Study topics

Question 1

Substantive Procedures

Answer 1

An audit procedure designed to detect

material misstatements at the assertion level; comprised of tests of details and substantive analytical procedures.

Question 2

Test of details definition

Answer 2

evidence that the balances, disclosures, and underlying transactions associated with a client’s F/S are correct

Question 3

substantive analytical procedures

Answer 3

obtain evidential matter about particular assertions related to account balances or classes of transactions

Question 4

Analytical Procedures definition

Answer 4

Evaluations of financial information through analysis of plausible relationships among both financial and nonfinancial data.

Question 5

Examples of Analytical Procedures

Answer 5

comparable information for prior
periods; anticipated results (such as forecasts or budgets); and similar industry information (such as ratio information)

Question 6

3 Purposes of Analytical Procedures

Answer 6

1 For risk assessment (required)
2 Substantive purposes (not required)
3 As a final review (required)

Question 7

Tests of controls definition

Answer 7

An audit procedure designed to evaluate the operating effectiveness of controls in preventing, or detecting and
correcting, material misstatements at the assertion level.

Question 8

Control Risk definition (CR)

Answer 8

The risk that a misstatement that could occur in an assertion in a class of transaction, account balance, or disclosure and that could be material, that will not be prevented, or detected and corrected, on a timely basis by the entity’s internal control.

Question 9

Inherent Risk definition (IR)

Answer 9

The susceptibility of an assertion about a
class of transaction, account balance, or disclosure to a misstatement that could be material, before consideration of any related controls

Question 10

RMM definition (risk of material misstatement)

Answer 10

The risk that the financial statements are materially misstated prior to the audit. (IR x CR)

Question 11

RMM at the overall financial statement level

Answer 11

refers to risks that are pervasive to the F/S and potentially affect many assertions.

Question 12

RMM at the assertion level

Answer 12

the purpose of determining the nature, timing and extent of further audit procedures to obtain sufficient appropriate audit evidence

Question 13

Audit Risk formula

Answer 13

IR x CR x DR

Question 14

Detection risk definition (DR)

Answer 14

The risk that the procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a misstatement that exists and that could be material.

Question 15

Audit procedures includes

Answer 15

inspection, observation, confirmation,

recalculation, reperformance, analytical procedures, and inquiry

Question 16

Meaning of inspection

Answer 16

consists of examining records or documents or a physical examination of an asset

Question 17

Meaning of observation

Answer 17

consists of looking at a process or

procedure being performed by others

Question 18

Meaning of confirmation

Answer 18

consists of a direct written response to

the auditor from a third party in paper form or by other (electronic) medium

Question 19

Meaning of recalculation

Answer 19

consists of checking the mathematical

accuracy of documents or records

Question 20

Meaning of reperformance

Answer 20

consists of the independent execution of procedures or controls that were originally performed as part of the entity’s internal control

Question 21

Meaning of inquire

Answer 21

may range from formal written inquiries to

informal oral inquiries

Question 22

What is Fair Value

Answer 22

estimated price at which an asset can be sold or a liability settled in an orderly transaction to a third party under current market conditions

Question 23

What are observable inputs

Answer 23

Pricing an asset or liability based on market data, independent of the reporting entity

Question 24

What are unobservable inputs

Answer 24

An entity’s own judgement about what assumptions market participants would use.

Question 25

Auditors Report has 3 paragraphs

Answer 25

Introductory, Scope and Opinion

Question 26

Types of engagements

Answer 26

Audit, Review and Compilation

Question 27

Whats an audit

Answer 27

it conveys a high level of assurance about the reliability of the F/S and is expressed as positive assurance in the form of an opinion

Question 28

Whats a review

Answer 28

conveys a lower (moderate, negative assurance) level of assurance about F/S

Question 29

what’s a compilation

Answer 29

conveys no assurance about the reliability of the F/S

Question 30

What re the 3 Modified Opinions

Answer 30

Qualified, Adverse and Disclaimer of Opinion.

Question 31

Disclaimer of opinion

Answer 31

when the auditor is unable to obtain sufficient appropriate audit evidence and concludes the affect on F/S could be material but pervasive.

Question 32

Adverse Opinion

Answer 32

when the auditor concludes that misstatements are material, and pervasive to the F/S

Question 33

Qualified opinion

Answer 33

when the auditor is unable to obtain sufficient appropriate audit evidence and concludes the affect or misstatements on F/S could be material, but not pervasive

Question 34

Emphasis-of-matter paragraph

Answer 34

refers to a matter appropriately presented or disclosed in the F/S that in the auditor’s judgement is of importance to the user’s understanding of the F/S

Question 35

Situations when emphasis-of-matter paragraph is required

Answer 35

1 Auditor has substantial doubt about the entity’s ability to continue as a going concern
2 Inconsistency in accounting principles
3 When F/S are prepared in accordance with special purpose frameworks

Question 36

Circumstances when an auditor considers emphasis-of-matter paragraph

Answer 36

1 uncertainty as to the outcome of unusually important litigation
2 a major casualty having a significant effect
3 significant transactions with related parties
4 unusually important subsequent events

Question 37

Other-matter paragraph

Answer 37

refers to a matter other than those presented or disclosed in the F/S that in the auditor’s judgement is of importance to the user’s understanding of the audit, the auditor’s responsibility or the auditors report

Question 38

Circumstances when an auditor considers an other-matter paragraph

Answer 38

1 rare situations, to explain why it was not possible to withdraw from the engagement
2 when an opinion expressed on the prior years F/S is different than the opinion previously expressed