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CPA Exam - AUD V1.0 > Final Review - All Sections > Flashcards

Final Review - All Sections Flashcards

A1, A2, A3, A4, A5, and A6.

1
Q

If quarterly data required by the SEC has been omitted by management, what should the auditor include in their report?

A

The company has not presented the data.

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2
Q

If a private audit client discloses in the footnotes that there is substantial doubt about the entity’s ability to continue as a going concern and the auditor determines that management’s plans do not alleviate it and issue an unmodified opinion, where should the auditor include this information in their report?

A

Separate paragraph.

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3
Q

Where should subsequently discovered facts that lead to an audit opinion change be disclosed?

A
  • Emphasis-of-matter paragraph
  • Other-Matters Paragraph
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4
Q

What is a situation where the auditor would not make reference to consistency in their unmodified audit report?

A

Depreciation, specifically change in useful life as the change in accounted for prospectively.

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5
Q

If an accounting change does not have a material effect on the F/S in the current year, where should this change be referenced

A

Notes to the F/S.

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6
Q

What are two situations where a qualified report is issued and the Opinion and Basis for Opinion sections of the audit report are modified?

A
  • Departure from GAAP
  • Scope limitation
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7
Q

What should a CPA do when taking responsibility for another CPA’s audit work?

A

Review the workpapers and validate the work through reperformance.

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8
Q

What can the auditor do if management refuses to correct inconsistencies between fairly stated F/S and Other Information they included?

A
  1. Withdraw
  2. Withhold report
  3. Include “Other Information” section describing the situation
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9
Q

In terms of a group audit, in what situation would the auditor issue an unmodified opinion on the audit report without adding an emphasis-of-matter paragraph?

A

Make reference to the component auditor.

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10
Q

When should the auditor not refer to a change of accounting principles in the emphasis-of-matter paragraph?

A

Change is immaterial.

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11
Q

What phrases would an adverse opinion contain?

A

“…because of significance of the matter…the financial statements do not present fairly…”

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12
Q

What opinion may a CPA issue when being associated with F/S but not auditing or reviewing them.

A

Disclaimer

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13
Q

If audited F/S are presented comparatively with reviewed F/S, where should the auditor explain this matter?

A

Other Matters paragraph

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14
Q

What opinion and detail within an emphasis-of-matter paragraph would an auditor express on (1) an unjustified accounting change and (2) A material weakness in internal control?

A

(1) Qualified or Adverse opinion and no paragraph
(2) No paragraph or opinion, just communication to management and governance members

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15
Q

What type of opinion would properly accounting for, but not adequately disclosing a related party transaction result in?

A

Qualified or Adverse opinion depending on pervasiveness.

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16
Q

If an accounting change has no impact on the Financial Statements in the current year, but will have an impact in future years, how should the auditor modify their report?

A

Ask management to disclose in current year.

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17
Q

What opinion is likely to be rendered if management does not provide a justifiable explanation for a change in accounting princple?

A

Qualified or Adverse

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18
Q

What is the responsibility of the accountant when prepping financial statements that the accountant is not or did not audit or review?

A

Reading the F/S for material misstatements.

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19
Q

When would the group audit partner be least likely to mention the component auditor during a consolidated audit?

A

Group audit partner assumes all responsibility.

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20
Q

When should an other-matter paragraph be used in the auditor’s report?

A

Relevant matters that aren’t presented in the financial statements that are important to the users.

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21
Q

What are examples of matters that could be included in a other matters paragraph?

A
  • Change in audit opinion
  • Prior year F/S audited by a predecessor isn’t presented
  • CY audited and PY isn’t
  • Restrictions on use of report
  • Report on compliance also performed
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22
Q

What matters are considered in the audit strategy?

A

Scope and reporting objectives

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23
Q

Why is segregation of duties preventative in nature?

A

Mitigate risks by not giving too many responsibilities

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24
Q

What are some elements included within Monitoring Activities of COSO?

A

Quality control performance, information from external parties, and improving controls

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25
Q

What are procedures an auditor can perform to uncover fraud in revenue?

A

Analytical procedures

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26
Q

What are the quality control elements?

A
  1. HR
  2. Engagement/client acceptance
  3. Leadership
  4. Performance
  5. Monitoring
  6. Ethics requirements
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27
Q

Why is the auditor required to obtain sufficient knowledge regarding information and communication system as it pertains to financial reporting?

A

To understand the following:
* The general process
* Significant transaction and their processing
* Methods of communication between systems

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28
Q

What conditions must exist in a Going Concern situation for the auditor to be able to include an emphasis-of-matter paragraph in their audit report?

A
  • Basis of accounting is correct
  • Disclosures are adequate
  • Concern has been alleviated
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29
Q

What must an accounting estimate approximately determine?

A

Past events that can’t be determined in a cost-effective manner

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30
Q

The auditor is required to apply analytical procedures during a concluding audit, what is a reason the auditor doesn’t apply them during the concluding audit as it relates to substantive procedures?

A

To verify assertions as this is done during substantive procedures

31
Q

What is a major issue related to evidence an auditor could face that would question whether the financial statements are stated fairly?

A

Lack of evidence for transactions selected

32
Q

What are examples of sampling risks associated with (1) efficiency and (2) effectiveness?

A
  1. Risk of assessing control risk too high
  2. Risk of incorrect acceptance
33
Q

When an auditor uses variable sampling the auditor also calculates the possibility of errors going in either direction, what is this called?

A

Precision concept

34
Q

What phrases should be included in a going concern paragraph assuming disclosures, basis of accounting, and alleviation is adequate?

A

“Substantial doubt” and “Going concern”

35
Q

What type of data do analytical procedures performed during planning use?

