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AA Question Rote > Section A Rote (6) > Flashcards

Section A Rote (6) Flashcards

1
Q

What is mostlikely to detect for (misallocation distribution)

”
An auditor reviews the revenues and expenses in the detailed profit and loss account of a company and investigates significant variations in comparison with the equivalent figures for the previous year.
“

A

The misallocation of distribution costs as advertising expenses

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2
Q

Is it possible to compare mark up with gross profit directly?

A

No

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3
Q

When a fixed mark-up of 50% on cost whilst there is also a gross profit margin of 40% of sales mean?

A

Some purchases have not been recorded

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4
Q

When must analytical procedures be used?

A

In risk assessment (at the planning stage) and in forming an overall conclusion (review stage)

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5
Q

What do substantive analytical procedures depend on? (Auditor judgment evidence)

A

Auditor’s professional judgment regarding the sufficiency and reliability of the evidence they can provide.

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6
Q

How is receivables collection period calculated?

A

Trade receivables (year-end or an average of opening and closing)/Credit sales × 365

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7
Q

What can cause an increase in the receivable collection period? (Revenue customer)

A

Monthly revenue doubled in June 20X5 due to sales to a new credit customer

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8
Q

What must be done when evaluating accounting estimates for reasonableness? (Develop Independent expectation estimate)

A

The auditor may develop an independent expectation of the estimates or test the calculation of the estimates

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9
Q

What is estimation uncertainty in relation to an accounting estimate? (Risk measurement)

A

Susceptibility to an inherent lack of precision in measurement

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10
Q

What is management bias?

A

A lack of neutrality by management in the preparation of information

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11
Q

What is an accounting estimkate?

A

An approximation in the absence of a precise means of measurement

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12
Q

What increases the risk of misstatement in an accounting estimate? (Data)

A

Insufficient relevant data and degree of uncertainty associated with assumptions

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13
Q

What should be the auditor’s concern regarding accounting estimates? (Reasonableness)

A

The reasonableness of accounting estimates and the adequacy of related disclosure

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14
Q

What is the purpose of developing an auditor’s point estimate or range? (Eval)

A

To evaluate management’s estimate

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15
Q

What is appropriate for developing an auditor’s estimate of an accounting estimate? (different model)

A

Using a different model to the one used by management

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16
Q

What is appropriate for developing an auditor’s estimate of an accounting estimate? (expert)

A

Employing an expert to develop a suitable alternative model

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17
Q

What if the appraiser is not independent of the client?

A

The auditor may still be able to use the appraiser’s work

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18
Q

Does auditor make reference to an expert in an unmodified opinion?

A

No

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19
Q

Does auditor make reference to an expert in an modified opinion?

A

Make reference to the expert in a modified opinion to explain the nature of the modification

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20
Q

Does auditor need permission from expert before referencing the expert in the report?

A

Yes

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21
Q

How do internal auditors’ work affect procedures?

A

May affect the nature, timing, and extent of audit procedures in obtaining an understanding of internal control, assessing risk and performing substantive procedures

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22
Q

Where does auditor have ultimate responsibility? (FS)

A

Express an opinion on FS

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23
Q

Can internal auditor provide external auditor with direct assistance?

A

No if there’s a significant threat to their objectivity or lacks competence

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24
Q

Does a bias towards large balances for receivables aimed at detecting understatement/overstatement

A

Overstatement

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25
Q

Is the higher the inherent risk the greater the sample size?

A

True

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26
Q

What does population size affect? (Decision sample)

A

The decision to sample rather than the size of the sample

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27
Q

How to minimise the risk of an error going undetected by the auditor? (Sample)

A

A large sample size must be tested

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28
Q

When there;s a higher the tolerable misstatement (sample size)

A

The lower the sample size

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29
Q

When there’s more likely an error (sample size)

A

The sample size should be larger

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30
Q

When the population is more stratified (sample size)

A

The lower the sample size

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31
Q

What are value weighted selection unlikely to detect (overstatement/understatement)

A

Understatement

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32
Q

What can value weighted selection detect? (errors overstatement)

A

Detect systematic errors but only those leading to overstatement

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33
Q

What must monetary unit sampling (MUS) detect? (Higher Values)

A

The higher values rather than the lower

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34
Q

When will an auditor consider the broader implications of a deviation?

