Pr

Question 1

When to use analytical procedures?

Answer 1

not required to be used as substantive testing but are used for predictable accounts (Income Statement accounts)

Question 2

Vouching

Answer 2

Testing Existence (downwards) or Completeness (upwards) assertion

Question 3

Substantive tests ands control testing difference

Answer 3

Attribute sampling is used to test controls. Inspecting employee time cards for proper approval by supervisors is a test of controls. Controls often relate to authorization, validity, completeness, accuracy, appropriate classification, accounting in conformity with GAAP, and proper period. Look for these terms in identifying which option is a test of controls. Words such as account balance, amount, valuation, presentation, and disclosure are more likely to relate to substantive test

Question 4

Effect of population size on sample size?

Answer 4

Has no effect if population size is large

Question 5

attribute sampling

Answer 5

primary use to test of controls / relates to control risk. sample size and control risk / tolerable misstatement have inverse relationship

Question 6

dual purpose test?

Answer 6

Test of controls and test of details

Question 7

Completenss

Answer 7

from source to record -> forward / tracing

Question 8

Existence

Answer 8

from record to source -> downward / vouching

Question 9

Audits of federal assistance

Answer 9

single audit act

Question 10

Agreed upon procedures

Answer 10

must be independent / no assurance provided, AICPA attestation standards

Question 11

Limited use of report?

Answer 11

Only for projection

Question 12

Review

Answer 12

Independent / Conclusion… no opinion

Question 13

GAAS

Answer 13

SAS provide guidance on GAAS for auditors of nonissuers and the PCAOB provides guidance on GAAS for issuers.)

Question 14

compilation

Answer 14

no assurance

Question 15

Test of controls

Answer 15

Tests of controls include such procedures as inspecting documentation, inquiry, observation, and reperformance. Note that inquiry alone is not sufficient as the auditor should use a combination of procedures

Question 16

Classic variables sampling

Answer 16

Precision / The statistical concept of precision is used to describe the auditor’s evaluation of sampling results by calculating the possible error in either direction. Inclusion of negative balances does not require special design considerations

Question 17

Sample size

Answer 17

the sample size used by the auditor has an inverse relationship with the tolerable misstatement. As the tolerable misstatement decreases, the sample size must increase. On the CPA exam, if the question doesn’t clearly indicate an unusually small population, assume population size has no effect on sample size.)

Question 18

report on siginficant deficiencies

Answer 18

needs restricted use

Question 19

PPS sampling / classical variable sampling

Answer 19

Inclusion of zero and negative balances requires special design considerations with PPS sampling, but it does not require special design considerations with classical variables sampling

Question 20

Difference GAS and GAAS/ IC

Answer 20

Government Auditing Standards require a description of the scope of the auditor’s testing of compliance and of internal control. This is not required under generally accepted auditing standards

Question 21

common substantive tests?

Answer 21

Confirming AR/ Reperformance

Question 22

Tests of control

Answer 22

Observation/Inspection/Inquiry/verifying a procedure/

Question 23

Reference to external service auditor

Answer 23

Only if leads to modification of audit report

Question 24

How to detect kiting?

Answer 24

Prepare bank transfer schedule. not used for detecting lapping

Question 25

No audit trail

Answer 25

if an auditor wishes to perform a test of controls over a procedure that leaves no audit trail, then the auditor must use observation and inquiry to test the control.

Question 26

Rules when to add paragraph to audit report

Answer 26

• Explanatory only for issuers
• report on supplementary information — in separate section
• change in accounting method, material and disclosed / Cash basis/ — emphasis of matter
• predecessor audit not included — other matter paragraph to tell opinion rendered
• substantial doubt going on concern — if alleviated don’t needs to include/ if not alleviated then separate section
• restricted use — other matter
• litigation accrued and disclosed — not required

Question 27

Non Issuer
Issuer

Answer 27

Unmodified
Unqualified

Question 28

Contractual basis special purpose framework/ report on client’s compliance

Answer 28

needs to have paragraph for restricted use

Question 29

report on regulatory basis for general use

Answer 29

in accordance with GAAP
and in accordance with the regulatory basis, it’s a report on both

Question 30

refer to use of specialists

Answer 30

if report is modified due to specialist findings

Question 31

combined approach

Answer 31

a combined approach involves identifying specific controls relevant to specific assertions that are likely to prevent or detect material misstatements in those assertions. If those controls are found to be operating effectively, substantive testing can be reduced.

Question 32

attorney inquiry letter

Answer 32

prepared by client and sent by auditor

Question 33

Analytical Procedures

Answer 33

Required during planning and review stage

Question 34

Blank confirmations

Answer 34

lower response rates, greater assurance. more effort for customer

Question 35

Advantage of statistical sampling

Answer 35

provides objective basis for quantitively evaluating sampling risk

Question 36

risk of incorrect acceptance relates to
risk of incorrect rejection relates to

Answer 36

substantive tests and audit effectiveness
substantive tests and audit efficiency

Question 37

Sampling Risk

Answer 37

Control risk -> test of controls
incorrect acceptance/rejection -> substantive tests

Question 38

Stratification

Answer 38

for homogeneous groups / many items/ a lot of variation

Question 39

PPS sampling

Answer 39

Inclusion of negative balances requires special design considerations with PPS sampling

Question 40

Variable sampling

Answer 40

Variable sampling is used to estimate a numerical measurement of a population, such as the dollar value of inventory. This method is used in substantive testing.

Question 41

Audit on internal controls for issuer

Answer 41

no qualified opinion allowed. Only adverse if material weakness, unqualified (significant deficiencies or nothing), or disclaimer if scope limitation

Question 42

restricted use of language for report on internal controls

Answer 42

only when audit on financial statements, not when integrated audit

Question 43

Examination report

Answer 43

Positive Assurance

Question 44

pro forma financial statements

Answer 44

Pro forma financial statements are financial statements that show the effect of a hypothetical event on historical financial statements if it had occurred during the period covered by the financial statements

Question 45

Agreed upon procedures

Answer 45

No assurance, disclaimer of opinion

Question 46

risk of material non-compliance is inversely related to

Answer 46

detection risk of non-compliance

Question 47

Government audit includes

Answer 47

program results, compliance, efficiency & economy and written communication of auditor’s work over internal controls

Question 48

GAAS
GAGAS
Single Audit

Answer 48

GAAS: only report on financial statements
GAGAS: financial statements + IC (no opinion) + Compliance (no opinion)

Single Audit: financial statements + IC (no opinion) + compliance (opinion) + federal programs + schedule of findings and questioned costs

Question 49

Single Audit

Answer 49

Expend 750k or more (major program) in federal financial assistance (not receive). Major program is trigger for single audit (compliance with programs). when you read auditing federal assisitng programs we talk about single audits