A

High level aggregated data

36
Q

Generally, when would audit procedures involve sampling in regards to test of controls?

A
  1. Not testing 100% of the population
  2. Control isn’t automated through IT
37
Q

In what situation would AR double, but allowance for doubtful accounts as a percentage remain the same?

A

New line of business with similar performance of the current

38
Q

When can nonsampling risk arise?

A

Failing to detect misstatement in procedures.

39
Q

What variables affect sample size in a variable sampling application, i.e., Means-per-unit (MPU)

A
  • Variability
  • Tolerable misstatement
  • Expected misstatement
  • Acceptable level of risk
  • Assessed risk
40
Q

What assertion is being tested when the auditor reads footnotes and other information for an account to determine if disclosures are presented in the appropriate amounts?

A

Valuation, Allocation, and Accuracy

This is inspection; key words APPROPRIATE AMOUNTS

41
Q

What department is responsible for signing and mailing the check for a payment and canceling the vouching package file?

A

Treasury department

42
Q

When the auditor asks the client’s internal auditor to prepare a confirmation to a financial institution to test a payroll account, who should sign and mail the form?

A

Sign = Controller
Mail = Internal auditor

43
Q

What is the definition of material weakness?

A

Deficiency or combination of them in which there is a reasonable possibility that a material misstatement won’t be prevented or detected.

44
Q

What are two procedures within the account’s payable function that correlate with the authorization of the payment duty bestowed upon them?

A
  • Matching invoices with receiving reports
  • Recomputing vendor invoices for accuracy
45
Q

What procedure may the auditor perform to uncover kiting?

A

Obtain bank transfer schedule and search for transfers where the receipt date per the bank is before the disbursement date in the books

46
Q

How would an auditor test completeness of revenue when the risk is understatement?

A

Trace shipping documents to sales invoices within the sales journal

47
Q

Why is a bank reconciliation incapable of preventing employees from writing and cashing fictitious checks?

A

Reconciles cash between the bank and the books

48
Q

When an auditor searches for restrictions on Retained Earnings, what assertion is being tested? Why?

A

Understandability of Presentation and classification because restrictions dividends which must be disclosed.

49
Q

Why would an auditor test segment information?

A

To make sure it’s applicable with GAAP

50
Q

What are procedures for detecting slow-moving, defective, and obsolete inventory?

A
  • Analytical procedures
  • Touring plant or facility
51
Q

In a compilation of projected financial statements, what would the auditor make the client aware of as it pertains to scope?

A

Limited - No opinion or assurance on F/S or assumptions

52
Q

What type of opinion if any would a report on internal controls over compliance contain?

A

Disclaimer

53
Q

What statement should be included in the seperate report on a compliance engagement that is affiliated with the audited audited Financial Statements?

A

Compliance is in connection with…

54
Q

During an integrated audit, what should an auditor do when a service organization is a part of the auditee’s system of internal controls?

A

Test the controls in which the service organization is a part of

55
Q

In a Financial Statement audit under GAGAS, what should the auditor’s report include if the auditor finds fraud and/or illegal acts?

A

Fraud and illegal acts discovered

56
Q

Does the auditor state the reasonableness of the assumption used in a compilation of a projection?

A

Not stated at all

57
Q

Per GAGAS, what level of information should the audit documentation contain?

A

Sufficient as to avoid oral explanations

58
Q

What is a situation in an attestation engagement where the auditor’s report doesn’t need to be restricted in terms of the subject matter?

A

Report on a assertion rather than directly on the subject matter.

59
Q

In a compliance engagement on a contractual agreement, what should the auditor’s separate report mention besides being connected with audited Financial Statements?

A

Reference to the covenants of the agreement

60
Q

What engagements are defined under GAGAS?

A

Financial Audits, Attestation Engagements, and Performance Audits

61
Q

What is the purpose of examinating procedures on compliance that is not associated with audited financial statements?

A

Express an opinion

62
Q

Reasonable assurance about whether noncompliance could have a material affect on an entity’s programs is for what kind of audit governed by what governing body?

A

Financial Statement audit under GAGAS

63
Q

Why is the review of historical financial statements not subject to Statements on Standards for Attestation Engagements (SSAE) if reviews are an attestation engagement?

A

SSAE excludes engagements covered under SSARs

64
Q

The CPA stating in their report the procedures they took to evaluate management’s assumptions pertains to what engagement?

A

Examination of projected FS

65
Q

Negative opinion is expressed on what enagement?

A

Review

66
Q

What is the first and second step when testing controls in an integrated audit using the top-down method?

A
  1. Evaluate risk on the FS level
  2. Consider entity level controls
67
Q

What does GAGAS prescribe additional standards on?

A
  1. Financial Reporting - illegal acts
  2. Internal controls - report for every audit
68
Q

Prospective Financial Statement engagements are normally appropriate for limited use with the exception of?

A

Pro Forma Financial Statements and Financial Projections

69
Q

What are the four different types of Prospective Financial Statement Engagements?

A
  1. Examinations
  2. Preparations
  3. Reviews
  4. Compilations
70
Q

What type of financial statements are Financial Projections and Forecasts considered?

A

Prospective

71
Q

(a) What are pro forma financial statements and (b) what type of attestation engagement do they fall under?

A

(a)The direct affect of hypothetical assumptions on historical Financial Statements
(b) Compilation

72
Q

What types of opinions are expressed by the following:
a. Examination
b. Review
c. Agreed-upon procedures

A

a. Positive
b. Negative
c. None

73
Q

When is the consideration of audit procedures previously performed considered by the auditor?

A

Planning: “Understand-learn-inquiry” phase

CPA Exam - AUD V1.0 (3 decks)

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