A

If it was initially concealed by a forged document

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35
Q

What is a sampling risk?

A

The risk that the conclusion based on a sample may differ from the conclusion on the entire population

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36
Q

What is the purpose of obtaining written representations from management?

A

To confirm management’s belief that it has fulfilled its responsibility for the preparation of the financial statements

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37
Q

Where would details of any material subsequent events or confirmation that there were none be included? (Report)

A

In a report to management

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38
Q

Where would confirmation of management’s belief that it has fulfilled its responsibility for the completeness of the information provided to the auditor be included?

A

An engagement letter

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39
Q

When accounting records are unavailable (written representation)

A

It is not acceptable to obtain a written representation as this represents an inability to obtain sufficient and appropriate audit evidence and if material would result in a modified audit opinion

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40
Q

Are written representations sufficient appropriate audit evidence for most audit assertions?

A

No

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41
Q

When should the date of written representation be?

A

As near as practicable to, but not later than, the date of the auditor’s report

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42
Q

Where should written representations cover?

A

Written representations should cover all the financial statements and periods referred to in the auditor’s report

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43
Q

Who should sign written representation letter?

A

By the members of management responsible for the financial statements and knowledgeable about the matters contained in the letter

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44
Q

What opinion can the inability to obtain sufficient appropriate audit evidence concerning the financial statements as a whole (i.e. is pervasive) lead to?

A

A disclaimer of opinion

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45
Q

Where is infprmation about custoemrs exceeding their credit limits stored?

A

On the master file

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46
Q

How is programming controlled?

A

By general controls

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47
Q

What is audit software?

A

A computer program designed for audit procedures on the client’s data

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48
Q

What is test data?

A

Data generated by the auditor processed through the client’s system

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49
Q

What sort of technique is automating the extraction of a sample of customer accounts for external confirmation? (audit or test)

A

Audit software technique

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50
Q

What sort of technique is reperforming the summation of entries in a computerised bank ledger account to confirm the accuracy of totals? (audit or test)

A

Audit software technique

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51
Q

What sort of technique is a computer program that compares administration expenses in the general ledger against the prior year? (audit or test)

A

Audit software technique

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52
Q

What sort of technique is entering dummy sales orders to ensure that those that would take a customer over their credit limit are rejected (audit or test)

A

Test data technique

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53
Q

Vs of big data? (Vol)

A

Volume

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54
Q

Vs of big data? (Var)

A

Varoety

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55
Q

Vs of big data? (Vel)

A

Velocity

56
Q

Vs of big data? (Ver)

A

Veracity

57
Q

Vs of big data? (Val)

A

Value

58
Q

How test for existence for an asset?

A

Direction of testing is from the financial statements to the physical asset

59
Q

What is done when FSs do not itemise the individual assets that make up non-current assets?

A

Auditor will need to select a sample from the non-current asset register

60
Q

Which audit procedure provides the most relevant evidence to verify the carrying amount of a company’s fleet of cars?

A

Checking depreciation rates and calculations for the vehicles

61
Q

What assertion confirms an audit client’s right to use software that is owned by the software developer?

A

Inspect the end-user license agreement

62
Q

Direction of testing for overstatement of assets?

A

From FSs => source documents

63
Q

Direction of testing for understatement of assets?

A

Source documents => FSs

64
Q

Is physically inspect a sample of assets selected from the non-current asset register an example of understatement or overstatement

A

Overstatement

65
Q

Is trace a sample of assets inspected at a location to the non-current asset register an example of understatement or overstatement?

A

Understatement

66
Q

Is inspect the condition of assets held and assess whether any are impaired an example of understatement or overstatement?

A

Overstatement

67
Q

Is agree disposals recorded in the non-current asset register to proceed in the bank ledger account an example of understatement or overstatement?

A

Understatement

68
Q

What assertion is tested by

”
For a sample of additions recorded in the non-current asset register agree the details (e.g. description, amount and date) to the purchase invoice
“

A

Occurrence

69
Q

What does analyse of inventory turnover not provide?

A

Evidence about rights and obligations

70
Q

Whcih testing is done to determine whether all inventory on hand is reflected in closing inventory?

A

Completeness

71
Q

What is minimum time invnetory can be counted?

A

All items at least once during the year

72
Q

Should auditor attend one of the counts?

