financial statement information affected by the limitation on work to be performed may be incorrect or incomplete.
- Consider the reason given for the client’s request and assess whether the request is reasonable.
Issue an accountant’s review report with a separate paragraph discussing the change in engagement scope.
That answer is essentially saying that the auditor will refer to the original (audit) engagement. If you change from an audit to a review, You don’t make reference of the old report.
MCQ
Which of the following ratios would an engagement partner most likely consider in the overall review stage of an audit?
- Total liabilities/net sales.
- Accounts receivable/inventory.
- Cost of goods sold/average inventory.
- Current assets/quick assets.
Cost of goods sold/average inventory.
This question is essentially asking which one of these ratios is a real ratio. COGS/ Average inventory represents inventory turnover. All three other answers aren’t named ratios. They don’t mean anything
MCQ
Which of the following is an assertion embodied in management’s discussion and analysis (MD&A)?
- Valuation.
- Reliability.
- Consistency with the financial statements.
- Rights and obligations.
Consistency with the financial statements.
You just gotta know this one.
For a nonpublic company audit report, a statement that the auditor has audited the financial statements followed by the titles of the financial statements is included in the
- “Management’s Responsibilities” section of the audit report.
- The “Opinion” section of the auditor’s report.
- The “Auditor’s Responsibilities” section of the audit report.
- The “Basis for Opinion” section of the auditor’s report.
The “Opinion” section of the auditor’s report.
This is such a trick question because you would be proned to say the Auditor’s responsibilities section but that’s not correct. maybe a clue to think about would be them mentioning the titles of the F/S think of that being mentioned in the Opinion section…
MCQ
An auditor most likely would analyze inventory turnover rates to obtain evidence concerning management’s assertions about
- Existence or occurrence.
- Rights and obligations.
- Completeness.
- Valuation or allocation.
Valuation or allocation
Turnover rates is giving some sort of indication on whether there is obsolete inventory which is indirectly related to valuation or allocation
MCQ
Which of the following procedures would an auditor most likely perform to obtain assurance that slow-moving and obsolete items included in inventories are properly identified?
- Testing shipping and receiving cutoff procedures.
- Confirming inventories at locations outside the entity’s premises.
- Examining an analysis of inventory turnover.
- Tracing inventory observation test counts to perpetual listings.
Examining an analysis of inventory turnover
This answer is correct because analyzing inventory turnover (Cost of goods sold / Inventory) will indicate slow-moving and obsolete items since those items will have very low (or zero) turnover rates.
In which of the following circumstances would an auditor not express an unmodified opinion?
- There has been a material change in accounting principles between periods.
- Quarterly financial data required by the SEC has been omitted.
- The auditor wishes to emphasize an unusually important subsequent event.
- The auditor is unable to obtain audited financial statements of a consolidated investee.
The auditor is unable to obtain audited financial statements of a consolidated investee.
the attestation professional standards indicate that while financial forecasts are appropriate for general use, financial projections (which include a hypothetical assumption, often on a proposed transaction) are limited-use documents.
True
Because financial projections are based on hypothetical assumptions, it is risky to make it open to general use. So financial forecast is the right answer.
Omission of the statement of cash flows results in a
qualified opinion due to a GAAP departure.
It is not a disclaimer of opinion since a GAAP departure isn’t as severe.
What are the three elements that the auditor need in attribute sampling
Attribute sampling is used when you’re testing controls. No dollar amounts is related to attribute sampling.
Auditor will look at the allowable risk of assessing control risk too low, expected population deviation rate and tolerable rate
The auditor who wishes to point out that the entity has significant transactions with related parties should disclose this fact in
- An emphasis-of-matter paragraph to the auditor’s report.
- An explanatory note to the financial statements.
- The body of the financial statements.
- The “Summary of Significant Accounting Policies” section of the financial statements.
An emphasis-of-matter paragraph
The key word here is “point out” which almost mean putting an emphasis on.
Which of the following is least likely to be evidence the auditor examines to determine whether controls are operating effectively?
- Records documenting usage of computer programs.
- Canceled supporting documents.
- Confirmations of accounts receivable.
- Signatures on authorization forms.
Confirmations of accounts receivable
This is a substantive tests not a test of controls
