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Aud Exam > Tagged/missed exam questions > Flashcards

Tagged/missed exam questions Flashcards

0
Q

What best describes what is meant by the term “generally accepted auditing standards”?

A

Measures of quality of the auditor’s performance. As well as the Statements on Auditing Standards issued by the Auditing Standards Board.

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1
Q

What statement is correct concerning an auditor’s responsibilities regarding financial statements?

A

An auditor may draft an entity’s financial statements based on info from management’s accounting system as long as not a company regulated under the SEC.

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2
Q

According to GAAS, a requirement for audit evidence is to be??

A

Sufficient and appropriate

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3
Q

What are the two types of professional requirements?

A

Unconditional requirement - indicated by “must”

Presumptive requirement - indicated by “should”

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4
Q

A CPA firm evaluates it’s personnel advancement experience to ascertain whether individuals meeting stated criteria are assigned increased degrees of responsibility.

This is evidence of the firm’s adherence to which of the following prescribed standards.

A

Quality Control

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5
Q

A CPA firm would be reasonably assured of meeting it’s responsibility to provide services that conform with professional standards by having what?

A

An appropriate system of quality control

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6
Q

What are the 3 focal points of the quality control standards?

A
  1. The integrity and reputation of management and other relevant persons.
  2. Whether the CPA has the competence and resources to perform the engagement.
  3. Whether the CPA can comply with applicable legal and ethical requirements.
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7
Q

A second review by a CPA not involved in the audit focuses the second review on what??

A

The fair presentation of the financial statements in conformity with GAAP

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8
Q

What does the Engagement letter address?

A
  1. Nature and timing of audit procedures performed
  2. Expected fees and the basis for billing
  3. The responsibilities of the auditor
  4. The clients responsibilities in preparing the audit
  5. The need for other services to be performed
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9
Q

What is the format of the unqualified audit report?

A

3 paragraphs 9 sentences

A. Intro 3 sentences

  • financial statements
  • management responsibility
  • auditor responsibility

B. scope paragraph 5 sentences

  • audit conducted in accordance with GAAS
  • reasonable assurance
  • examines evidence on a test basis
  • assessing accounting principles used and significant estimates made
  • reasonable basis for the opinion

C. Opinion paragraph

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10
Q

What are the first two sections of the Unmodified auditors report?

A
  1. Nature of the engagement and the financial statements involved.
  2. Managements responsibility for the financial statements.

Managements is responsible for the fair presentation of the financial statements and the implementation of internal control.

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11
Q

How many paragraphs are in the auditors responsibility section of the Unmodified audit report?

A

3 paragraphs

  1. 3 sentences
  2. 5 sentences
  3. 1 sentence
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12
Q

How many sections are in the Unmodified auditors report?

A

4 sections

  1. Nature of the engagement
  2. Managements responsibility
  3. auditors responsibility
  4. Opinion
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13
Q

What is managements responsibilities during an engagement as listed in the engagement letter?

A
  1. adjusting the financial statements to correct any material misstatements
  2. Enduring the company complies with applicable law as and regulation.
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14
Q

An auditor is required to establish an understanding with a client regarding the services to be performed for each engagement. This understanding generally includes

A
  1. the objective of the audit;
  2. management’s responsibilities with regard to the financial statements, internal control, compliance with laws and regulations, availability of records, and the management representation letter;
  3. the auditor’s responsibilities for GAAS and reportable conditions;
    a description of an audit; and
  4. management’s responsibilities regarding correction of material misstatements and evaluation of immaterial adjustments.
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15
Q

What could be difficult to determine because electronic evidence may not be retrievable after a specific period?

A

The timing of control and substantive tests.

When it might be best (or even possible) to perform tests of control and substantive tests could be affected by the availability of underlying evidence.

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16
Q

What procedure would a CPA most likely perform in the planning phase of a financial statement audit?

A

Compare financial information with nonfinancial operating data.

The auditor is required to perform analytical procedures in planning the audit engagement. By definition, analytical procedures may involve a study of plausible relationships among both financial and nonfinancial data.

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17
Q

What is one of the five components of internal control environment?

A

risk assessment

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18
Q

The management representation letter is obtained when??

A

Towards the end of the audit

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19
Q

Materiality is considered for planning purposes in terms of what??

A

The smallest aggregate level of misstatements that could be material to the financial statements.

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20
Q

Holding other planning considerations equal, a decrease in the number of misstatements in a class of transactions that an auditor could tolerate would cause the auditor to?

A

Perform the planned auditing procedures closer to the balance sheet date. Because you want to increase your substantive testing

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21
Q

If the auditor concludes that there is a high RMM the auditor would?

A

Select more effective substantive tests

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22
Q

The acceptable level of DR is inversely related to the what?