A

Yes to observe the procedures

73
Q

What is meant by impracticable for an inventoy count?

A

Near impossible, if nature of location of inventory may pose a threat to auditor’s safety

74
Q

What procedure is tested by “Test count a sample of physical inventory and agree to management’s count records”

A

Completeness

75
Q

What is meant by positive confirmation request for trade receivables? (Reply agree)

A

Asks respondents to reply to the auditor indicating whether they agree with the information provided

76
Q

What is meant by negative confirmation request for trade receivables? (Auditor response problem)

A

A professional way for the auditor to ask for a response only if there is a problem

77
Q

How would an auditor trace transactions if the objective of the auditor’s tests of details is to detect possible understatement of sales?

A

From shipping documents to sales invoices

78
Q

What is a negative request for confirmation? (Reply only)

A

Asks respondents to reply only in the event of disagreement (with a given balance)

79
Q

How is a non-reply treated for a negative confirmation request?

A

To signify agreement, not appropriate if recipients are expected to ignore the request

80
Q

Obtain the list of individual customer balances and agree the total to the trade receivables account satisfies which assertions?

A

Completeness and accuracy

81
Q

How will a year-end account receivable balance be reduced?

A

By the amount of the credit note

82
Q

Is completeness of disclosure of transactions with directors considered to be a significant risk?

A

Yes as it has detailed requirements for the disclosure

83
Q

Who approves the amount of dividend to be paid to equity shareholders?

A

The shareholders

84
Q

Who will recommend the dividend to the shareholders who must approve it in general meeting?

A

The board of directors

85
Q

What assertion does “An auditor traces share-related transactions recorded in the general ledger during the year to the board minutes” satisfy?

A

Occurrence

86
Q

What provides audit evidence of a bonus issue of shares during the year?

A

The register of members
Minutes of general meetings

87
Q

Requests for external confirmations for receivable (which letterhead)

A

Client’s letterhead

88
Q

Which assertion is tested “When auditing a client’s year­-end bank balance, an auditor requests a standard bank confirmation report and agrees the balance to the client’s year−end bank reconciliation”?

A

Existence

89
Q

Where should cheques be accounted for?

A

At the date they are sent out

90
Q

What action should be taken by auditor for:

”
During the audit of Fudge Co’s year-end bank reconciliation, the auditor discovered that a material amount of cheques payable to suppliers were drawn and recorded in the books immediately before the year end. The cheques were sent to the suppliers two weeks after the year end.
“

A

Request that the amount of trade payables be increased and the bank balance increased by the total of the cheques

91
Q

What do banks require for disclosing information? (Written disclose)

A

Specific written authority from their customers to disclose information to auditors

92
Q

What is the main purpose of a bank confirmation report? (Confirm info)

A

Confirm information already available

93
Q

Does a bank confirmation report include details of any loans or overdrafts in place?

A

Yes

94
Q

Does a bank confirmation report contain details on which accounts?

A

Open accounts and any accounts closed during the period

95
Q

What audit procedure is useful for

”
During the course of the interim audit, the auditor identified the risk that purchases may be understated because goods received at the end of one month are often not invoiced by suppliers until the following month.
“

A

Comparing goods received notes for the last few days of the financial year with the list of individual supplier balances and accruals

96
Q

When testing AP for completeness through completeness, how should an example be selected?

A

From the population of all known suppliers

97
Q

Perform supplier statement reconciliations for a sample of suppliers tests for which assertion

A

Completeness

98
Q

Review bank statements for payments made after the year end to identify those payments relating to pre year-end liabilities tests for which assertion?

A

Completeness

99
Q

Review outstanding invoices in individual supplier balances more than three months old and enquire of management whether they are valid outstanding liabilities testing for which assertion?

A

Existence

100
Q

Select a sample of purchase invoices in the list of individual supplier balances at the year end and agree payments made to bank statements post year end tests for which assertion?

A

Existence

101
Q

Which assertion is tested in review after-date purchase invoices and payments for goods/services received before the year end?

A

Completeness

Cut-off

102
Q

When could payables be overstated?

A

Duplication of an invoice

103
Q

When could payables be understated?

A

Omission of a payment

104
Q

Is estimating the remaining useful lives of non-current assets a management or auditor decision

A

Management decision

105
Q

What is the biggest threat for a not-for-profit organisation?

