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Study Review Flashcards

0
Q

Negative assurance

A

A statement about what a CPA does not know

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1
Q

Positive assurance

A

A statement to what the CPA believes.

fS presented fairly in accordance with GAAP

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2
Q

What is in the permanent file?

A

Info which is needed for multiple periods.

Debt agreements
Articles of incorporation
Corporate charter

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3
Q

The compilation report references what?

A

A compilation report should include references to: 1) the Statements on Standards for Accounting and Review Services issued by the AICPA;

2) management’s representations in the form of financial statements; and
3) no expression of assurance.

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4
Q

What are auditors concerned about in an accounting system?

A

Information system and related controls related to financial reporting

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5
Q

Auditor is not obligated to do what in consideration of internal control structure?

A

To search for significant deficiencies in the design or operation

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6
Q

Auditors are only required to look at internal control procedures when?

A

When the controls are tested and used to reduce the control risk assessment or relate to significant risk areas

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7
Q

Significant factors of the control environment

A 
Sets tone
Integrity and ethical values
Commitment to competence
Bod or audit committee participation
Management philosophy and operating style
Organizational structure
Assignment of authority and responsibility
Human resource policies and practices
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8
Q

Documentary evidence that doesn’t exist/ undocumented should be tested by

A

Observation and inquiry

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9
Q

Reasonable assurance in internal controls limited by

A

Cost benefit

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10
Q

An auditor is required to obtain an understanding of the of what regarding IC?

A

Design of controls relevant to the audit and determine the controls have been placed in operation.

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11
Q

Evaluating Operating effectiveness is used to

A

reduce control risk by performing tests of control

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12
Q

Confirmation with outside parties and rue computation of account balances are

A

Substantive procedures designed to give evidence of fair presentation of account balances

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13
Q

When Discovering a deficiency in IC the auditor should

A

Understand the potential consequence

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14
Q

It is a Crime to not have IC. What are the IC components?

A

Control activities, risk assessment, information and communication, monitoring, control environment

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15
Q

Auditor should document what in IC?

A

Understanding of IC.
Justification for reducing the control risk
Basis for concluding control risk

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16
Q

Objective of tests of details of IC

A

Evaluate whether IC is operating effectively

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17
Q

Controls that are unlikely to pertain to assertions is the same as

A

Ineffective controls or not bring efficient to reduce substantive testing

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18
Q

An auditor may communicate orally significant deficiencies and material weakness; however, they are required to communicate in what form all significant deficiencies or material weaknesses?

A

Written

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19
Q

Significant deficiencies are deficiencies in the design and operation of what?

A

Internal control structure

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20
Q

Significant deficiencies are material weakness when?

A

high risk that a material misstatement may occur and not be detected in the financial statements under audit.

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21
Q

When talking about significant deficiencies the auditor should state the purpose was to report on the FS and not provide assurance on

A

internal control

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22
Q

Significant deficiencies and material weakness are reported how?

A

Separately.

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23
Q

Errors and irregularities may not be detected because of inherent limitations in internal control is mentioned in the

A

Engagement letter

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24
Q

An auditor can use an internal auditor to assist with what

A

Understanding internal control
Performing substantive test
Performing tests of control

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25
Q

What should an auditor do to assess the internal auditors competence (8 things)?

A 
obtain information about their educational background, 
professional experience, 
professional certification, 
audit policies and procedures, 
practices regarding assignment, 
supervision and review, 
quality of working paper documentation,
evaluation practices.
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26
Q

Determine the organization for which auditors report, the access to information or policies that restrict access test an internal auditors what

A

Objectivity

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27
Q

Internal audit work that provides direct evidence of material misstatements in assertions can reduce

A

The nature timing and extent of audit procedures

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28
Q

The internal auditors work is considered for understanding what

A

Internal control and material misstatements

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29
Q

Internal controls should be strong as iron. Procedures to perform evaluation of control risk include

A

inquiries of personnel;
Reperformance of the control procedure.
Observation of activities and operations; and
inspection of documents and records;

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30
Q

Prenumbering documents is good to validate what assertions?

A

Completeness

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31
Q

Reconciliation ensures that items are complete and accurately posted. It is least likely a control procedure used to reduce the risk of what?

A

Errors

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32
Q

Lapping is when a payment from one customer is used to pay another customer. This can be prevented by separating the recording and what?

