Mod 2 Wrong Answers Flashcards
Performance materiality is largely established to help provide assurance that…
Several immaterial misstatements do not combine to a
Material undetected amount of misstatement
Detection risk may be assessed in…
Either quantitative terms (ex. Percentages)
Or nonquantitative terms (range from minimum to maximum)
Performance materiality is ordinarily established at…
A lower level than materiality of financial statements
Performance materiality may be…
Revised throughout audit
Performance materiality is usually established for…
Financial statements as a whole
Performance materiality levels are established if applicable for…3
1 particular classes of transactions or
2 account balances or
3 disclosures
Management’s placement of substantial emphasis on meeting earnings projections…
Heightens an auditor’s concerns about risk factors
Insider purchases of additional shares of stock are less likely to be indicative of…
Intentional manipulation of financial statements than is undue
emphasis on meeting earnings projections
Errors refer to…
Unintentional mistakes in financial statements such as
misinterpretation of facts
Financial operations of many companies are not ordinarily…
Controlled by or limited to one location
Asking management if they have knowledge of fraud or suspect fraud is…
A requirement of inquiries that should be made to management
Overly complex organizational structure will…
Heighten an auditor’s concern about risk of fraudulent financial
Reporting
Large amounts of liquid assets that are easily convertible to cash represent more of a risk relating to…
Misappropriation of assets (rather than fraudulent financial reporting)
In determining what an auditor might reconsider when a client’s board of directors has refused to take any action relating to an auditor’s disclosure that the company has made immaterial illegal contributions, failure to take remedial actions may cause…
Auditor to decrease reliance on management representations
In determining what an auditor might reconsider when a client’s board of directors has refused to take any action relating to an auditor’s disclosure that the company has made immaterial illegal contributions, preliminary judgement about materiality levels would…
Not be expected to change
Management’s disregard for implementing internal control may cause…
Auditor to reject the engagement
Management’s refusal to allow auditor to perform tests before year end will…
Not necessarily stop the from successfully performing tests after
Year end
An item ordinarily included when the auditor establishes an understanding with a client regarding services to be performed. Auditing standards require that an auditor…
Ensure that audit committee is aware of significant deficiencies
That come to CPA’s attention
The auditor’s responsibility for determining preliminary judgements about materiality and audit risk factors is…
Not required for establishing an understanding with the client
An engagement letter should include an indication that…
Management is responsible for identifying and ensuring that the
Company complies with the laws and regulations applicable to its
Activities
Professional standards require that an auditor document the understanding through…
A written communication with the client
What information would a CPA consult for information on how various public companies have complied with disclosure requirements of new financial accounting standard? Why
AICPA Accounting Trends and Techniques
Issued annually summarizes such disclosures of 600 industrial
And merchandising corporations
An audit program should be designed so that…
Audit evidence gathered is sufficient to support auditor’s
conclusions
While constructive suggestions to management is desirable, the audit program is…
Not based on developing constructive suggestions
What element of the audit planning process is likely to be agreed upon with the client before implementation of the audit strategy?
Counting inventory requires a degree of coordination between performance of audit procedures and client count procedures
The client will not determine the evidence to be gathered to…
Provide a sufficient basis for the auditor’s opinion
The successor auditor does not review the predecessor auditor’s…
Engagement letter
An auditor is required to perform analytical procedures such as…
Comparing the financial statements to anticipated results during
The planning stage of the audit
Analytical procedures used during risk assessment may…
Enhance auditor’s understanding of clients business
Analytical procedures used during risk assessment may enhance the auditor’s understanding of the client’s business and significant transactions and events that have occurred since prior audit and also may help identify…
Existence of unusual transactions or events and amounts, ratios
And trends that might indicate matters have audit implications
What is an example of a type of nonfinancial information an auditor would most likely consider in performing analytical procedures during risk assessment phase of audit?
Square footage of selling space, used to consider reasonableness
Of sales
Turnover of personnel in accounting department may provide a measure of risk relating to accounting function, but it is not ordinarily used in…
Performing analytical procedures
accounts receivable turnover ratio equation
Accounts receivable turnover = credit sales/accounts receivable
Sales commissions are not included in…
Gross margin calculation
Fixed overhead costs will not increase with increase in units allowing…
Cost of goods sold to increase less proportionately to increase
In units sold
Examination of a financial forecast includes…3
1 An evaluation of its preparation and support underlying
management’s assumptions
2 evaluating representation of financial statements for conformity
With AICPA presentation guidelines
3 issuance of examination report
The nature and extent of a CPAS firm’s quality control policies and procedures depend on…5
1 firm’s size
2 operating autonomy allowed to its personnel and office practices
3 nature of its practice
4 it’s organization
5 appropriate cost benefit considerations
A system of quality control is designed to provide a CPA firm with…
Reasonable assurance of meeting its responsibility to provide
Professional services that conform with professional standards
Recording consignment sales overstates both sales and accounts receivable by an identical amount, what effect does this have on the accounts receivable turnover ratio?
Decreases accounts receivable turnover ratio
A larger percentage of sales occurred during the last month of the year as compared to the prior year, what affect does this have on average accounts receivable?
Increases average accounts receivable
Recording the consignment as a sale results in an increase in accounts receivable, while…
Decreasing the ration of allowance for doubtful accounts to
Accounts receivable
Not recording credit memos overstates an increase in accounts receivable, which…
Decreases the ratio of allowance for doubtful accounts as a
Percentage of accounts receivable
If operating income increased, higher interest rates will…
Decrease profitability
Sales increased at a lower percentage than cost of goods sold increased compared to the prior year is a detail…
Already included in operating income
CPA firms, not auditor’s within firm’s have…
Systems of quality control
Work performed by each assistant should be reviewed to determine…2
1 its adequately performed
2 evaluate whether the results are consistent with conclusions
To be presented in the auditor’s report
