MCQ Topics Flashcards
if an auditor of an issuer examines records or documents obtained from the issuer to verify proper authorization of transactions, then the auditor is conducting:
an inspection/examination
when would the use of a blank form of confirmations of AR most likely be preferable to positive confirmations?
when the recipients are likely to sign the confirmations without devoting proper attention to them
-this means its possible that a misstatement in the related receivable will not be discovered by the auditor
what type of audit evidence provides the least assurance of reliability?
prenumbered reports completed by the client’s employees
-considered internal evidence
when would an unmodified opinion be appropriate
-justified departure from GAAP (include an emphasis of matter paragraph)
-unjustified departure from GAAP, but it doesn’t have a material effect on the financial statements
-change in accounting principle that has a material effect on the current year financial statements (include an emphasis of matter paragraph)
in an attest engagement, the use of the accountant’s report should be restricted to specified parties when:
-reporting on an examination of a financial projection
-performing an assertion based examination, the engaging party is not the responsible party, and a written assertion has not been provided
-the criteria used to evaluate the subject matter are appropriate for only a limited number of parties
what is the complete and accurate list of the walkthrough procedures usually performed in an issuer’s integrated audit?
inquiry, observation, inspection of relevant documentation, and reperformance of controls
the calculate the required sample size for an inventory observation, what does the auditor usually determine?
-variability in the dollar amounts of inventory items
-risk of incorrect acceptance
what is a cognizant agency
federal awarding agency that provides the most amount of direct funding to a nonfederal entity
to gain assurance that all inventory items in a client’s inventory listing schedule are valid, what would an auditor likely trace/vouch?
items listed in the inventory listing schedule to inventory tags and the auditor’s recorded count sheets
why would an analytical procedure be used as a substantive test?
to achieve audit objectives in the most effective and efficient manner possible
what holds the highest risk of misappropriation of assets
bearer bonds because they are unregistered with no records kept of the owners or transactions involving ownership
-historically used for money laundering, tax evasion, and to conceal business transactions
the sample size of a test of controls varies inversely with
the tolerable rate
the sample size of a test of controls varies directly with
the expected deviation rate
if an accountant compiles financial statements for an entity and a member of the engagement team has a direct financial interest in the entity, then the accountant should
indicate the accountant’s lack of independence in a final paragraph of the compilation report
auditors try to identify predictable relationships when using analytical procedures. relationships involving transactions from what account most likely yields the highest level of evidence?
payroll expense
-based on objective information and can be computed directly by the auditor
regarding a nonissuer’s compliance with laws and regulations, an auditor performing an audit of the entity’s financial statements is responsible for
-obtaining a general understanding of the legal and regulatory framework applicable to the entity and how the entity is complying with that framework
an auditor has been hired to report on a nonissuer’s internal control over financial reporting. what would best describes a reporting option in this scenario?
when a material weakness exists, the auditor should issue an adverse opinion
what response would be in a legal letter regarding an auditor qualifying the audit opinion due to a scope limitation
the response specifically excludes information on a pending legal matter because of publicity concerns
for a compilation of financial statements engagement in accordance with SSARS, an accountant is not required to:
make inquiries nor perform procedures to corroborate the information provided by the client
-those are required in an audit engagement
when does a deficiency in operation exist
when a properly designed control is either not executed as designed or the person performing the control does not have either the authority or the skill to perform the control
when the prior period has been audited, the accountant should issue the current period compilation or review report, and any additional paragraph should indicate:
-the prior period statements were audited
-the date of the previous report
-the opinions expressed and if other than unmodified, the reasons for the modification
-that no auditing procedures have been performed since the previous report date
the senior auditor responsible for coordinating the fieldwork usually schedules a pre audit conference with the audit team primarily to
give guidance to the staff regarding both technical and personnel aspects of the audit
is materiality considered in the smallest or largest aggregate level of misstatements that could be considered material to any one of the financial statements?
smallest
each page of the financial statements in a preparation engagement should include
a statement indicating that no assurance is provided
SOC 1 type 2 report
gives assurance about the design, implementation, and operating effectiveness of internal control
-also reduce the assessed level of control risk
SOC 1 type 1 report
aid users in obtaining an understanding of controls but cannot be used to reduce the assessed level of control risk
would a CPA, when planning a financial statement audit, determine the extent of involvement of the client’s internal auditors?
