Practice Quizzes Flashcards
When is the earliest an audit report may be dated?
auditor has sufficient & appropriate evidence to support an opinion
change in Act principle that materially affects comparability of nonissue comparative FS and auditor concurs? what to do
refer to change in EMPHASIS OF MATTER paragraph following unmodified opinion paragraph
first step in applying analytical procedures?
develop an expectation
what is sampling risk?
probability that the sample chosen is not representative of the population as a whole
how can an auditor assess control risk at a level higher than appropriate? how would deviation rate and tolerable rate compare?
the deviation rate in the auditor’s sample EXCEEDS the tolerable rate, but the deviation rate in the population is LESS than tolerable rate
if deviation rate>tolerable rate – higher risk
how does sample size of test of controls vary compared to expected population deviation rate and the tolerable rate?
sample size and expected deviation rate rise or lower by the same amount. sample size is inversely correlated to tolerable rate
ex: auditor expects more errors (higher expected population deviation rate), they will increase sample and tolerate less (lower tolerable rate)
how to ensure inventory purchases are properly authorized
matching of requisitions, receiving reports, and purchase orders
how to ensure inventory records are accurate?
periodic inventory counts used to adjust perpetual records
how does auditor report on responsibility in an AUP report?
there should be a disclaimer of responsibility for sufficiency of AUP procedures
how does auditor reference consistency of accounting principles in an audit report?
Implicitly! no need to mention unless there is an issue, then can be mentioned in the emphasis of matter paragraph
type of opinion if auditor is unable to obtain audited financial statements of a consolidated investee
qualified or disclaimer, as this is a scope limitation
Regardless of the assessed level of control risk, an auditor would perform what type of tests?
substantive tests to restrict detection risk for significant transaction classes. cannot entirely eliminate substantive testing for significant transactions/balances
date of management rep letter should coincide with what date?
auditor’s report
in searching for unrecorded payables, what would an auditor do?
compare cash payments made AFTER balance sheet date with accounts payable trial balance. The auditor is looking for items that should have been recorded as of the balance sheet date, but were not.
comfort letter?
letter containing negative assurance from the CPA to the underwriter or certain other requesting parties just before registering client’s securities. typically signed by the client’s independent auditor
maximum number of days auditor of nonissuer should complete assembly of audit file?
60 days following report release date
A group engagement team of a nonissuer should ask a component auditor to communicate:
whether it complied with ethical requirements relevant to the group audit and the independence requirements.
type 1 report?
provides auditor an UNDERSTANDING of controls at the service organization
type 2 report?
provides EVIDENCE of the OPERATING EFFECTIVENESS of a service organizations controls
if risk assessment includes an expectation that the controls are OPERATING EFFECTIVELY, you need a type 2
independence for review v compilation
review = MUST BE INDEPENDENT compilation = not required, but must disclose lack of independence
assurance on a compilation report?
no assurance
Report should state the accountant does not express an opinion on the financial statements
“statement of activities” is an adequate name for what type of report, and by what type of company?
Income statement for a not-for-profit. this is NOT a title for OCBOA
before accepting an engagement, a successor auditor should inquire about what of the predecessor. after accepting?
inquire about the disagreements the predecessor had with client regarding audit procedures and accounting principles.
AFTER accepting, successor can inquire of the predecessor about matters of continuing accounting significance
benefit of using computer assisted audit techniques ?
greater item of items can be tested at little additional cost
how to assess COMPETENCY of internal auditor
education, certification, quality of workpapers
sample error formula?
recorded amount - actual amount
tainting factor?
sample error / recorded amount
projected misstatement in a PPS sample, how to calculate
tainting factor x sample interval (see note on iPad)
attribute sampling?
statistical approach to test controls. you CAN quantify this!
what to do if you don’t hear back on positive requests for AR confirms
ask the client to contact customers!
required to inquire during compilation?
No!! performance requirements are typically limited to having an understanding of the industry and business, and reading the FS to make sure there are no obvious mistakes in applying accounting principles
when is pre audit approval required by the audit committee
for all audit, tax, and review engagements. not required for non-audit services that do not exceed 5% of total revenue of the fiscal year of the audit
when is independence impaired related to paying audit fees
if more than one year overdue in payment of professional fees
analytical procedures in the planning phase example
comparing financial information with nonfinancial information
anything that helps the nature, extent, timing of audit procedures
Under DOL rules, independence is impaired when an auditor serves as what for employee benefit plans
an investment advisor
how are an auditor’s responsibilities extended under a 2 CFR 200 single audit?