A

Custody of cash

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33
Q

Immediately on the receipt of cash an employee should prepare what

A

A remittance listing

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34
Q

Fidelity bonds ensures the company against

A

Loss from illegal acts by employees

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35
Q

A person who receives a remittance can also do what

A

Prepare the daily deposit slip because both ate custodial functions.

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36
Q

Flow chart of cash receipts

A

Check to remittance listing
Checks to bank
Remittance advices
Cash receipts journal to general ledger

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37
Q

The initial cash receipts listing from the mail room should be compared to the total in what journal and traced where?

A

Cash receipts journal and traced to the bank deposit slip

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38
Q

Cash accounts should be reconciled with the

A

Bank statements

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39
Q

Flow chart for sales

A

Sales order to shipping docs to sales invoice to record in sales journal to post in general ledger

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40
Q

A person who signs a check can also

A

Mail the check

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41
Q

Matching reports is what type of internal control function?

A

Authorization function

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42
Q

Approval of POs and negotiate terms with vendors are what type of function

A

Authorization

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43
Q

Custodial functions are typically handled by what office?

A

Treasury

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44
Q

Verifying accuracy of checks and vouchers, controlling the mailing of checks to vendors, and canceling payment vouchers when paid are what IC function?

A

Custodial

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45
Q

A person who match vendor invoices with receiving reports should not perform which functions?

A

Post the accounts payable records
Reconcile the accounts payable ledger
Cancel the vendors invoices after payment

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46
Q

A debit memo advises accounting that the invoice should not be paid in full due to what?

A

Returned goods

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47
Q

Expenditures and disbursements flow chart

A

Purchase request to PO to receiver to supplier invoice

Receiver to purchases journal to general ledger

Check remittance advice to cash disbursements journal to general ledger

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48
Q

Purchasing department (authorization) are independent of what departments?

A

Receiving (custody) and accounting (record keeping)

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49
Q

Bank recs are handled by someone that does not have involvement in what IC functions

A

Handling cash receipts
Cash disbursements
Record keeping

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50
Q

Accounts payable should be independent of what IC function?

A

Cash disbursements

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51
Q

When an independent trust company is not used what is the best method to safeguard marketable securities?

A

Two company officials who have joint control over securities kept in a bank safe deposit box,

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52
Q

Internal control questionnaire regarding direct borrowings will be about proper authorization from the

A

Board of directors

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53
Q

Understanding IC over inventory consists of?

A

Make inquiries of mgt and staff
Inspecting documents and records
Observing activities and operations

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54
Q

To detect errors and irregularities in Inventory the auditor can do what IC?

A

Compare finish goods with counts of goods on hand

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55
Q

Objectives of IC for the production cycle

A

Transactions are executed in accordance with mgt general or specific authorization.

Transactions are recorded to permit preparation of the financial statements ion accordance with GAAP

Access to assets permitted with mgt authorization

Recorded accountability for assists is compared with the existing assets at reasonable intervals

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56
Q

Segregation of duties related to IC is tested by?

A

Inquiry and observation

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57
Q

IC involving initiation and execution of equipment transactions are

A

Procedures to monitor and properly restrict access to equipment

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58
Q

Auditor may refer to a specialist if the auditor

A

Modifies the report because of differences in specialist findings

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59
Q

An auditor is not required to obtain knowledge about the what of IC structure

A

Operating effectiveness

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60
Q

Predictable relationships relates to

A

Income statement accounts

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61
Q

No discretionary accounts are accounts not subject to change based off of

A

Managements decisions

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62
Q

An auditor is required to communicate?

A 
Significant accounting policies
Mgt judgements and accounting estimates
Significant audit judgements
Disagreements with mgt
Consultation with other accountants
Difficulties encountered in performing the audit
Auditors responsibility under GAAS
Auditors judgements about the quality of the entity's accounting principles
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63
Q

Decision table

A

Presents conditions and actions to making a decision

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64
Q

Auditors assess control risk based on what?

A

The financial statement assertions

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65
Q

The entity’s right to an asset or obligation for a liability is what assertion?

A

Rights and obligation

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66
Q

Validity of audit evidence lies in what

A

The auditors judgement.

