Pass Key 5 Flashcards
Which of the following procedures would a CPA least likely perform during the planning stage of the audit?
Perform inquiries of outside legal counsel regarding pending litigation
5 Component s of internal control
CRIME
Last element of internal control Existing Control Activities:
PAID TIPS
Prenum of documents Authorization of transactions Independent checks to maintain assets accountability Documentation Timely performance review Information processing controls Physical control for safeguarding assets Segregation of duties
Subsequent to issuing a report on audited financial statements, a CPA discovers that the accounts receivable confirmation process omitted a number of accounts that are material, in the aggregate. Which of the following actions should the CPA take immediately?
Perform alternative procedures to verify account balances.
6 elements of an audit firm’s quality control system
Leadership responsibilities for quality within the firm (the tone at the top)
Relevant ethical requirements
Acceptance and continuance of client relationships and specific engagements
Human resources
Engagement performance
Monitoring
Which of the following is not required to be communicated to those charged with governance as part of an audit?
Disagreements with the previous auditor
Labor hours increased by 10% during the year, so Richard expects an increase in labor costs of 10%.
What source of information would Richard have used to perform the analytical procedures?
Relationships of financial information with relevant nonfinancial information
Which of the following is the risk that exists of a material misstatement occurring in an assertion in the absence of controls?
Inherent risk
Which of the following audit procedures most likely would assist an auditor in identifying conditions and events that may indicate there could be substantial doubt about an entity’s ability to continue as a going concern?
Review of compliance with terms of debt agreements.
Which of the following audit procedures most likely would assist an auditor in identifying conditions and events that may indicate there could be substantial doubt about an entity’s ability to continue as a going concern?
Review of compliance with terms of debt agreements.
Which of the following procedures would an auditor most likely perform in searching for unrecorded payables?
Compare cash payments made after the balance sheet date with the accounts payable trial balance.
Which of the following would most likely be indicative of a related party transaction?
The company sold a piece of land for well below market value.
Kepler, CPA, is auditing an investment that is accounted for using the equity method by examining the audited financial statements of the investee company. Which assertion is Kepler testing?
Valuation
Audit risk always planed LOW=RMM (Inh Risk*Control risk) *DR
RMM increase/high/bad - Detection risk (a willing to accept less risk) decrease/lower- sub tests increase
RMM decrease/low)good-detection risk increase/higher (auditor willing to accept more risk)-sub test decrease/low
If tests moved to year end, and nature of sub test change to more effective this means auditor is willing to accept less detection risk and will decrease level of DR
Excessive interest by management in maintaining or increasing the entity’s stock price
Attitudes/ rationalizations - Misstatements from fraudulent financial reporting
Regarding sample size, which of the following is true?
When planning a test of controls, if the auditor expects the deviation rate to increase from the prior year, then the sample size will be increased.
Which is true statement regarding documentation requirements for analytical procedures?
When An Procedures used as principal sub test A required document both A expectations and factors considered in developing these expectation.
Auditor s responsibility for supplemental information
Perform limited procedures
Work of internal auditor may affect independent auditors
Procedures in obtaining understanding of IC
Assessing risk of MM
Substantive procedures in gathering evidenced
What is correct regarding actions taken after documentation completion date?
A not allowed to make any deletions
Litigations:
- If Loss is Probable and can estimate it- accrue and disclosure
- If Loss is Probable and can’t estimate it- disclose it
-If Loss is Reasonable possible and can estimate-disclose it
If Loss is Reasonable possible and can’t estimate-disclose it
Remote-Ignore
Inquiry management
Review IRS Reports
Review minutes
A number of factors influence the sample size for sub test of details of an account balance. All other factors being equal, which of the following would lead to a larger sample size?
Smaller measure of tolerable misstatement
Which is correct statement for manager rep letter
The date of rep letter the same as report date
Which of statement s is correct about reliability of audit evidence?
The more effective IC structure, the more assurance it provides about reliability. Reliability- quality of evidences. Sufficiency -amount of evidences.
Under GAGAS when reporting on compliance with laws and regulations auditor’s report should include
Relevant info regarding material illegal acts and fraud found
Auditor express unmodified opinion with. Emphasis of matter paragraph added to the auditors report for
Unjustified accounting change NO (adverse)
Material weakness in internal control NO (discuss with management)
Retained earnings
Beginning Ret earnings+Net income-Dividends=Ending Ret Earniny
Inspection/ Test of control- Examine sales invoices to see signature
Inspection/Substantive Procedures-Examine invoices to support additions to fixed assets
If checking attribute, observing work of stuff, agreed invoices to credit approval, asking questions-Test of controls
Compare expenses, send AR confirm, question about subsequent events-Substantive Procedures
Date of Audit report
Date when we got all necessary evidences.
Responses should be received within 2 weeks of date of report
Bad debt expense to write-off Ratio
Bad dedt/write off
