Final Review - All Sections Flashcards
A1, A2, A3, A4, A5, and A6.
If quarterly data required by the SEC has been omitted by management, what should the auditor include in their report?
The company has not presented the data.
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?
Separate paragraph.
Where should subsequently discovered facts that lead to an audit opinion change be disclosed?
- Emphasis-of-matter paragraph
- Other-Matters Paragraph
What is a situation where the auditor would not make reference to consistency in their unmodified audit report?
Depreciation, specifically change in useful life as the change in accounted for prospectively.
If an accounting change does not have a material effect on the F/S in the current year, where should this change be referenced
Notes to the F/S.
What are two situations where a qualified report is issued and the Opinion and Basis for Opinion sections of the audit report are modified?
- Departure from GAAP
- Scope limitation
What should a CPA do when taking responsibility for another CPA’s audit work?
Review the workpapers and validate the work through reperformance.
What can the auditor do if management refuses to correct inconsistencies between fairly stated F/S and Other Information they included?
- Withdraw
- Withhold report
- Include “Other Information” section describing the situation
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?
Make reference to the component auditor.
When should the auditor not refer to a change of accounting principles in the emphasis-of-matter paragraph?
Change is immaterial.
What phrases would an adverse opinion contain?
“…because of significance of the matter…the financial statements do not present fairly…”
What opinion may a CPA issue when being associated with F/S but not auditing or reviewing them.
Disclaimer
If audited F/S are presented comparatively with reviewed F/S, where should the auditor explain this matter?
Other Matters paragraph
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?
(1) Qualified or Adverse opinion and no paragraph
(2) No paragraph or opinion, just communication to management and governance members
What type of opinion would properly accounting for, but not adequately disclosing a related party transaction result in?
Qualified or Adverse opinion depending on pervasiveness.
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?
Ask management to disclose in current year.
What opinion is likely to be rendered if management does not provide a justifiable explanation for a change in accounting princple?
Qualified or Adverse
What is the responsibility of the accountant when prepping financial statements that the accountant is not or did not audit or review?
Reading the F/S for material misstatements.
When would the group audit partner be least likely to mention the component auditor during a consolidated audit?
Group audit partner assumes all responsibility.
When should an other-matter paragraph be used in the auditor’s report?
Relevant matters that aren’t presented in the financial statements that are important to the users.
What are examples of matters that could be included in a other matters paragraph?
- 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
What matters are considered in the audit strategy?
Scope and reporting objectives
Why is segregation of duties preventative in nature?
Mitigate risks by not giving too many responsibilities
What are some elements included within Monitoring Activities of COSO?
Quality control performance, information from external parties, and improving controls
What are procedures an auditor can perform to uncover fraud in revenue?
Analytical procedures
What are the quality control elements?
- HR
- Engagement/client acceptance
- Leadership
- Performance
- Monitoring
- Ethics requirements
Why is the auditor required to obtain sufficient knowledge regarding information and communication system as it pertains to financial reporting?
To understand the following:
* The general process
* Significant transaction and their processing
* Methods of communication between systems
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?
- Basis of accounting is correct
- Disclosures are adequate
- Concern has been alleviated
What must an accounting estimate approximately determine?
Past events that can’t be determined in a cost-effective manner
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?
To verify assertions as this is done during substantive procedures
What is a major issue related to evidence an auditor could face that would question whether the financial statements are stated fairly?
Lack of evidence for transactions selected
What are examples of sampling risks associated with (1) efficiency and (2) effectiveness?
- Risk of assessing control risk too high
- Risk of incorrect acceptance
When an auditor uses variable sampling the auditor also calculates the possibility of errors going in either direction, what is this called?
Precision concept
What phrases should be included in a going concern paragraph assuming disclosures, basis of accounting, and alleviation is adequate?
“Substantial doubt” and “Going concern”
What type of data do analytical procedures performed during planning use?
High level aggregated data
Generally, when would audit procedures involve sampling in regards to test of controls?
- Not testing 100% of the population
- Control isn’t automated through IT
In what situation would AR double, but allowance for doubtful accounts as a percentage remain the same?
New line of business with similar performance of the current
When can nonsampling risk arise?