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67
Q

Direct examination of evidence is more reliable than

A

oral and analytical procedures

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68
Q

The fact that an audit must be performed within a reasonable time period and at a reasonable cost is relevant to the what of evidence

A

Sufficiency

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69
Q

Accounting data by itself cannot be considered what

A

Sufficient evidence

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70
Q

Fill in blank. The more effective the internal control structure the greater the assurance as to the ( )of evidential matter?

A

Reliability

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71
Q

The auditor should obtain audit evidence by testing the accounts records by what 3 methods

A

Analysis
Review
Reconciliation

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72
Q

Quantity of evidence required is () related to the risk of material misstatement and () related to the quality of evidence

A

Directly

Inversely

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73
Q

What is considered reliable evidence? 5 of them

A
  1. Evidence obtained directly by auditor
  2. obtained from independent sources
  3. generated internally when controls are effective
  4. Exists in documentary form
  5. Provided by original documents
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74
Q

Cost alone is not a valid basis for

A

Omitting an audit procedure

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75
Q

Audit evidence is persuasive (suggestive) and rarely

A

Conclusive (compelling)

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76
Q

What are the 5 financial statement assertions?

A
  1. Existence/occurrence
  2. Completeness
  3. Rights and obligations
  4. Valuation and allocations
  5. Presentation and disclosure
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77
Q

What are the three categories the assertions are related to?

A
  1. Account balances
  2. Presentation and disclosure
  3. Classes of transactions and events
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78
Q

What are the assertions specific to account balances at period end?

A
  1. Existence
  2. Completeness
  3. Rights and obligations
  4. Valuation and allocation
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79
Q

What are the four assertions to presentation and disclosure?

A
  1. Occurrence and rights and obligations
  2. Completeness
  3. Classification and understandability
  4. Accuracy and valuation
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80
Q

What are the five assertions pertaining to classes of transactions during the period?

A
  1. Accuracy
  2. Occurrence
  3. Completeness
  4. Cutoff
  5. Classification
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81
Q

The risk that material misstatements will not be detected due to early testing at interim is what?

A

Incremental audit risk

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82
Q

Test of details provide what level if assurance?

A

High level

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83
Q

What is a judge mental misstatement?

A

Unreasonable accounting estimates as well as inappropriate accounting policies

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84
Q

For non trivial misstatements the auditor should communicate matters to management to request what

A

Correction

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85
Q

What is a factual misstatement?

A

Misstatements for which there is no doubt

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86
Q

What are projected misstatements?

A

The auditors best estimate of misstatements in a population as suggested by audit sampling

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87
Q

The auditor should decide when the overall audit strategy need to be revised as an result of misstatements when?

A

The aggregate of accumulated misstatements considered to b material

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88
Q

Auditor should communicate what percent of misstatements accumulated during the audit?

A

All

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89
Q

When management corrects a misstatement in a auditor the auditor should do what regarding remaining misstatements?

A

Perform additional procedures to determine whether any misstatements remain

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90
Q

When management refuses to correct a misstatement the auditor should?

A

Obtain an understanding of managements reasons

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91
Q

What are the circumstances that affect materiality?

A
  1. Compliance and regulatory requirements
  2. Debt covenants
  3. Effect on future periods
  4. Effects on changes in earnings
  5. Impact of ratios
  6. Effects on segment info
  7. Effect that increases mgt compensation
  8. The omission of info important to users understanding
  9. Miss classifications btw operating/ non or recurring/non items
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92
Q

The auditor should document what regarding misstatements?

A
  1. Amount which misstatements would be viewed as clearly trivial
  2. All misstatements accumulated during the audit
  3. Auditors conclusion about us corrected misstatements are material
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93
Q

What is included in the permanent file of an auditors documentation?

A

Debt agreements
AOI
Corporate charter

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94
Q

Audit documentation should show that the accounting records agree or reconcile with what?

A

The financial statements

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95
Q

The representation letter is usually prepared towards?

A

The end of the audit

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96
Q

The working trial valance provides adjustments for?

A

Reclassification and adjustments

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97
Q

What is the documentation completion date?

A

Assemble the final audit file no later than 60 days after the report release date. PCAOB 45 days

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98
Q

The auditor may add or delete documentation up to the

A

Documentation completion date

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99
Q

What are the audit documentation retention records?

A

5 years from the report release date

7 PCAOB

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100
Q

The auditor may add audit documentation

A

Before the end of the retention period. Must document materials added, by whom, when, reasons for change, and the effect

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101
Q

The use of negative accounts receivable confirmations requires?

