Final Review Deck Flashcards
relate to the conduct of the firm’s audit practice as a whole
Quality control standards
relates to the conduct of individual audits
GAAS
Review of assistants’ work is necessary to determine whether it was performed in a satisfactory manner and to determine whether the work supports the conclusions presented in the what?
auditor’s report
require a description of the scope of the auditor’s testing of compliance and of internal control.
government auditing standards
Which of the following audit techniques most likely would provide an auditor with the most assurance about the effectiveness of the operation of internal control?
observation of client personnel
According to the profession’s ethical standards, a CPA would be considered independent in which of the following instances?
Any direct or material indirect financial interest impairs a CPA’s independence with respect to a client
A successor auditor is required to attempt communication with the predecessor auditor prior to:
accepting the engagement
As long as the CPA concludes that there is a reasonable justification for the change from a audit to a review, what happens?
The CPA does not have to do anything about it. A special thing about review is they say they are substantially less in scope than an audit.
What is a key thing about the fixed asset account and repairs and maintenance account when it comes to the completeness assertion?
the auditor is looking for items recorded as repairs or maintenance that would more properly have been capitalized as betterment of an asset
What type of non-audit services may be provided by a registered public accounting firm to the client contemporaneously with the audit when preapproval is granted by audit committee action?
Tax services
What is the key thing when a group auditor makes reference to a component auditor’s work versus when they don’t make reference?
The group auditor makes reference to the compoent auditor when the group engagement partner is unable to review the component auditor’s audit documentation
When the group engagement partner decides to assume responsibility for the work of the component auditor, no reference is made to the work of the component auditor, regardless of the type of audit report expressed.
Which of the following entity-level controls is specifically identified in the professional standards as a control of importance that should be evaluated?
period-end financial reporting controls and the control environment
Any report issued on significant deficiencies in internal controls noted during the audit should contain what? 3 things
1) Indicate that the purpose of the audit was to report on the f/s and not to provide assurance on internal control
2) include the definition of significant deficiencies
3) include a restriction on the use of the report
When does an auditor refer to the work of a specialist?
If the auditor issues a modified opinion
When can the user auditor make reference to the work of a service auditor?
To explain a modification of the user auditor’s opinion
used to draw attention to a matter that is appropriately presented or disclosed in the financial statements, but that, in the auditor’s judgment, is of such importance that it is fundamental to users’ understanding of the financial statements
emphasis of matter paragraph
used to report on a matter not presented or disclosed in the financial statements
other matter paragraph
What audit procedure alone is not sufficient to support a conclusion on the operating effectiveness of controls?
Inquiry
When an accountant determines that a change in the scope of an engagement from an audit to a review is appropriate, what should the account do?
They would go ahead and issue the review report. The accountant would not refer to the original engagement.
What kind of documentary evidence is the most reliable in an audit?
Original audit evidence
the auditor’s best estimate, before performing audit procedures, of misstatements that the auditor expects to find during the audit.
expected misstatement
an auditor’s best estimate of misstatements in a population extrapolated from misstatements identified in an audit sample.
projected misstatement
What are the main types of audit procedures to test controls?
Walkthrough
Observation
Reperformance
Inspection
Inquiry
Audit objectives should be developed based on what?
Financial statement assertions
Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments?
treasurer
The auditor concluded that the disclosures made in the financial statements did not adequately inform financial statement users about the company’s ability to continue as a going concern. Under these circumstances, the auditor should issue a(n):
“Qualified (except for) or adverse opinion, depending on the level of materiality.”
In summary, while _______ principles underpin auditing practices across various environments, the specific application and additional requirements can vary based on the regulatory authority overseeing the audit.
GAAS
Investment income from dividends is generally recalculated by comparing recorded income with what?
Records produced by investment services like “Moody’s Dividend Record”
In an audit of a non-issuer what is the auditor required to communicate in regards to control deficiencies?
The auditor is required to communicate both significant deficiencies and material weaknesses to management and those charged with governance.
In testing plant and equipment balances, an auditor EXAMINES new additions listed on an analysis of plant and equipment. This procedure most likely obtains evidence concerning management’s assertion of:
existence
The statement concerning disclosure of non-compliance with laws and regulations would appear in what?
The management representation letter
The management representation letter must include a statement about what in regards to uncorrected misstatements?
The effects of uncorrected misstatements are immaterial to the financial statements as a whole and a summary of the uncorrected misstatements should be included.