auditor is reponsible for procedures testing compliance on matters impacting federal reward programs
what control deficiencies is an auditor required to communicate to those charged w governance? all of them?
not all of them!! only control deficiencies determined to be SIGNIFICANT DEFICIENCIES and MATERIAL WEAKNESSES are required to be communicated
how to report on change in accounting estimate (one keyword)
PROSPECTIVELY
change in estimate (ex: change in life of a depreciable asset) does not affect comparability of FS between periods – so no need to modify report
how to report on change in accounting principle?
change in principle (ex: method of accounting for inventory) is reported in an EMPHASIS OF MATTER PARAGRAPH (after the opinion paragraph) if it is material
in an auditor standard report – is there a need to mention consistency?
NO
consistency between periods is implied, no need to state it. only mention in an EOM if a change in principle impacts consistency between periods
when PLANNING for an integrated audit of an entity’s internal control, what are things that the auditor might do? what is one thing they absolutely won’t do during PLANNING?
consider changes in operations, preliminary judgements, evidence available
DO NOT evaluate the operating effectiveness of the controls, this is obviously something that happens after planning
embedded audit module, what is it?
a code designed to give auditor a notification in real time when transaction meets a criteria flagging it for review, good for paperless systems where an auditor needs to continuosuly monitor and analyze transaction processing
when assessing the OBJECTIVITY of internal auditor, what should CPA do
auditor should figure out who the internal auditor reports to
what are Free rents received as part of an award to carry out a federal program treated as
federal funds expended
what is the registration statement referring to
securities act of 1933
CPA thinks its justifiable, but they are changing from an audit to a review per client request. what do u have to do
u don’t need to mention the audit at all, just simply say a review is substantially less in scope than an audit
no assurance provided in a preperation engagement, but where does the auditor reference (hint: how many times)
EACH PAGE
say that there is no assurance provided
finding significant defeciencies in internal control, what type of opinion does this mean
qualified if not fixed. only MATERIAL weaknesses will result in an adverse opinion
overall result of a review?
Conclusion with LIMITED ASSURANCE.
You are NOT expressing an opinion!!
management rep letter required for a review?
you BETCHA!
think – you are INQUIRING in a review, so the management rep letter is like an inquiry u r making
SSAE preperation audit, what does the CPA disclose in the report
that they have NO responsibility to update the report for events/circumstances occuring after report date
financial information systems DESIGN & IMPLEMENTATION impair independence if auditor does this
yessir except those falling under the de minimis exception
examination of AR & cash receipts provides auditor evidence for what assertions related to sales
completeness & occurence of sales transactions
The auditor should consider the results of analytical procedures performed in the planning stage of the audit in identifying:
the risks of material misstatement due to fraud
IS v BS accounts, which ones when looking at the relationships is more predictable
IS accounts! ex: interest expense is more reliable evidence than accounts receievable
definition of a walkthrough
following a transaction from origination until it is in the financial statemets
what two things (two words) can help an auditor determine the DESIGN of internal control?
observation & inspection to evaluate IC design
to understand an entity’s internal control, what is important for auditor to do
obtain knowledge of the controls & whether they have been implemented
NOT required to understand the operating effectiveness to understand the internal contorl
why is it important to understand the INFORMATION system relevant to financial reporting
to understand types of TRANSACTIONS processed, and how they are initiated, recorded, and summarized
additionally included is how they prepare significant accounting ESTIMATES
what are common walkthrough procedures? (4 things)
inquiry, observation, inspection of relevant documentation, and reperformace of controls
to understand an entities internal control related to inventory, what is a good thing to do
review description of inventory controls
obtaining and understanding is step one, so before doing test counts or anything, simply learn more by reading the descriptions
when testing the completeness assertion for accounts payable, what is a good to use for the population?
list of vendors that the company has previously done business with
what is the primary responsibility of the stock registrar?
to verify that stock is issued only with proper authorization
what if related party transactions are not disclosed, but less than material?
even if it is not QUANTITIVELY MATERIAL, it is qualitatively material because it is important to disclose all related party transaction information
what is an auditor required to communicate to those charged w governance regarding deficiencies found in internal control
both significant deficiencies and material weaknesses
what needs to be found to issue an adverse opinion on IC?
MATERIAL WEAKNESS
significant defiencies will be a qualified opinion
what defencies in internal control need to be communicated to management
ALL DEFIECIENCES the auditor finds
communicate defiencies that are significant or material to audit committee
what is a cognizant agency?
agency that provides most amount of direct funding to a nonfederal agency