A
  1. Low risk of material misstatement
  2. A large number of small balances
  3. An expected very low exception rate
  4. No reason to believe that the recipients of the confirmations would not review them properly
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102
Q

Unreturned negative confirmation requests yield what type of evidence?

A

Implied not explicit

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103
Q

Sufficient refers to the ( ) of evidence and appropriate refers to the quality of evidence in terms of ( )

A

Quantity

Quality related to relevance and reliability

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104
Q

More assurance is obtained from consistent evidence obtained from different sources (corroborating) than from info considered what?

A

Individually

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105
Q 
Management assertions (Percv occca occa)
Perceive Orange County ca
A

Account balances (presentation and disclosure, existence, rights and obligations, completeness, valuation and allocation.

Transactions and events (occurance classification completes cutoff accuracy)

Presentation and disclosure (occurance completeness classification and understandability accuracy and valuation)

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106
Q

What are some substantive audit procedures?

A
  1. Inspection of records
  2. Inspection of tangible assets
  3. Observation
  4. Inquiry
  5. Confirmation
  6. Recalculation
  7. reperformance
  8. Analytical procedures
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107
Q

Confirmation of accounts receivable rarely provides reliable evidence related to the completeness assertion because

A

Customers may not be inclined to report under statements of errors in their accounts

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108
Q

Positive confirmation requests require?

A

A response whether or not the party agrees with the recorded amount

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109
Q

An auditor must perform alternative procedures for positive confit has with what?

A

No responses

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110
Q

Negative confirms only requires response when there is a what?

A

Disagreement with the balance

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111
Q

Confirmations are not performed for accounts receivable when?

A

The overall account balance is immaterial
External conformations are inefficient
Assessed level of RMM is low

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112
Q

When evaluating the reasonableness of an accounting estimate the auditor concentrates on what factors?

A
  1. Significant to the accounting estimate
  2. Sensitive to variations
  3. Deviations from historical patterns
  4. Subjective and susceptible to misstatement and bias
113
Q

What should the auditor document in regards to accounting estimates?

A

The basis for the auditors conclusions about the reasonableness
Any possible management bias

114
Q

3 factors affecting nature of estimation uncertainty?

A

Nature of the accounting estimate
Extent to which there is an accepted method used
Subjectivity of assumptions

115
Q

Basic rein divinity for auditing estimates

A

Evaluate the reasonableness and related disclosures

116
Q

Audit procedures to assess accounting estimates?

A

Inquire of management
Review and test management processes
Develop an independent expectation for comparison
Review subsequent events for additional evidence

117
Q

What is estimation uncertainty?

A

Accounting detonates and disclosures that lack precision in measurement

118
Q

Further substantive procedures to respond to significant risks?

A

How management addressed estimation uncertainty
Significant assumptions are reasonable
Management has the intent and ability to carry out specific actions

119
Q

Risk of material misstatement increases when there is a high what (regarding estimates)

A

Estimation uncertainty

120
Q

The existence of published quotations is the best audit evidence for

A

Fair value

121
Q

Examples of FV estimates?

A 
Complex financial instruments
Share based payments
Property held for disposal
Certain assets and liabilities acquired in a business combination intangibles
Non monetary exchange assets
122
Q

Observable inputs

A

Assumptions market participants use for pricing an assets or liability based on market data from independent sources

123
Q

Unobservable inputs

A

Entity’s own judgements about what about what assumptions market participants may use.

124
Q

The auditor may consider the need for a specialist when there is

A

No observable market

125
Q

A taxing authority could impose an assessment on an entity related to tax matters. This can be used to identify what?

A

Litigation claims and assessments

126
Q

Management is the primary source of information, claims, and assessments not the

A

Clients lawyer who corroborates info

127
Q

The auditor and management should reach and understanding about what that is communicated to the lawyer for minuted responses.

A

Materiality

128
Q

To corroborate management responses to the auditors inquiries the auditor should

A

Examine the charges to the related expense account and vouch to the appropriate underlying invoices.

129
Q

When there are no pending litigations or claims the auditor may include

A

A specific statement of fact in the managements representation letter stating that the entity had no legal counsel to address litigation issues

130
Q

What are asserted claims?