When does the auditor not have to take active responsibility for subsequent events?
The auditor’s active responsibility stops on the date of the auditor’s report.
How should differences of opinion between the engagement partner and the quality control reviewer be resolved?
By following the firm’s policies and procedures
What is an auditor’s responsibility for supplementary information required by the GASB that is placed outside the basic financial statements?
The auditor should apply limited procedures to the information (to determine that it is consistent with the basic audited financial statements) and add an other-matter paragraph to the financial statement audit report.
An understanding of internal control is not required in _____________ engagements
SSARS
A management representation letter is required for the limited assurance provided by a review engagement; it is not required for ______________ engagements because it is merely the presentation of information that is the representation of management, and it does not contemplate expression of any assurance.
compilation
Inquiry regarding subsequent events is required for _____________ engagements as part of the basis for the limited assurance expressed.
review
Involves examining records or documents
inspection
when an auditor independently performs procedures or controls that were originally performed as part of an entity’s internal control.
reperformance
occurs when an auditor looks at a process or procedure performed by others.
observation
outlines the nature, extent, and timing of the audit procedures that will be performed by the auditors on an engagement.
audit plan
provided by a Statement on Auditing Standards is the most authoritative of level of auditing guidance for audits of non-issuers. Auditors are required to comply with SASs, and should be prepared to justify any departures therefrom.
General guidance
What can cause an organization to have a control deficiency?
deficiency in design: example is no segregation of duties
deficiency in operation: the person carrying out control is not trained well enough or is not competent enough
Who do you report a material weakness to when it is probable?
In 10-k for a public company
To audit committee
To management
Who do you report a control deficiency to if it is probable, not material, but significant?
This is a significant deficiency
audit committee
management
Who do you report a control deficiency to if it is not material nor significant?
to management
Which of the following statements correctly defines the term reasonable assurance?
A high, but not absolute, level of assurance to allow an audit to detect a material misstatement
Under U.S. auditing standards, the auditor ______________ states in the Basis for Opinion section of the auditor’s report: “We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.” Consistency is implied in the auditor’s report.
explicitly
An opinion qualified due to a material departure from generally accepted accounting principles would indicate that, ______________________________________________________________, the financial statements are presented fairly.
except for the problem noted
An auditor’s report should include a restricted use paragraph and an alert to readers about the preparation of the financial statements in accordance with a special purpose framework when the financial statements are prepared on the:
contractual basis of accounting
This kind of makes sense because a contract is usually with a limited number of parties
What are the two opinions for financial statements that are prepared in accordance with the regulatory basis?
Fair on regulatory basis
Fair on GAAP basis
What are the difference between internal control component and internal control principle?
A componnent is one of the five following: control environment, risk assessment, control activities, monitoring, and information/communicaiton
A principle is under one of the five components
When is an emphasis of matter paragraph required for a non-issuer(private company?
SMC acronym
SPECIAL PURPOSE FRAMEWORK
MATERIAL JUSTIFIED CHANGE IN ACCOUNTING PRINCIPLE
CHANGE IN AUDIT OPINION (could you emphasis of matter or other matter paragraph)
When is an other matter paragraph required for a non-issuer?
These will deal with things about the audit and is the underlying concept
Change in Audit opinion
Prior f/s are audit by predcesor and not included
Comparative f/s where prior period is not audited
Restrict the use of the report
Report on compliance in auditor’s report
Where is going concern when substantial doubt is not alleviated reported?
Report in separate section of auditor’s report
Where are the component auditors named in an Auditor’s report if the group auditor does not assume responsibility for them?
They should not be named
What are things an auditor considers before an accepting an engagement?
Communicating with predecessor auditor about the following:
Integrity of Management
Management following GAAP with preparing financial statements
Reason for the change of auditor
Predecessor auditor’s communication to MGMT, audit committee, and those charge with governance about fraud, noncompliance with laws and regulations, and matters relating to internal control
The overall audit strategy outlines what?
scope of audit
reporting objectives
timing of audit
required communications
factors that determine focus
preliminary assessment of materiality and tolerable misstatement
What’s the difference between the audit strategy and audit plan
In essence, the audit strategy provides the framework and vision, while the audit plan provides the specifics on how to achieve that vision through actionable steps. Understanding this distinction can help in effectively organizing and executing audit activities.
When can an auditor refer to the specialist in their report?
The report is being modified due to the specialist’s findings
The auditor may need the permission of the specialist before making reference to the specialist.