Failing to detect misstatement in procedures.
What variables affect sample size in a variable sampling application, i.e., Means-per-unit (MPU)
- Variability
- Tolerable misstatement
- Expected misstatement
- Acceptable level of risk
- Assessed risk
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?
Valuation, Allocation, and Accuracy
This is inspection; key words APPROPRIATE AMOUNTS
What department is responsible for signing and mailing the check for a payment and canceling the vouching package file?
Treasury department
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?
Sign = Controller
Mail = Internal auditor
What is the definition of material weakness?
Deficiency or combination of them in which there is a reasonable possibility that a material misstatement won’t be prevented or detected.
What are two procedures within the account’s payable function that correlate with the authorization of the payment duty bestowed upon them?
- Matching invoices with receiving reports
- Recomputing vendor invoices for accuracy
What procedure may the auditor perform to uncover kiting?
Obtain bank transfer schedule and search for transfers where the receipt date per the bank is before the disbursement date in the books
How would an auditor test completeness of revenue when the risk is understatement?
Trace shipping documents to sales invoices within the sales journal
Why is a bank reconciliation incapable of preventing employees from writing and cashing fictitious checks?
Reconciles cash between the bank and the books
When an auditor searches for restrictions on Retained Earnings, what assertion is being tested? Why?
Understandability of Presentation and classification because restrictions dividends which must be disclosed.
Why would an auditor test segment information?
To make sure it’s applicable with GAAP
What are procedures for detecting slow-moving, defective, and obsolete inventory?
- Analytical procedures
- Touring plant or facility
In a compilation of projected financial statements, what would the auditor make the client aware of as it pertains to scope?
Limited - No opinion or assurance on F/S or assumptions
What type of opinion if any would a report on internal controls over compliance contain?
Disclaimer
What statement should be included in the seperate report on a compliance engagement that is affiliated with the audited audited Financial Statements?
Compliance is in connection with…
During an integrated audit, what should an auditor do when a service organization is a part of the auditee’s system of internal controls?
Test the controls in which the service organization is a part of
In a Financial Statement audit under GAGAS, what should the auditor’s report include if the auditor finds fraud and/or illegal acts?
Fraud and illegal acts discovered
Does the auditor state the reasonableness of the assumption used in a compilation of a projection?
Not stated at all
Per GAGAS, what level of information should the audit documentation contain?
Sufficient as to avoid oral explanations
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?
Report on a assertion rather than directly on the subject matter.
In a compliance engagement on a contractual agreement, what should the auditor’s separate report mention besides being connected with audited Financial Statements?
Reference to the covenants of the agreement
What engagements are defined under GAGAS?
Financial Audits, Attestation Engagements, and Performance Audits
What is the purpose of examinating procedures on compliance that is not associated with audited financial statements?
Express an opinion
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?
Financial Statement audit under GAGAS
Why is the review of historical financial statements not subject to Statements on Standards for Attestation Engagements (SSAE) if reviews are an attestation engagement?
SSAE excludes engagements covered under SSARs
The CPA stating in their report the procedures they took to evaluate management’s assumptions pertains to what engagement?
Examination of projected FS
Negative opinion is expressed on what enagement?
Review
What is the first and second step when testing controls in an integrated audit using the top-down method?
- Evaluate risk on the FS level
- Consider entity level controls
What does GAGAS prescribe additional standards on?
- Financial Reporting - illegal acts
- Internal controls - report for every audit
Prospective Financial Statement engagements are normally appropriate for limited use with the exception of?
Pro Forma Financial Statements and Financial Projections
What are the four different types of Prospective Financial Statement Engagements?
- Examinations
- Preparations
- Reviews
- Compilations
What type of financial statements are Financial Projections and Forecasts considered?
Prospective
(a) What are pro forma financial statements and (b) what type of attestation engagement do they fall under?
(a)The direct affect of hypothetical assumptions on historical Financial Statements
(b) Compilation
What types of opinions are expressed by the following:
a. Examination
b. Review
c. Agreed-upon procedures
a. Positive
b. Negative
c. None
When is the consideration of audit procedures previously performed considered by the auditor?
Planning: “Understand-learn-inquiry” phase