A

When someone has already filed a claimed or at least announced the intention to make a claim. (Pending or threaten litigation)

131
Q

Lawyer cannot inter the auditor of omissions of unasserted claims since

A

The intention to sue has not been announced

132
Q

Unasserted claims must be disclosed when what two conditions exist?

A

Probable the claim would b asserted

Least reasonably possible that a material unfavorable outcome will occur.

133
Q

The completeness and availability of minutes and The plans to merge with other entities would most likely be included in

A

Managements representation letter

134
Q

One purpose of the management representation letter is to reduce the possibility of a

A

Misunderstanding concerning managements responsibility for the FS

135
Q

Management representations should include representations regarding the FS and what else

A

Completeness of info
Recognition
Measurement
Disclosure issues

136
Q

Management must acknowledge in the representation letter it’s responsibility for the design and implementation of

A

Internal controls

137
Q

The management representation letter should cover

A

All periods covered by the auditors report

138
Q

The management representation letter states that management has no knowledge of any fraud or

A

Suspected fraud involving management

139
Q

Materiality limits would not apply when obtaining representation involving what?

A

Management irregularities

140
Q

Materiality limits are imposed concerning related

A

Party transactions

141
Q

When irregularities are identified the client representation do not include

A

Materiality levels on irregularities

142
Q

Managements representation letter corroborate management verbal response to

A

Auditors inquiries

143
Q

Name Management representations regarding the financial statements

A
  1. Mgt responsibility for the fairness of FS
  2. mgt responsible for IC over financial reporting
  3. Mgt responsible for IC to prevent and detect fraud
  4. Significant assumptions used for any acct estimates are reasonable
  5. Related party transactions have been properly accounted for and disclosed
  6. Subsequent events properly accounted fo
  7. Us corrected misstatements immaterial
  8. Effects of litigation properly accounted for
144
Q

Representations involving info are

A
  1. All relevant records and personnel available
  2. All transactions have been recorded
  3. Management made available the results of their assessment if fraud risks.
  4. No fraud involving management
  5. No knowledge of fraud by employees
  6. Disclosed all instances of noncompliance
  7. No undisclosed litigations
  8. Related party transactions (all)
145
Q

Related party transactions the auditor is concerned with

A

Adequacy of disclosure

146
Q

When there are material misstatements after the report had been released the auditor should perform

A

Alternate substantive procedures to determine whether the FS are fairly stated

147
Q

When the auditor dual dates the audit report to recognize a significant event the auditor Is

A

Limiting responsibility to the events occurring subsequent to the audit report to the specific event reference

148
Q

Type II subsequent events occur after the balance sheet date and do not

A

Require adjustment but disclosure and no modification to the report

149
Q

When a subsequent events occurs after the audit report date but does not require disclosure, the report should be dated at the date when the auditor obtains

A

Sufficient appropriate evidence

150
Q

When obtaining evidence about subsequent events the auditor would inquire about changes in what

A

Capital stock
Long term debt
Working capital

151
Q

During the review of subsequent events the auditor would perform what procedures

A

Read the latest interim financial statements
BOD minutes
Inquire legal counsel concerning litigation claims and assessments
Make specific inquiries of management
Scan journals and ledgers after year end for unusual items

152
Q

Events that did not exit it year end but arose after year end require

A

Disclosure

153
Q

In regards to subsequent events the predecessor auditor should perform specific procedures to determine whether

A

The previously issued report is still appropriate

154
Q

Subsequent events requiring adjustment provides

A

New or better info about the FS as of the BS date

155
Q

When handling going concern the auditor responsibly is to consider the possible effects on the

A

FS and adequacy of disclosure. The auditor should include an emphasis of matter paragraph

156
Q

Mitigating factors for going concern

A
  1. Dispose assets
  2. Plans to borrow money or restructure debt
  3. Plans to reduce or delay expenditures
  4. Plans to increase ownership equity
157
Q

Examples of conditions and events that cause an auditor to have doubts about the entity going concern

A
  1. Recurring capital losses
  2. Working capital deficiencies
  3. Negative cash flows from operating activities
  4. adverse key financial ratios
158
Q

In planning a sample test of subsequent cash receipts the ( ) would be considered

A

Preliminary judgements about materiality levels

159
Q

A regular bank statement that is prepared by the bank for a shorter period than normal is a

A

Cut off bank statement

160
Q

A cutoff bank statement is used to verify the components of the client’s

A

Bank reconciliation

161
Q

The transfer of money between banks with immediate withdrawals

A

Check kiting

162
Q

What is the purpose of a bank confirmation?

