Simulated Exam 2

Question 1

What is an entity-level control of importance that should be evaluated according to professional standards?

Answer 1

Period-end financial reporting

Question 2

What should a report on significant deficiencies noted during observation in an audit of Financial Statements contain?

Answer 2

a. Purpose was to audit FS
b. Definition of significant deficiency
c. Restriction on use of report

Question 3

For a group engagement partner to assume responsibility and not make reference to the component auditor’s audit, what should the group partner do?

Answer 3

Review the component auditor’s documentation

Question 4

What is the most serious concern that could lead the auditor to not form a conclusion on the Financial Statement audit?

Answer 4

Management’s integrity as everything must be questioned: Rep letter, evidence etc. (e.g., fraud)

Question 5

A firm in public practice that provides attest, taxation, and advisory services should be owned by who?

Answer 5

Majority CPAs

Question 6

What is one of the few exceptions when the AICPA allows contingency fees, hint: tax?

Answer 6

Tax matters based on judicial proceedings or findings from government agencies

Question 7

What type of interest in certain circumstances would not impair independence?

Answer 7

Indirect and immaterial

Question 8

What should the auditor consider when a client wants to change from an audit to a review engagement?

Answer 8

a. Reasonableness
b. Consideration of work left and related costs
c. Evaluation of the incorrectness or completeness of FS info impacted by the change

Question 9

What should the successor auditor ask the predecessor auditor before engagement acceptance?

Answer 9

• Understanding for the change in auditor
• Management’s integrity
• Disagreements in accounting policies and principles

Question 10

What should the successor auditor ask the predecessor auditor after engagement acceptance?

Answer 10

Help in being consistent in terms of financial reporting between both fiscal years

Question 11

What is the audit procedure that alone is not sufficient to form a conclusion on the operating effectiveness of controls?

Answer 11

Inquiry

Question 12

When using PPS sampling, if the audit amount is greater than the sampling interval when a difference is discovered, how is the projected misstatement covered?

Answer 12

Recorded amount - audit amount

Question 13

The rule of a CPA not having any direct financial interest in a client regardless of materiality extends to who else?

Answer 13

The immediate family of the CPA (covered member)

Question 14

What do the following have in common: reviewing previous audit, performing substantive procedures, completing a risk assessment?

Answer 14

Audit obtains evidence during these

Question 15

What is an example of a procedure where an auditor doesn’t obtain evidence?

Answer 15

Selecting samples

Question 16

What are the following procedures used for: Using a lock box, comparing cash receipts to deposits, and comparing deposit slips to customer prepared remittance entered into A/R ledger?

Answer 16

Detecting lapping

Question 17

How would an auditor calculate average materiality?

Answer 17

Multiply the materiality percentages by the selected accounts’ amounts then divide by the number of selected accounts

Question 18

What topics of matters should be included in a management representation letter?

Answer 18

Representation, Measurement, and Disclosure

Question 19

When the consignment period for a customer expires, what should the staff accountant of the entity record in their books?

Answer 19

Trial sales

Question 20

Why do only audit programs and not audit objectives need to be revised in a computerized audit environment?

Answer 20

Audit objectives do not change, however audit programs need to be revised to include automation and data analysis

Question 21

In a comparative FS situation, if substantial doubt about an entity’s ability to continue as a going concern are alleviated in the CY FS audit, what should the auditor reference for the PY going concern situation?

Answer 21

Nothing, no mention if alleviated.

Question 22

In a going concern situation, when should the auditor include an emphasis-of-matter paragraph? Separate paragraph? Assume disclosures are adequate and the auditor will issue a unmodified opnion?

Answer 22

Emphasis-of-matter: Optional if concern has been alleviated
Separate Paragraph: Required if concern has not been alleviated; includes “Substantial doubt” and “Going concern”

Question 23

What documentation would a predecessor auditor allow the successor auditor to review?

Answer 23

Planning docs, audit procedures, risk assessment, audit results, and matters that continue to be significant in the audit

Question 24

What type of measures of expectation does regression analysis provide?

Answer 24

Direct and quantitative

Question 25

If management fails to report discovered material weaknesses, what should the auditor state in the report?

Answer 25

a. Statement regarding the failed unreported material weaknesses
b. Definition of material weaknesses
c. Statement on the identification of them

Question 26

What type of opinion does a material weakness require the auditor to express?

Answer 26

GAAP issue, adverse