More Difficult Concepts

Question 1

What is a key trait for (EDI) Systems?

Answer 1

Preventive controls generally are more important than detective controls in (EDI) System

Question 2

What is a primary reason Analytical Procedures are used during the planning stage of an audit?

Answer 2

To examine financial and nonfinancial data aggregated at a high level

Question 3

What are Assurance Services?

Answer 3

Independent professional services that improve the quality of information (or its context, for decision makers)

Question 4

What are consulting services?

Answer 4

Services designed for the improvement of operations

E.g. Resulting in better outcomes.

Question 5

What are compilation services?

Answer 5

The assembly of financial statements based on information and assumptions of a responsible party

Question 6

What is not a requirement for you to provide Eldercare services?

Answer 6

Prior Experience

E.g. It is a fairly new service which does NOT require prior experience to perform

Question 7

What is the point of continuing professional education (CPE) and training activities?

Answer 7

To fulfill assigned responsibilities and qualifications for advancement

Question 8

Which financial statement is the auditor least concerned about? Income State or Balance Sheet account?

Answer 8

Income State;

Because the income statement accounts have no beginning balances to provide an analysis

Question 9

What is a Hash Total?

Answer 9

It’s a control total without a defined meaning

E.g. total of employee numbers or invoice numbers
Invoice Number - #102, #202, #305,and #109 = Hash Total of 718

Question 10

What would “edit checks” tell me if I used a sales order processing system?

Answer 10

It would provide me with a File of all rejected sales transactions

E.g. system tests “Completeness, Reasonableness, etc.” prior to acceptance

Question 11

What are the six elements of Quality Control

Answer 11

1. Leadership Responsibilities for Quality Control within the firm
2. Relevant Ethical Requirements
3. Acceptance and Continuance of Client Relationships
4. Human Resources
5. Engagement Performance
6. Monitoring

Question 12

What is the purpose for Quality Control Element 1?

“Leadership Responsibilities for Quality Control within the firm”

Answer 12

Promotes an internal culture of recognizing that quality is essential in performing engagements

Question 13

What is the purpose for Quality Control Element 2?

“Relevant Ethical Requirements”

Answer 13

Tells firm why policies and procedures should be established to provide assurance that firm personnel comply with ethical requirements

Question 14

What is the purpose for Quality Control Element 3?

Acceptance and Continuance of Client Relationships

Answer 14

Provides reasonable assurance firm has considered the client’s integrity; and

has information about lack of client integrity

Question 15

What is the purpose for Quality Control Element 6?

Monitoring

Answer 15

Provides reasonable assurance that policies and procedures related to the system of quality control;

• Are relevant, adequate, operating effectively, and complied with

Question 16

What situations of actual or threatened litigation impair independence?

Answer 16

(1) Litigation has begun alleging deficient audit work;
(2) Litigation has begun alleging fraud or deceit by current management; and
(3) Management has expressed an intention to commence litigation alleging deficient audit work, and the auditor concludes that it is probable that such a claim will be filed

Question 17

What would be considered an indirect financial interest in a corporate client?

Answer 17

An Investment held in a mutual fund

Note: Independence is impaired if there is a direct or materially indirect financial interest in the client

Question 18

What is the difference between the Type 1 and Type 2 Service Auditor’s Report?

Answer 18

Type 2 Report contains an opinion:

On the Operating Effectiveness of Controls throughout the specified period

Question 19

What is the auditor’s role involving management’s assessment internal control effectiveness?

Answer 19

To determine whether management’s report is complete and properly presented

Question 20

What power (e.g. authority) does the PCAOB have?

Answer 20

The PCAOB may:

• Impose financial penalties for up to $15 million dollars
• Seek removal of a person from a registered firm