A

Corroborate info regarding deposit and loan balances

163
Q

Materiality levels dan be used in planning a sample of subsequent

A

Cash receipts

164
Q

When receiving a cut off statement the auditor may trace the prior years checks to the

A

Outstanding checklist

165
Q

I recorded sales at year end would most likely be detected in the

A

Client sales cut-off

166
Q

Examining shipping records and sales invoices are alternate procedures to responding to

A

Non response accounts receivable

167
Q

Negative form of accounts receivable used when what four conditions.

A
  1. Risk of material misstatement is low
  2. Large number of small balances
  3. Very low exception rate
  4. No reason to believe recipients are unlikely to give them consideration
168
Q

When positive confirmations are not answered it is ok to have the client

A

Contact the customers to have the receivables returned

169
Q

The completeness assertion

A

Trace from the source document to the accounting records

170
Q

When inventory is in public warehouses the auditor would test the inventory existence by

A

Inspection

171
Q

Inspection of loan agreements to determine whether inventories are pledged test for

A

Rights and obligation

172
Q

Reduction in inventory turnover rate may indicate problems with

A

Obsolete inventory

173
Q

Equity method requires an investment to be valued by reflecting changes in the

A

Investee’s equity

174
Q

Publicly traded stock is commonly held by

A

A custodian

175
Q

Analytical procedures in testing long term investments are used to ascertain the reasonableness of the completion of

A

Recorded investment income

176
Q

The objective in analyzing repairs and maintenance expense accounts is to discover expenditures that were expensed should have been

A

Capitalized

177
Q

The auditor should inspect the records then tour the clients facilities when searching for

A

Unrecorded retirements of fixed assets

178
Q

Debits that appear in the repairs and maintenance expense account have not been

A

Capitalized

179
Q

Looking at the repairs and maintenance account helps the auditor to determine if major repairs

A

Should have been capitalized

180
Q

Looking at cash disbursements recorded just after year end is useful for identifying

A

Unrecorded liabilities

181
Q

The completion assertion is primarily focused on an auditors evaluation of

A

Accounts payable

182
Q

A note payable that is renewed after the balance sheet date would be examined to endure that is was properly

A

Presented at the balance sheet and the related disclosures were adequate.

183
Q

Confirmation of accounts payable would be least likely performed before the balance sheet date because

A

It focus on completion and would have to b repeat formed if fine before the balance sheet date

184
Q

An auditors program for examining Long term debt would consist of correlating

A

Interest expense recorded

185
Q

Restricted retained earnings deals with what assertion?

A

Presentation and disclosure

186
Q

When a company does nit maintain its own stock records the auditor should confirm from the transfer agent the number of

A

Shares issued and outstanding

187
Q

When there are overpayments discovered when performing payroll the auditor would

A

Extent substantive tests of payroll

188
Q

An auditor would compare payroll coats with standards or budgets when

A

Auditing payroll

189
Q

Confirmation procedures applicable to assets address what assertion?

A

Existence

190
Q

The possibility that a sample is not truly representative of the population of interest is

A

Sampling risk

191
Q

The possibility of selecting audit procedures that are not appropriated achieve a specific objective is (mistakes by the auditor)

A

Non sampling risk

192
Q

Statistical sampling allows an auditor to

A

Design an efficient sample
Measure the sufficiency of the evidential matter obtained
Evaluate the sample results

193
Q

A population with highly variable recorded amounts that cover a wide range would be what

A

Stratified

194
Q

Precision of an estimate is

A

The width of a confidence interval (possible error in either direction).

195
Q

No statistical sampling is

A

Judge mental sampling

196
Q

Statistical sampling benefits relate to

A

Objectivity

197
Q

Statistical sampling does not eliminate judgement it makes it

A

More explicit

198
Q

Attributes sampling relates to

A

Internal controls

199
Q

Variables sampling relates to

A

Account balances

200
Q

When the sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate

A

The planned reliance in the control should be reduced

201
Q

The maximum rate of deviations from prescribed controls that would support the planned assessed level of control risk.

