From Missed Questions

Question 1

What is the definition of exercising Due Care?

Answer 1

Requiring “critical review” of the work performed and the audit judgments made at every level of supervision.

Question 2

According to GAAS, which of the following terms identifies a requirement for audit evidence?

A. 	Appropriate.
B. 	Adequate.
C. 	Reasonable.
D. 	Disconfirming.

Answer 2

A. Appropriate.

GAAS requires the auditor to obtain “sufficient appropriate audit evidence…”

Question 3

Why is a second review by a partner of the CPA firm who has not been involved in the audit performed?

Answer 3

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.

Question 4

Would the Auditor discuss what kind of audit procedures need to be performed?

Answer 4

No. Selection and performance of auditing procedures are a matter of auditor judgment and not subject to disclosure to the client.

Question 5

The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the….?

Answer 5

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.

Question 6

In what paragraph does the auditor explicitly reference the “auditing standards generally accepted in the U.S?

Answer 6

Auditor’s Responsibility

Question 7

What are the 5 specific matters the AICPA Professional Standards Board state that a successor auditor must ask the predecessor auditor?

Answer 7

(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.

Question 8

What is the auditor required to establish an understanding of regarding the services to be performed?

Answer 8

(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.

Question 9

What are the 2 levels that the AICPA Prof. Stds discuss as responses to the auditor’s assessment of the risks of material misstatement?

Answer 9

(1) Overall response;

(2) Response at the relevant assertion level.

Question 10

In planning a new engagement, what would an auditor need to consider?

Answer 10

(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.

Question 11

The acceptable level of detection risk is inversely related to what?

Answer 11

Detection risk is inversely related to the assurance provided by substantive tests.

The lower the detection risk, the more assurance needed from substantive testing.

Question 12

Analytical procedures used in planning an audit should focus on what?

Answer 12

Enhancing the auditor’s understanding of the client’s business and identify areas that may represent specific risks relevant to the audit.

Question 13

Analytical procedures used in the final review stage of an audit should focus on what?

Answer 13

Assisting the auditor in assessing the conclusions reached and in evaluating the overall financial statement presentation.

Question 14

What are the 4 management assertions applicable to account balances at the period end?

Answer 14

1. existence
2. completeness
3. rights and obligations
4. valuation and allocation

Question 15

What is the auditor’s primary responsibility pertaining to related parties?

Answer 15

To ensure that disclosure of related party transactions in the audited financial statements is adequate.

Question 16

In a well-designed system of internal control, what functions should be kept separate?

Answer 16

Record Keeping, Custodial, and Authorization

Question 17

What are the best ways to control fraud pertaining to marketable securities?

Answer 17

1. Controlling access;
2. Providing adequate segregation of duties

Use of a trust company aids in both respects

Question 18

What is a management control method that most likely could improve management’s ability to supervise company activities effectively?

Answer 18

Establishing budgets and forecasts to identify variances from expectations.

Question 19

Immediately upon receipt of cash, a responsible employee should..?

Answer 19

Prepare a remittance listing.

-helps ensure that a control over cash received is established.

Question 20

Regardless of the assessed level of risk, an auditor would perform some…?

Answer 20

Substantive tests to restrict detection risk for significant transaction classes.

Question 21

As a part of understanding the internal control structure, an auditor is NOT required to what?

Answer 21

Obtain knowledge about the operating EFFECTIVENESS of the internal control structure.

Question 22

What should the independent auditor consider when assessing the internal auditor’s objectivity?

Answer 22

1. The organizational status of the internal audit function;

2. The policies affecting the internal auditor’s objectivity about areas audited.

Question 23

In determining sample size for a test of controls, what should the auditor consider?

Answer 23

The tolerable rate of deviations;
The expected rate of deviations; and
The allowance risk of assessing control risk too low.

Question 24

What would make an auditor choose between a qualified opinion and a disclaimer of opinion?

Answer 24

The choice between a qualified opinion and a disclaimer of opinion arises when a scope limitation has occurred.