Missed Questions Flashcards
A successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor’s:
Working Papers.
Before accepting an engagement, a successor auditor is required to, with client permission, make inquiries of the predecessor auditor. The successor auditor should also request that the client authorize the predecessor auditor to allow a review of the predecessor auditor’s working papers. It is not necessary to review the engagement letter.
Which of the following procedures would the principal auditor most likely perform after deciding to make reference to another CPA who audited a subsidiary of the entity?
Make inquiries about the professional reputation and independence of the other CPA.
Whether or not the principal auditor decides to make reference to the audit of the other auditor, he or she should make inquiries concerning the professional reputation and independence of the other auditor. However, if the principal auditor decides to make reference to another CPA who audited a subsidiary of the entity, he or she is not required to review the working papers and audit programs of the other CPA, visit the other CPA and discuss the results of the other CPA’s audit procedures, or determine that the other CPA has a sufficient understanding of the subsidiary’s internal control.
When assessing the competence of the internal auditors, an independent CPA should obtain information about the:
Assessing the competence of the internal auditors involves obtaining information regarding factors such as the:
- quality of working-paper documentation, reports, and recommendations;
- educational level and professional experience of the internal auditors;
- professional certification and continuing education obtained by the internal auditors;
- audit policies, programs, and procedures;
- practices regarding assignment of internal auditors;
- supervision and review of the internal auditors’ activities; and
- evaluation of the internal auditors’ performance.
Based on Rule 3521 of the PCAOB, in order for registered public accounting firms to maintain independence, they can only accept contingent fees or commission:
Contingent fees and commissions are currently not allowed.
The primary source of information to be disclosed regarding litigation, claims, and assessments is:
Client’s Management
-AU-C 501.A42 notes: “Management is the primary source of information about events or conditions considered in the financial accounting for, and reporting of, litigation, claims, and assessments because these matters are within the direct knowledge and, often, control of management. Accordingly, the auditor’s procedures with respect to litigation, claims, and assessments include the following:
“Making inquiries of management as required by paragraph .16a, which may include a discussion about the policies and procedures adopted for identifying, evaluating, and accounting for litigation, claims, and assessments involving the entity that may give rise to a risk of material misstatement
“Obtaining written representations from management, in accordance with section 580, Written Representations, that all known actual or possible litigation, claims, and assessments whose effects should be considered when preparing the financial statements have been disclosed to the auditor and accounted for and disclosed in accordance with the applicable financial reporting framework”
How do the OMB’s Uniform Guidance rules define a subrecipient?
A subrecipient is a nonfederal entity that receives a subaward from a pass-through entity to carry out part of a federal program; it does not include an individual that is a beneficiary of such a program. A recipient of other federal awards directly from a federal awarding agency also qualifies as a subrecipient.
Which of the following statements is correct concerning probability-proportional-to-size (PPS) sampling, also known as dollar-unit sampling?
-The auditor controls the risk of incorrect acceptance by specifying that risk level for the sampling plan.
Probability-proportional-to-size (PPS) sampling selects a sample based on dollars, not individual items. If the sampling interval for a particular asset is $12,000, every invoice that has a value of over $12,000 will be selected. Large-dollar-value items have a higher chance of being selected in the testing, and overstatements are more likely to be detected than understatements.
Since PPS sampling is used in the test of details, the auditor would consider two types of risk: incorrect acceptance and incorrect rejection. The auditor controls those risks by determining the risk level for the sample.
The PCAOB has the authority to enforce SOX Title III, Section 303, in which type of proceedings?
The Public Company Accounting Oversight Board (PCAOB) has the authority to enforce Section 303 of the Sarbanes-Oxley Act (SOX) in civil proceedings.
Although Section 303 gives the Securities and Exchange Commission (SEC) exclusive authority to enforce the section, in practice the PCAOB enforces compliance and levies civil monetary penalties while the SEC oversees the PCAOB’s operations.
An auditor may decide to increase the risk of incorrect rejection when
The cost and effort of selecting additional sample items are low.
Which of the following procedures would be most likely to assist an auditor in identifying litigation, claims, and assessments?
Read the file of correspondence from taxing authorities.
In auditing accounts receivable, the negative form of confirmation request most likely would be used when
The combined assessed level of inherent risk and control risk relative to accounts receivable is low.
An auditor most likely would inspect loan agreements under which an entity’s inventories are pledged in order to support management’s financial statement assertion of
Presentation and disclosure.
Which of the following factors would least influence an auditor’s consideration of the reliability of data for purposes of analytical procedures?
Whether the data were processed in a computerized system or in a manual accounting system.
An auditor’s decision either to apply analytical procedures as substantive procedures or to perform tests of transactions and account balances usually is determined by the
Relative effectiveness and efficiency of the tests