yes
an accountant who is conducting a review of the unaudited financial statements of a nonissuer in accordance with SSARS would be required to:
obtain a management rep letter
in addition to descriptions of the NET of planned risk assessment procedures and planned further audit procedures, what else should be documented in the audit plan?
other audit procedures to be performed to comply with GAAS
in a nonattest service, does the CPA have to determine if they are independent of the client for a preparation engagement?
no
what is an integrated test facility?
computer assisted auditing technique that allows fictitious and real transactions to be processed together without client operating personnel being aware of the testing process
what would be the most appropriate audit procedure to test the valuation of collateral?
current value appraisal
in order to reduce the risk that the aggregate of undetected misstatements in the group financial statements of a nonissuer exceeds the materiality for the group financial statements as a whole, an auditor should establish a
component materiality < materiality for the group financials
failure to record ____ would result in actual inventory quantities being greater than those recorded in the perpetual inventory records
sales returns
factual misstatement definition
misstatements about which there is no doubt
what is a sub recipient according to title 2 of the code of federal regulations
nonfederal entity that expends federal awards received from another entity to carry out a federal program
what is the conceptual difference between the attestation standards and GAAS?
attestation standards provide a framework for the attest function beyond historical financial statements
the standard report issued by an accountant after reviewing the financial statements of a nonissuer should state that
a review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management
what control objective is achieved by reviewing and testing control procedures over physical inventory count
verification of existence of inventory
documentation requirements for analytical procedures
when its used as the principal substantive test of a significant financial statement assertion, the auditor is required to document both the auditor’s expectation and the factors considered in developing that expectation
what objective is achieved when an auditor decides to employ classical variable sampling
to determine the inventory quantities on hand
is a significant deficiency less severe than a material weakness
yes
when the tolerable misstatement level is low, do you increase or decrease sample size
increase
what is an auditor’s responsibility for supplementary info which is outside the basic financial statements, but required by the FASB?
the auditor should apply certain limited procedures to the required supplementary info and add a sep section heading “required supplementary info” to the financial statement audit report
auditor’s primary method to corroborate information on litigation, claims, and assessments:
reviewing the response from the client’s lawyer to a letter of audit inquiry
system of quality control - HELP ME
h - human resources
e - engagement/client acceptance and continuance
l - leadership responsibilities
p - engagement performance
m - monitoring
e - ethical requirements
(existing) control activities - one of the five components of IC - PAID TIPS
p - prenumbering documents
a - authorization of transactions
I - independent checks to maintain asset accountability
d - documentation
t - timely and appropriate performance reviews
I - info processing controls
p - physical controls for safeguarding assets
s - seg of duties (ARC - authority, recording, custody)
audit risk formula
RMM (IR*CR) * DR
reliability of appropriate audit evidence (AEIO)
a - auditor’s direct personal knowledge and observation
e - external evidence
I - internal evidence
0 - oral evidence
common substantive auditing procedures - FIVE
f - footing, cross footing, and recalc
I - inquiry (internal and external sources)
v - vouching
e - examination and inspection of documents/records
common substantive auditing procedures - CARROT
c - confirmation
a - analytical procedures
r - reperformance
r - reconciliation
o - observation
t - tracing
common substantive auditing procedures - CARS
c - cutoff review
a - auditing related accounts simultaneously
r - rep letter
s - subsequent events review
auditor’s responsibility with subsequent events - PRIME
p - reviewing post balance sheet transactions
r - rep letter from management
I - inquiry
m - reading the minutes
e - examining the latest available interim statements
comparative FS - change in opinion - DORCS
d - date of the previous auditor report
o - opinion type previously issued
r - reason for prior opinion
c - changes that have occurred
s - statements that “opinion…is different”
agreed upon procedures engagements - I AM SURE
I - independence required
a - agreement of parties
m - measurability and consistency
s - sufficiency of procedures
u - use of the report can be general or restricted
r - responsibility for subject matter (client is responsible or client provides evidence for a third party)
e - engagements to perform agreed upon procedures on prospective FS
review of interim financial statements required procedures - U LIAR CPA
u - understanding with the client
L - learn entity and its environment, including it’s IC
I - inquiry
a - analytical procedures
r - review other procedures
c - client rep letter
p - professional judgment
a - accountant (CPA) should communicate results
can a successor auditor request the new client to authorize the predecessor auditor to allow a review of the predecessor’s auditors working papers?
yes
