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AUD > General Review > Flashcards

General Review Flashcards

1
Q

When financial statements contain a material departure from GAAP, and the financial statements would have been misleading if prepared under GAAP, what type of opinion should be issued?

A

An UNMODIFIED opinion with a separate paragraph explaining the unusual situation.

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2
Q

Describe the qualified opinion phrase.

A

“In our opinion, EXCEPT for… as discussed in preceding (non-issuer)/following (issuer) paragraph”

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3
Q

What is scope limitation?

A

When the auditor is unable to complete the audit fully

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4
Q

How can a CPA firm make sure to offer services that meet professional standards?

A

Maintaining a quality control system that is suitably designed in relation to its organizational structure.

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5
Q

If a predecessor auditor issued an unmodified opinion, and the report is NOT presented, what should the successor auditor do?

A

Indicate in an other-matter paragraph that the predecessor auditor issued an unmodified opinion.

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6
Q

True or False: The auditor has an active responsibility to make subsequent event inquiries between the date of the auditor’s report and the date on which the report is submitted.

A

FALSE. The auditor only has a responsibility between the financials statement date and the auditor report date.

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7
Q

Inquiring about the current status of transactions that were recorded on the basis of preliminary data is what kind of procedure?

A

A procedure to obtain evidence about the OCCURRENCE of a subsequent event.

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8
Q

Is there a requirement that an auditor’s report on supplementary information be restricted?

A

NO. There is no requirement for this.

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9
Q

What type of procedure should an auditor apply to SUPPLEMENTARY INFORMATION?

A

Certain, limited procedures.

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10
Q

What is an auditor REQUIRED to do with “other information”

A

Read the information to ensure no material misstatement exists and consistency with other financial data presented.

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11
Q

What type of opinion is issued when OCBOA statements are NOT titled correctly?

A

A qualified opinion with a basis for modification paragraph.

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12
Q

What is the primary purpose of Quality Control?

A

To minimize the likelihood of associating with clients whose management lacks integrity.

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13
Q

What type of paragraph would be added for: Prior to the audit report date, the auditor identifies a material inconsistency in other information that is included in a document containing audited financial statements that management refuses to revise.

A

Other matter paragraph.

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14
Q

If an auditor is unable to form an opinion on a new client’s opening inventory balance, they may still issue an unmodified opinion on the current year’s______

A

Balance sheet only. Since balance sheet is year end and they could verify amounts. Cannot verify COGS or sales since they could not verify opening balances.

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15
Q

Is supplementary information required to be restricted by GAAP?

A

NO. There is no requirement for this.

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16
Q

If an auditor lacks independence, what type of opinion must be issued?

A

A disclaimer of opinion. Qualified opinion is NOT an option.

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17
Q

What would most likely influence the auditors determination of the AUDITABILITY of an entity’s financial statement? The operating effectiveness of control or the adequacy of accounting records?

A

The adequacy of accounting records. Inadequate financial records may preclude the auditor from obtaining sufficient appropriate audit evidence.

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18
Q

What kind of documentation is required for an audit in accordance with generally accepted auditing standards?

A

An indication in the audit documentation that the accounting records agree or reconcile with the financial statements.

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19
Q

What are the elements of CPA firms QUALITY CONTROL?

A

HELP ME.

Human resources, Engagement performance, Leadership responsibilities, Performance of engagement, Monitoring, Ethical requirements.

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20
Q

An auditor would most likely review what in trying to gain an understanding of a client’s business in planning the audit?

A

Review prior year audit documentation and the permanent file for the client.

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21
Q

What does the monitoring component of internal control exclude?

A

ELIMINATING controls that are not operating effectively.

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22
Q

Before accepting an engagement to audit a new client, a CPA is required to obtain what?

A

The prospective client’s consent to make inquiries of the predecessor auditor.

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23
Q

An auditor would most likely be concerned with internal controls that provide reasonable assurance about the?

A

Entity’s ability to process and summarize FINANCIAL DATA.

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24
Q

What is one of the primary benefits of using a generalized audit software?

A

Auditor can access information stored on computer files while having limited understanding of the client’s hardware and software features.

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25
Q

What is CRIME mnemonic?

A

These are the components of the internal control. Control environment, Risk assessment, Information and communication systems, Monitoring, Existing control activities.

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26
Q

The working trial balance generally contains columns for what?

A

Reclassifications and adjustments.

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27
Q

What is an auditor most likely to use in determining preliminary judgement about materiality?

A

Entity’s financial statements from a prior year.

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28
Q

Are opportunities for on-the-job training and continuity and periodic rotation of personnel factors to be considered in planning the audit engagement?

A

YES. Both of these are factors.

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29
Q

What is a disadvantage for an entity that keeps microcomputer-prepared date files rather than manually prepared files?

A

It is easier for unauthorized persons to access and alter the files.

30
Q

What computer-assisted auditing technique processes client input data on a controlled program under the auditor’s control to test controls in the computer system?

A

Parallel simulation.

31
Q

Under a firm’s quality control standards, which element provides assurance about the work performed meets the firm’s standard of quality?

A

Performance. Reviewing audit documentation and engagement reports.

32
Q

If risk factors due to fraud are identified as being present, what should be included in the workpaper documentation?

A

The risk factors identified.

33
Q

What is an advantage of using classical variables sampling vs probability-proportional-to-size sampling?

A

The selection of negative balances requires no special designation considerations.

34
Q

In the audit of financial statements, what is always necessary for all relevant assertions related to material transaction classes?

A

Substantive procedures

35
Q

An auditor should select what type of samples to limit sample risk?

A

The auditor should select representative samples to limit sample risk.

36
Q

When should an auditor reference the work of a specialist?