A

Tolerable rate of deviations

202
Q

The likely rate of deviations is the

A

Expected population error rate

203
Q

In test of controls the auditor compares the tolerable rate to the

A

achieved upper precision limit (max definition rate)

204
Q

When selecting sample size for test of controls the auditor considers

A

The tolerable deviation rate
Allowable risk of assessing control risk too low
Expected deviation rate

205
Q

The achieved upper precision limit less the sample error rate equals

A

The allowance for sampling risk (margin added to the actual sample error rate to obtain the achieved upper precision limit

206
Q

The rate of occurrence of a given characteristic in a population refers to

A

Attributes sampling

207
Q

Deviations of internal controls at a given rate ordinarily result in

A

Misstatements at a lower rate

208
Q

The dollar differences between the sample audit values and applicable book values

A

Difference estimation

209
Q

Ratio estimation is used when the differences between audit and book values is expected to be

A

Proportional to the book values

210
Q

Mean per unit estimation

A

Is useful when difference or ration can’t be used

211
Q

The sampling unit to be individual dollar associated with the financial statement element involved is

A

PPS Sampling

212
Q

Does not work well with negative balances or zero balances is a disadvantage of

A

PPS sampling

213
Q

Sample size for PPS is based on what 3 things

A

Reliability factor (table)
Population BV
Tolerable misstatement

214
Q

PPS formula

A

N = reliability factor (tables) x book value / tolerable misstatement, net of misstatements

215
Q

PPS upper limit

A

Basic precision + projected misstatement+ incremental allowance

216
Q

Basic precision to PPS

A

Reliability factor x sample interval

217
Q

Projected misstatements - when the BV greater than or equal to sample interval

A

Actual misstatement is used

218
Q

Projected misstatements - BV is less than the sample interval

A

Apply a tainted percentage ( BV - AV/BV) percentage times sample interval

219
Q

Difference estimation calculation

A

aV - BV / sample = dollar amount
Dollar amount * population = pop audit value
Pop BV + av

220
Q

Ration estimation calculation

A

aV/BV = ratio

Ratio x BV

221
Q

Mean per unit estimation

A

av/sample = per unit

Per unit x population

222
Q

In internal control for computers which controls should be separated?

A

Systems analysis, programming, computer operations, transaction authorization, library functions, data control

223
Q

The process of determining which elements in the entity’s computer system correspond to the standard data elements is

A

Mapping

224
Q

A source code comparison program is used to test the presence of

A

Unauthorized EDP program changes

225
Q

Maintaining an audit trail for computer system provides

A

A deterrent to irregularities facilitates monitoring and enables queries to be answered

226
Q

Distributed data would be more concerned with access controls because

A

Because each microcomputer has access to the central computer

227
Q

Test data are used by auditors to test the controls

A

Over data processing

228
Q

Generalized audit software allows auditors to perform common audit tasks

A

Footing file sorting extracting and summarizing

229
Q

Test data is useful for

A

Computations and missing numbers

230
Q

Test data are dummy transactions developed by the auditor to

A

Test processing by client programs

231
Q

Embedded audit monitors require the auditor to

A

Continuously monitor transaction activity and collect data on auditor designated transactions

232
Q

A computer assisted auditing technique in which an auditor written or auditor controlled program is used to process data

A

Parallel simulation

233
Q

Hypothetical transactions that include valid and invalid data is

A

Test data

234
Q

Use of auditor data and the clients program is a

A

Integrated test facility

235
Q

A program inserted into the clients system to capture designated transactions.

A

Embedded audit module

236
Q

When using audit software to view computerized inventory the auditor views

A

Warehouse location date of last purchase and quantity sold

237
Q

A computer assisted audit technique that permits an auditor to insert the auditors version of a client program to process data

A

Parallel simulation

238
Q

Generalized software is

A

Used to access the clients test files

239
Q

Customized audit software are specifically written to

A

Access the files of a particular client

240
Q

Data mining software

A

Commercially available software (ACL and IDEA).

241
Q

Test data integrated test facility and parallel simulation test

A

How well the clients systems work

242
Q

Tagging embedding audit modules and audit hooks

A

test the working if the system while processing takes place

243
Q

To gather evidences out EDP controls the auditor can use

A

Inquiry observation and inspection

244
Q

What international board oversees IFAC’s and ethical related standard setting activities for the purpose of protecting the public interest?

