New Flashcards
When assessing the competence of an internal auditor, the auditor should obtain info about
the quality of the internal auditors working paper documentation
Which of the following auditor concerns most likely could be so serious that the auditor concludes that a financial statement audit cannot be performed?
if he/she determined that a substantial risk of intentional misapplication of accounting principles existed.
The key word is “intentional” as the risk of management override is an inherent limitation of any internal control system. Management can override the system to make material misstatements in the financial statements and the auditors may not be able to detect such entries.
If management is believed to be intentionally misapplying accounting principles, the financial statements are likely to contain material misstatements that may be extremely difficult, if not impossible, to detect. Thus, the auditors would withdraw from the engagement.
A written engagement letter is required for…..
Audits
Reviews
Compilations
What is under the Statement on standards for accounting and review services
Compilation
Review
The auditor must asses what type of risk?
Inherent risk
Control risk
The auditor makes decisions that result in some level of ___ risk
detection
How does one increase or decrease detection risk
by adjusting the nature, timing, and extent of the auditors substantive audit procedures.
What is included under the Mgmt’s Resp for the FS (2nd paragraph) paragraph of the auditors report?
One sentence - states that mgmt is responsible for the fair presentation of the FS and the design and implementation of internal control
3rd section of auditors report - Auditors Resp. consists of 3 paragraphs - what does the first paragraph include
Responsibility to express an opinion
Conducted in accordance with GAAS
Plan & perform the audit to provide reasonable assurance
When is an EOM paragraph required?
When A has substantial doubt about the entitys ability to continue as a going concern.
Inconsistency in accounting principles.
When FS are prepared in accordance with special purpose frameworks
When is an Other Matter paragraph included?
Relevant to users understanding of the audit
Relevant to users understanding of the auditors responsibilities or the auditors report
What kind of opinion is a scope limitation?
Qualified or Disclaimer
What type of opinion is a material but NOT pervasive misstatement?
Qualified
What type of opinion is a material and pervasive misstatement?
Adverse
A commission may be received if it is not from a client for which the CPA provides any of the following services:
Audit Review Compilation Examination of prospective Fin info. Preparing an initial or amended tax return
AFS report issued for a PUBLIC company should state that it was performed in accordance with ____?
PCAOB
The susceptibility of a financial statement assertion to a MM assuming there are no related controls
Inherent risk
Attribute sampling
Whether an attribute exists or does not exist in a particular circumstance
PPS sampling
the auditor controls the risk of incorrect acceptance by specifying the risk level for the sampling plan.
Before reissuing a reprot which was previously issued on the FS of a prior period, a predecessor auditor should
obtain a letter of representation from the successor auditor
When controls are not operating as anticipated,
the ROMM will be greater than the planned assessed level of control risk
AN examination report on prospective FS should include
Caveat that the results may not be achieved.
Practitioner assumes no resp to update the report
Practitioner’s resp to express an opinion
Performed in accordance with attestation standards ests by the AICPA (not GAAS)
What is included in attestation services
Reviews
Examinations
AUP
What kinds of services DO NOT require independence?
Tax prep
Consulting
Compilations
FS prep
What services require independence?
Audit
Review
Examinations
Agreed UP
SSARS relate to services that include
Prepping FS
Compiling FS
Reviewing FS
What is performed in a PCAOB inspection?
considerations of aspects of practice mgmt, including how partner compensation is determined
a consistency EOM paragraph is added for what kind of accounting changes?
Reporting entity
An accounting principle inseparable from a change in acct estimate
An accounting principle from one that is not accepted to one that is
What do As need when attribute sampling?
the allowable risk of assessing control risk too low
The Expected deviation rate
The expected tolerable rate
what does test data test?
the procedures within an accounting system
What is the distinguishing feature of statistical sampling?
It provides for measuring mathematically the degree of uncertainty that results from examining only a part of the data.
Provides the auditor with a means of assessing sampling risk
What type of opinion is issued if there is a GAAP departure
Adverse or Qualified
Is an engagement letter required for AUP?
NO
What is included in quality control?
Monitoring
Relevant ethical requirements
Acceptance and continuance of client relationships
Advantage of parallel simulation?
can test a bigger sample at no additional cost
What is the affect on the assessed level of control risk when the deviation rate plus the allowance for sampling risk exceed the tolerable rate?
it may increase.
Should the principal auditor refer to the component auditor under Intl standards?
May not reference component auditor
Should the principal auditor refer to the component auditor under PCAOB?
May reference component auditor
What does statistical sampling help the auditor do?
Design an efficient sample
Measure the sufficiency of the audit evidence obtained
Evaluate the sample results
What does an increased sampling risk allow?
a larger margin on error and a smaller sample size
What are the 3 types of impairments under GAO?
Personal, external, organizational
Attributes sampling
existence of an error or nonexistence of an error
What does SOX Section 404 require in regards to internal control?
That the report should attest to and report on the internal control assessment made by the mgmt of the issuer.
If the A is performing a REVIEW and there is a material GAAP departure that the client does not correct, what should the auditor do
disclose the departure in a separate paragraph of the report
What does it mean to assess the control risk too low
the risk that the sample supports the auditors planned degree of reliance on the control when the true compliance rate would not support such reliance.
What do professional standards require in regard to internal control of an audit
a description of the scope of the A’s work stating that the A obtained:
an understanding of the design of relevant controls
determined whether the controls have been implemented
assess control risk
Where should a basis for an adverse opinion paragraph go?
before the opinion paragraph
Do agreed upon procedure engagements require independence>
Si
How should an auditor point out in the AFS that the client has related party tranx?
In an EOM paragraph (still unmodified opinion)
When preparing a client FS, is an EL required? Rep letter?
Engagement letter required.
Rep letter not required
What kind of standards can the PCAOB est?
Attestation standards
Auditing standards
independence standards
quality control standards
What kind of opinion is the clients omission of SCF?
Qualified
AUP result in what kind of restriction on the report?
limited use
Under what circumstances may an A charge a contingent fee?
if fixed by courts, or other public authorities, or in tax matters if based on the result of judicial proceedings
SSARS are used for:
prepare
compile
review
If there is a change in acct principle that results in an immaterial effect on the FS, what should the A do in regards to the A report?
no reference should be made regarding the change in acct principle.
If a public company has a material weakness of internal control, what type of opinion should be issued?
Adverse
When preparing FS, is there a report attached?
No, only if each page of the statements DOES NOT have a statement that says no assurance is provided.
What assertions are embodied in MD&A?
Completeness
Consistency with the FS
Occurence
Presentation and disclosure
Do international auditng standards require an opinion on IC?
No.
What kind of SOC report is SysTrust
SOC 3
What is most likely to result in modification of a compilation?
a GAAP departure
Assessing ROMM below the maximum involves what procedures?
Identifying specific controls relevant to specific assertions
Performing tests of controls to evaluate their effectiveness
Risk of assessing control risk too high
Type 1 error
Efficiency - over testing
Under-reliance on I/C
incorrect rejection
Risk of assessing control risk too low
Type 2 sampling error
Effectiveness - not achieving objective
Incorrect acceptance
Over-reliance on I/C
If sampling risk increases, what happens to sample size?
the margin for error is now larger, so the sample size would decrease
