Simulated Exam 2 Flashcards
Review AUD SE2 taken on 10/22
What is an entity-level control of importance that should be evaluated according to professional standards?
Period-end financial reporting
What should a report on significant deficiencies noted during observation in an audit of Financial Statements contain?
a. Purpose was to audit FS
b. Definition of significant deficiency
c. Restriction on use of report
For a group engagement partner to assume responsibility and not make reference to the component auditor’s audit, what should the group partner do?
Review the component auditor’s documentation
What is the most serious concern that could lead the auditor to not form a conclusion on the Financial Statement audit?
Management’s integrity as everything must be questioned: Rep letter, evidence etc. (e.g., fraud)
A firm in public practice that provides attest, taxation, and advisory services should be owned by who?
Majority CPAs
What is one of the few exceptions when the AICPA allows contingency fees, hint: tax?
Tax matters based on judicial proceedings or findings from government agencies
What type of interest in certain circumstances would not impair independence?
Indirect and immaterial
What should the auditor consider when a client wants to change from an audit to a review engagement?
a. Reasonableness
b. Consideration of work left and related costs
c. Evaluation of the incorrectness or completeness of FS info impacted by the change
What should the successor auditor ask the predecessor auditor before engagement acceptance?
- Understanding for the change in auditor
- Management’s integrity
- Disagreements in accounting policies and principles
What should the successor auditor ask the predecessor auditor after engagement acceptance?
Help in being consistent in terms of financial reporting between both fiscal years
What is the audit procedure that alone is not sufficient to form a conclusion on the operating effectiveness of controls?
Inquiry
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?
Recorded amount - audit amount
The rule of a CPA not having any direct financial interest in a client regardless of materiality extends to who else?
The immediate family of the CPA (covered member)
What do the following have in common: reviewing previous audit, performing substantive procedures, completing a risk assessment?
Audit obtains evidence during these
What is an example of a procedure where an auditor doesn’t obtain evidence?
Selecting samples
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?
Detecting lapping
How would an auditor calculate average materiality?
Multiply the materiality percentages by the selected accounts’ amounts then divide by the number of selected accounts
What topics of matters should be included in a management representation letter?
Representation, Measurement, and Disclosure
When the consignment period for a customer expires, what should the staff accountant of the entity record in their books?
Trial sales
Why do only audit programs and not audit objectives need to be revised in a computerized audit environment?
Audit objectives do not change, however audit programs need to be revised to include automation and data analysis
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?
Nothing, no mention if alleviated.
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?
Emphasis-of-matter: Optional if concern has been alleviated
Separate Paragraph: Required if concern has not been alleviated; includes “Substantial doubt” and “Going concern”
What documentation would a predecessor auditor allow the successor auditor to review?
Planning docs, audit procedures, risk assessment, audit results, and matters that continue to be significant in the audit
What type of measures of expectation does regression analysis provide?
Direct and quantitative
If management fails to report discovered material weaknesses, what should the auditor state in the report?
a. Statement regarding the failed unreported material weaknesses
b. Definition of material weaknesses
c. Statement on the identification of them
What type of opinion does a material weakness require the auditor to express?
GAAP issue, adverse
