From Missed Questions Flashcards
What is the definition of exercising Due Care?
Requiring “critical review” of the work performed and the audit judgments made at every level of supervision.
According to GAAS, which of the following terms identifies a requirement for audit evidence?
A. Appropriate. B. Adequate. C. Reasonable. D. Disconfirming.
A. Appropriate.
GAAS requires the auditor to obtain “sufficient appropriate audit evidence…”
Why is a second review by a partner of the CPA firm who has not been involved in the audit performed?
To ensure the fair presentation of the financial statements in conformity with GAAP.
The review by a second partner is part of a firm’s quality control system.
Would the Auditor discuss what kind of audit procedures need to be performed?
No. Selection and performance of auditing procedures are a matter of auditor judgment and not subject to disclosure to the client.
The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the….?
Results are consistent with the conclusions to be presented in the auditor’s report.
The audit work performed by each assistant should be reviewed for adequacy and to ensure that it supports the conclusions reached.
In what paragraph does the auditor explicitly reference the “auditing standards generally accepted in the U.S?
Auditor’s Responsibility
What are the 5 specific matters the AICPA Professional Standards Board state that a successor auditor must 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; and
(5) the predecessor auditor’s understanding as to the reasons for the change of auditors.
What is the auditor required to establish an understanding of regarding the services to be performed?
(1) the objective of the audit;
(2) management’s responsibilities with regard to the financial statements, internal control, compliance with laws and regulations, availability of records, and the management representation letter;
(3) the auditor’s responsibilities for GAAS and reportable conditions;
(4) a description of an audit; and
(5) management’s responsibilities regarding correction of material misstatements and evaluation of immaterial adjustments.
What are the 2 levels that the AICPA Prof. Stds discuss as responses to the auditor’s assessment of the risks of material misstatement?
(1) Overall response;
(2) Response at the relevant assertion level.
In planning a new engagement, what would an auditor need to consider?
(1) the nature of the engagement;
(2) the type of report to be issued;
(3) the nature of the financial statements, schedules, or other information on which the auditor is reporting;
(4) the nature and condition of the client’s records;
(5) the assessed level of control risk (including the estimated occurrence rate of attributes); and
(6) the needs in the particular circumstances for supervision and review of the work.
The acceptable level of detection risk is inversely related to what?
Detection risk is inversely related to the assurance provided by substantive tests.
The lower the detection risk, the more assurance needed from substantive testing.
Analytical procedures used in planning an audit should focus on what?
Enhancing the auditor’s understanding of the client’s business and identify areas that may represent specific risks relevant to the audit.
Analytical procedures used in the final review stage of an audit should focus on what?
Assisting the auditor in assessing the conclusions reached and in evaluating the overall financial statement presentation.
What are the 4 management assertions applicable to account balances at the period end?
- existence
- completeness
- rights and obligations
- valuation and allocation
What is the auditor’s primary responsibility pertaining to related parties?
To ensure that disclosure of related party transactions in the audited financial statements is adequate.
In a well-designed system of internal control, what functions should be kept separate?
Record Keeping, Custodial, and Authorization
What are the best ways to control fraud pertaining to marketable securities?
- Controlling access;
- Providing adequate segregation of duties
Use of a trust company aids in both respects
What is a management control method that most likely could improve management’s ability to supervise company activities effectively?
Establishing budgets and forecasts to identify variances from expectations.
Immediately upon receipt of cash, a responsible employee should..?
Prepare a remittance listing.
-helps ensure that a control over cash received is established.
Regardless of the assessed level of risk, an auditor would perform some…?
Substantive tests to restrict detection risk for significant transaction classes.
As a part of understanding the internal control structure, an auditor is NOT required to what?
Obtain knowledge about the operating EFFECTIVENESS of the internal control structure.
What should the independent auditor consider when assessing the internal auditor’s objectivity?
- The organizational status of the internal audit function;
2. The policies affecting the internal auditor’s objectivity about areas audited.
In determining sample size for a test of controls, what should the auditor consider?
The tolerable rate of deviations;
The expected rate of deviations; and
The allowance risk of assessing control risk too low.
What would make an auditor choose between a qualified opinion and a disclaimer of opinion?
The choice between a qualified opinion and a disclaimer of opinion arises when a scope limitation has occurred.
