Integrated Audits, Attestation Agreements, Compliance

Question 1

Registered Firms

Answer 1

Registered firms must report to the audit committee the critical accounting policies and practices used

Question 2

Quality control

Answer 2

A firm that does not have an adequate system of quality control may still have complied with professional standards on a specific engagement

Question 3

If control risk has increased…

Answer 3

The acceptable level of detection risk will decrease and more substantive testing will be required

Question 4

Fixed assets/transactions

Answer 4

Since there are many transactions affecting the cash account, it is more efficient to focus on the ending balance. If there are a few transactions, then fixed assets should be audited.

Question 5

Segregation of duties

Answer 5

Approving timesheets is an authorization function, which should be separated from custody of assets

Question 6

Modification of review report

Answer 6

Departures from GAAP require modification of the review report

Question 7

Retained earnings

Answer 7

The auditor should analyze the retained earnings account since the last audit

Question 8

If you notice a material departure…

Answer 8

Recommend the client to revise the financial statements to confirm to GAAP

Question 9

Internal controls (sequence)

Answer 9

An auditor performs test of controls at the same time he or she is obtaining an understanding

Question 10

AICPA Discreditable Acts

Answer 10

Failure to return client records upon request

Question 11

An increase in variability will..

Answer 11

There is a direct relationship between population variability and sample size, so an increase in variability results in an increase in sample size

Question 12

Sampling

Answer 12

Sample deviation rate (S) + Allowance for sampling risk (A) >= Tolerable Deviation … If the tolerable deviation rate less the allowance for sampling risk is less than the sample deviation rate then do not rely on the control

Question 13

Internal auditor

Answer 13

Helps external auditor to understand internal control, provide direct assistance to external auditor

Question 14

Management rep letter

Answer 14

” we disclosed to you all known instances of non-compliance with laws and regulations…”

Question 15

Adverse opinions - compliance report

Answer 15

When an auditor expresses an adverse opinion on the financial statements, the auditor should issue a report on compliance only id the auditor identifies instances of noncompliance

Question 16

Probability-proportional-to-size (PPS) sampling

Answer 16

TM/6.3 = 20,000…700,000(sample size)/20,000solution = 35 accounts

Question 17

Appointing external auditor after year end

Answer 17

An auditor is permitted to accept an engagement near or after year-end. Should consider whether it pose any limitations before accepting

Question 18

Auditor’s Report Title - CPA firm

Answer 18

Report of the Independent Registered Public Accounting Firm

Question 19

Management is responsible for noncompliance

Answer 19

True

Question 20

Report not opinion on compliance and internal controls

Answer 20

Negative assurance, get it fixed right away if there is an issue