Exam 2 Flashcards
What type of questions would an entity’s auditor ask the predecessor auditor?
(1) information that might bear on the integrity of management;
(2) disagreements with management as to accounting principles, auditing procedures, or other similarly significant matters;
(3) communications to those charged with governance regarding fraud and illegal acts by clients;
(4) communications to management and those charged with governance regarding significant deficiencies and material weaknesses in internal control;
(5) the predecessor auditor’s understanding as to the reasons for the change of auditors.
AICPA Professional Standards state, “The expected effectiveness and efficiency of an analytical procedure in identifying potential misstatements depends on……
(a) the nature of the assertion
(b) the plausibility and predictability of the relationship
(c) the availability and reliability of the data used to develop the expectation
(d) the precision of the expectation.
How does an auditor report on Summary Financial Statements?
Indicates whether the information is consistent (Unmodified) or inconsistent (Adverse) in all material respects in relation to the complete financial statements.
How does an auditor report on Summary Financial Statements if the Audited Financial Statements, from which the summary financial statements derive, received an adverse or disclaimer?
The auditor should withdraw from the engagement on summary financial statements OR issue a disclaimer of opinion.
What type of engagements are addressed by the Statements on Standards for Accounting and Review Services? (SSARS)
- Reviews
- Compilations
- Preparation of the F/S for a client without issuing a report
What is an Integrated Test Facility?
An integrated test facility is a concurrent audit technique that processes data through the use of simulated files. It involves the creation of a dummy company against which transactions are submitted for processing concurrently with “live” transactions. The auditor is able to determine whether controls are working properly and whether processing is correct.
Incorrect Acceptance and assessing control risk too low relates to the effectiveness of an audit or efficiency of an audit?
Effectiveness
“A-Effect”
Incorrect Rejection and assessing risk too high relates to the effectiveness of an audit or efficiency of an audit?
Efficiency
“R-efficiency”
The objective of tests of details of transactions performed as substantive tests is to…..?
Detect material misstatements in the financial statements.
What type of loans from an audit client are permitted?
- Secured automobile loans
- Loans collateralized by the cash surrender value of an insurance policy
- Fully collateralized loans on cash deposits
- Outstanding loans on credit cards up to $10,000
What should be included in the auditor’s written communication on the client’s internal controls?
- Definition of material weakness and significant deficiency, if applicable.
- Describe the significant deficiencies and material weaknesses and their potential effects.
- The purpose of the audit was for the auditor to express an opinion on the financial statements
- The audit included consideration of internal control over financial reporting in order to design the audit procedures but not for the purpose of expressing an opinion on the effectiveness of the internal controls
- The auditor is not expressing an opinion on the effectiveness of internal control
- Auditor’s consideration of internal control was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies, and therefore such may still exist that have not been identified.
- Report must restrict the distribution of the report to management or those charged with governance, and other specified parties within the organization. It is not intended for, nor should it be used by, anyone not specified
What assertion is associated with the following scenario: The auditor receives an accounts receivable confirmation letter from one of the auditee’s customers selected for confirmation indicating that the identified balance of the customer’s account is correct.
EXISTENCE
Confirmation efforts usually address existence, but not always.
What assertion is associated with the following scenario: The company being audited has a checking account which requires that a minimum balance of $100,000 must be maintained at all times.
Rights and Obligations
What assertion is associated with the following scenario: In evaluating the entity’s recorded Goodwill, the auditor determines that an impairment has occurred which requires that a portion of the balance be written off as a loss.
Valuation and Allocation
What assertion is associated with the following scenario: In performing the year-end “sales cutoff” procedures, the auditor identified several shipments of merchandise in December 20X1 (terms were FOB-shipping point) that were not recorded as sales until January 20X2.
Completeness