A

Cash

106
Q

Why is there a need for formal internal controls in a smaller entity as compared with a larger entity?

A

There is less need because of the owner’s close involvement in the entity’s operations

107
Q

Why is control risk unlikely to be assessed for not-for-profit organisations?

A

As assessment has to be based on tests of controls

108
Q

Is overstatement or understatement of revenue for smaller companies more likely?

A

Understatement

109
Q

What if an event occurs after the financial statements are issued? (affects auditor’s opinion)

A

The auditor has already signed the auditor’s report and so cannot now qualify the opinion

110
Q

When should audit procedures on subsequent events be performed?

A

Between date of FSs and date of the auditor’s report

111
Q

Overall review of FSs characteristics (discussion)

A

Discussion between reviewers and members of the audit team

112
Q

Overall review of FSs characteristics (documentation)

A

Review of documentation

113
Q

Overall review of FSs characteristics (Check)

A

Checklists

114
Q

Overall review of FSs characteristics (Analytical)

A

Analytical procedures

115
Q

Is an auditor required to read other infroamation and consider whether there is a material inconsistency or misstatement?

A

Yes

116
Q

Does auditor conclude/report on fair presentation of other information?

A

No

117
Q

What are completion checklists designed for?

A

To be used by the audit engagement partner to ensure that all relevant audit procedures have been completed before the auditor’s report is signed

118
Q

What audit opinion is given for

”
Torte Co has not complied with certain aspects of an applicable financial reporting standard. The auditor concurs with management that the departure is necessary in order to achieve fair presentation of the financial statements. However, it has not been disclosed as a departure from an applicable financial reporting standard in the accounting policy note.
“

A

Qualified opinion on grounds of material misstatement

119
Q

What audit opinion is given for

”
The accounts of Jay Co include a material receivable that management believes will be paid and does not require any allowance to be made. The auditor does not believe that any part of the balance will be paid.
“

A

Qualified

120
Q

What audit opinion is given for

”
A company’s financial statements include an investment of $45,000 in a company which is in liquidation. It is not yet clear what, if anything, will be recovered. Pending the final report of the liquidators, no allowance has been made in the financial statements. The situation is fully explained in a note to the financial statements. Profit before tax is $200,000.
“

A

Unmodified with empohasis of matter paragraph (as situation is fully explained in a note to the FSs)

121
Q

Do emphasis of matter paragraph and other matter paragraph affect audit opinion?

A

NO

122
Q

When should KAM not be included?

A

If the auditor disclaims an opinion

123
Q

What does KAM compsoe of?

A

The most significant matters selected from those communicated with TCWG

124
Q

When is KAM required?

A

For a listed company

125
Q

When there’s material uncertainty over company’s ability to continue as a going concern but it has been disclosed of? What is the audit opinion?

A

Express an unmodified opinion but with reference in a Material Uncertainty Related to Going Concern section to the material uncertainty

126
Q

What if management are unwilling to make assessment of going concern?

A

Would result in a modified opinion with a qualified or disclaimer opinion

127
Q

What msut be done if foing concern basis is not appropriate?

A

Auditor must express an adverse opinion as the basis of accounting is pervasive to the FSs

128
Q

What should be done if the auditor identifies a number of events and conditions which collectively have implications for going concern?

A

Perform additional procedures and reassess the components of audit risk

129
Q

What is the only audit procedure required in respect of the period beyond management’s assessment?

A

To inquire whether management knows of any indicators of significant doubt beyond the period of assessment

130
Q

What is a “close call”scenario regarding going concern?

A

When management’s plans are sufficient to mitigate significant doubt on going concern that exists

131
Q

Issue if revenue recognised according to contract date rather than over the relevant accounting period?

A

Revenue could be overstated

132
Q

What aspects of quality management are relevant to engagement performance?

A

Direction, supervision and performance and review

133
Q

Quality management procedures (delegation)

A

Work delegated to assistants should be directed, supervised and reviewed to ensure the audit is conducted in compliance with ISAs

134
Q

Quality management procedures (competent)

A

Assistants should be professionally competent to perform the work delegated to them with due care.

135
Q

Quality management procedures (supervisory)

A

Supervisory responsibilities include tracking the progress of the audit to ensure that assistants are competent, understand their tasks and are carrying them out as directed.

AA Question Rote (30 decks)

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