A

Typically won’t, unless deviating from unmodified opinion and wanting to make reader of fin. stmts. aware of specific matter.

37
Q

What is most likely to affect the extent of audit documentation of auditor’s understanding of client?

A

Degree to which information technology is used in accounting function.

38
Q

What is a basic element of the auditor’s report under U.S. auditing standards?

A

“An audit includes… EVALUATING SIGNIFICANT ESTIMATES MADE BY MANAGEMENT”

39
Q

An independent CPA is requested to prepare a written report on the application of the requirements of an applicable financial reporting frameworks to a specific transaction by an entity that is audited by another CPA. What should the CPA do?

A

Accept the engagement but should consult with the continuing CPA to gain information pertinent to forming a professional judgement.

40
Q

What is the least likely procedure to help discover possible noncompliance with laws and regulations?

  • Making inquiries of mgmt.
  • Reviewing internal control questionnaire
  • Performing tests of details of transactions
  • Reading the minutes of the board of directors’ meetings
A

Reviewing internal control questionnaire.

41
Q

To obtain evidence about control risk, which techniques should be used?

  • Reperformance
  • Comparison
  • Confirmation
  • Analysis
A

Reperformance. This provides evidence of their operating effectiveness.

42
Q

What would an auditor compare in order to unveil a lapping cash scheme?

A

Dates checks are deposited per bank statement with dates remittance credits are recorded.

43
Q

Examining a sample of invoices to determine if they are recorded in the proper revenue accounts would test which assertion?

A

Understandability and classification.

44
Q

What is required documentation in an audit in accordance with generally accepted auditing standards?

A

An audit plan setting forth in detail the procedures necessary to accomplish the engagement’s objectives.

45
Q

What is an auditor likely to do when auditing payroll?

A

Compare payroll costs with entity standards or budgets.

46
Q

Which audit procedure would be used to identify fictitious sales?

A

Select sample of sales invoices and trace to the related shipping documents. The client will likely have created phony sales invoices but no related shipping would have occurred.

47
Q

How should a previously communicated significant deficiency that has NOT been corrected be communicated again?

A

In writing, during the current audit.

48
Q

If test of details is to detect overstatement of sales, auditor should trace transactions from where?

A

Accounting records to source documents

49
Q

Test of completeness in the revenue cycle would usually include comparing what two documents?

A

That an invoice is prepared for each shipping document.

50
Q

What type of procedure should be performed during an engagement to compile prospective financial statements?

A

Make inquiries about accounting principles used in the preparation of the prospective financial statements.

51
Q

What are services that affect the initiation, execution, processing or reporting of a user company’s transactions considered?

A

Considered to be part of the user company’s information system.

52
Q

Can an auditor render an opinion when reporting on compliance engagement?

A

NO. Only negative assurance is given.

53
Q

What is the auditor testing when tracing sample purchase orders and related receiving reports to the purchases journal and cash disbursements journal?

A

To determine if the purchases were properly recorded. This is testing the completeness assertion.

54
Q

What would an AR confirmation request that yields fewer responses than expected indicate?

A

That there may be fictitious accounts, therefore, material misstatements may exist.

55
Q

For the most effective internal control, monthly bank statements should be received from banks and reviewed by who?

A

The internal auditor since they are independent.

56
Q

What should an auditor NOT do when reporting on internal control of an integrated audit?

A

Express an opinion on management’s assessment with respect to internal control. Auditor should instead express an opinion directly on the effectiveness of the internal control.

57
Q

In an examination report, is an opinion that the projection is presented in conformity with AICPA guidelines included?

A

YES.

58
Q

What would an auditor trace in receiving the bank cutoff statement?

A

Prior year checks listed in the cutoff statement to the year-end outstanding checklist.

59
Q

An accountant’s working papers for an engagement to REVIEW the financial statements of a nonpublic entity would LEAST likely include what?

A

Study and evaluation of internal contorl.

60
Q

Would an override of internal controls by a low-level employee be considered an inherent limitation?

A

NO.

61
Q

The means used by an entity to ensure that management directives are carried out are what kind of activities?

A

Control activities. Not information and communication systems.

62
Q

If, after gaining an understanding of internal control and performing risk assessment procedures, the auditor decided NOT to perform test of controls. What is the most likely reason for this?

A

The cost to perform test of controls to lower control risk outweighs the benefit.

63
Q

According to AICPA, what type of financial interests impair CPA’s independence?

A

Only direct and material financial interests.

64
Q

What procedure would an auditor perform in searching for unrecorded payables?

A

Compare cash payments made after the balance sheet date with the accounts payable trial balance.

65
Q

An auditor with final responsibility and an assistant have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter’s resolution, the CPA should be allowed to….

A

Document the details of the disagreement with the conclusion reached.

66
Q

Can a review be performed on prospective financial statements?

A

No. Only examination, compilation, preparation or agreed-upon procedure. Reviews are generally for comparative financial statements.

67
Q

What testing methods are appropriate when testing DESIGN EFFECTIVENESS of controls in an integrated audit?

A

Inquiry, observation, inspection. Recalculation and reperformance would be used to test the OPERATING effectiveness.

68
Q

In an agreed-upon procedure, what date should the practitioner’s report use?

A

The date the agreed-upon procedures were completed.

69
Q

What is the purpose of an analytical procedure used as a substantive test?

A

To achieve audit objectives in the most effective and efficient manner possible.

70
Q

Who is responsible for inquiry of a client’s lawyer?

A

CLIENT MANAGEMENT. This is due to attorney-client privilege.

71
Q

Subsequently discovered facts that lead to a change in audit opinion may be presented in which paragraphs?

A

Either emphasis of matter OR other matter paragraph.

AUD (1 decks)

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