A

Public interest oversight board

245
Q

Division of responsibility is not permitted under

A

International standards of auditing

246
Q

Analytical procedures used to ascertain the reasonableness of long term investments if for the

A

Completeness of recorded income

247
Q

A scope limitation is shown in an

A

Explanatory paragraph and a modified opinion

248
Q

When limiting tests of sales transactions when control risk is assessed low for existence and occurrence assertion most supportive evidence is

A

Cash receipts and accounts receivable

249
Q

Giver auditing standards require communicating significant deficiencies to

A

Legislative and regulatory bodies under GAS

250
Q

When using a special firm of accounting include a separate explanatory paragraph after the opinion paragraph that

A

Refers to the note to the financial statements that describes the basis of accounting

251
Q

A company is allowed to use different inventory methods for different inventories so the auditor would issue a

A

Unqualified or Unmodified opinion

252
Q

Accounting principles utilized in preparation of financial statements should

A

prepared according to financial reporting framework
Be appropriate in circumstances
Provide info about matters that affect use understanding and interpretation
Classify and summarize info
Reflect transactions in a manner that presents the financial position

253
Q

Unaudited financial statements of a non public company presented with audited financial statements in the subsequent year should

A

Report on unaudited financials be reissued or

Include a separate paragraph describing the responsibility assumed

254
Q

The principle auditor can elect to take full responsibility of the financial statements if

A

The auditor is satisfied with the independence professional reputation and competence of other CPA

255
Q

Emphasis of matter is required when

A

Going concern
Inconsistency in accounting principles
Special purpose frameworks

256
Q

Except for qualified opinion may be issued for a

A

Scope limitation and an unjustified accounting change

257
Q

The choice between a qualified opinion and a disclaimer of opinion arises when a

A

Scope limitation has occurred

258
Q

A qualified opinion should include the word

A

Except

259
Q

A qualified opinion is material but

A

Not pervasive

260
Q

A disclaimer opinion is material and

A

Pervasive

261
Q

To present financial position and results of operation this is located in the

A

Statement of cash flows.

262
Q

When there is a GAAP departure what type of opinion is issued?

A

Qualified or adverse

263
Q

For an adverse opinion the appropriate language is

A

Because of the significance of the matter discussed in the basis for adverse opinion paragraph

264
Q

When issuing a disclaimer of opinion the audit omits the

A

Scope paragraph

265
Q

If an auditor is unable to determine the amounts of a fraud scheme the auditor would issue what type of opinions

A

Qualified or disclaimer

266
Q

A change in accounting principle creates a

A

Consistency modification

267
Q

A change in depreciation or estimate does not need to be disclosed and does not affect the

A

Opinion

268
Q

An explanatory paragraph is required for a change in

A

Accounting principle

269
Q

When beginning inventory balances are missing the auditor can issue an unqualified opinion on the bs but a disclaimer opinion on the

A

Income statement

270
Q

For material inconsistencies identified prior to the report release date and management refuses the auditor may

A

Include an other matter paragraph
Withhold the auditor report
Withdraw from the engagement

271
Q

When material inconsistencies with other info is discovered after the report release date the auditor should

A

Inform those charged with governance and take the appropriate action (advice from legal counsel)

272
Q

Certain limited audit procedures should be applied to what

A

Supplementary information required by FASB or GASB

273
Q

When so report is based on criteria suitable to a limited number of users or matters are presented in a by product the auditor should

A

Restrict the auditors report

274
Q

A report on the condensed financial statements should include

A

The auditor has audited and expressed an opinion on the completed FS
The date of the auditors report
Type of opinion expressed
Info is consistent in all material respects with the audited FS.

275
Q

The basis for reporting whether material modifications should be made for such info to conform to the applicable financial reporting is the objective for what.

A

A review of interim financial info

276
Q

Negative assurance is provided in what type of engagement?

A

Review engagement

277
Q

Internal control and the entities business still needs to obtained during a

A

Review engagement

278
Q

When updating an auditors knowledge of an entity’s business the auditor should

A

Consider the results of any audit procedures performed with respect to the current year FS

279
Q

The report on a specific transaction should include

A

A statement that the engagement was conducted with applicable standards

A description of the transaction and accounting principles to be applied

A statement indicating that responsibility for proper acct treatment rest with the prepare refs of FS

A statement that any differences in the facts circumstances or assumptions may change the report

Aud Exam (3 decks)

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