A

Assurance provided by substantive tests

23
Q

Are the audit risk components both quantitatively and qualitatively assessed?

A

yes

24
Q

An auditor’s analytical procedures most likely would be facilitated if the entity does what?

A

Uses a standard cost system that produces variance reports.

Explanation

Analytical procedures involve the prediction of an amount and comparison to actual. The prediction is based on the premise that plausible relationships exist among data that are expected to continue. This is the only answer that would enable an auditor to compare actual results to a prediction - use of a standard cost system (producing the estimate) and production of variance reports (giving the comparison to actual).
25
Q

Auditors try to identify predictable relationships when using analytical procedures.
Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?

A

Payroll expense.

Relationships involving income statement accounts and nondiscretionary accounts tend to be more predictable than relationships involving balance sheet accounts. This occurs because income statement accounts capture transactions occurring over a period of time, whereas balance sheet accounts look at balances at a single point in time.
Nondiscretionary accounts are not subject to change based on management decisions. Payroll expense, as an income statement and relatively nondiscretionary expense, would most likely yield the highest level of evidence.

26
Q

Which of the following comparisons would be most useful to an auditor in evaluating the results of an entity’s operations?

A

Current year revenue to budgeted current year revenue.

A comparison of current year revenue to budgeted revenue would be very useful to an auditor in evaluating the results of operations. It would tell the auditor how well the entity did compared to the plan. The comparison would also enable the auditor to predict the effects on other income statement accounts, such as related expense accounts.

27
Q

An auditor’s decision either to apply analytical procedures as substantive tests or to perform tests of transactions and account balances usually is determined by the

A

Relative effectiveness and efficiency of the tests.

Evidence may be gathered by means of analytical tests (performed as substantive tests), tests of transactions, and tests of details of balances. The decision as to which means to employ is based on the auditor’s judgment of the expected effectiveness and efficiency of the available procedures.

28
Q

Analytical procedures used in planning an audit generally use data aggregated at what level?

A

High level

Analytical procedures used for planning purposes aid the auditor in identifying the auditing procedures that will be used. The data used for this type of analytical procedure is generally highly aggregated. In the substantive stage data should be aggregated at a low level
29
Q

Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?

A

Interest expense compared to travel and entertainment. Although both income statement accounts travel and entertainment is subject to discretion.

30
Q

An auditor who discovers that a client’s employees have paid small bribes to public officials most likely would withdraw from the engagement if the

A

Employees’ actions affect the auditor’s ability to rely on management’s representations.

31
Q

An auditor is concerned about a policy of management override as a limitation of internal control. Which of the following tests would best assess the validity of the auditor’s concern?

A

Verifying that approved spending limits are not exceeded.

32
Q

Which of the following factors would be most likely to heighten an auditor’s concern about the risk of fraudulent financial reporting?

A

An overly complex organizational structure involving unusual lines of authority.

Key word fraudulent financial reporting

33
Q

Which of the following situations most likely represents the highest risk of a misstatement arising from misappropriations of assets?

A

A large number of bearer bonds on hand.

34
Q

What are the 4 basic exceptions to an auditors confidentiality?

A

Valid legal subpoena
SEC 8K requirements about important matters like change of auditors
Successor audit inquiries (permission by client)
Applicable funding agency under govt standards

35
Q

Standard auditors report on comparative financial statements states that evidence is examined on a test basis as (implicit or explicit) and accounting principles have been applied (implicit or explicit)

A

explicitly that evidence is examined on a test basis and implies the accounting principles have been applied

36
Q

An auditor may reference an specialist work if?

A

The auditor adds explanatory language or modifies the opinion

37
Q

An auditor may refer to a specialist when the auditor becomes aware of a going concern issue why?

A

Because an entity’s inability to continue as a going concern results in a modification of the report and therefore the auditor can reference the specialist for clarity.

38
Q

What are 8 things the auditor is required to communicate with the audit committee?

A
  1. The auditors responsibility under GAAS
  2. Significant accounting policies
  3. Management judgements and accounting estimates
  4. Audit adjustments
  5. Auditors judgements about the entity’s accounting principles
  6. Disagreements with management
  7. Consultation with other accountants
  8. Difficulties encountered in performing the audit
39
Q

Why is evaluating internal controls important?

A

The auditor is concerned about the effectiveness of the control and its ability to prevent or detect material misstatements in the financial statements. As a result, the auditor must focus on the substance of the control rather than the form

40
Q

An auditor’s primary consideration regarding an entity’s internal control structure policies and procedures is whether they what?

A

Affect the financial statement assertions.

The auditor is primarily interested in whether an entity’s internal controls affect the financial statement assertions. Specifically, the auditor is interested in the policies and procedures that pertain to an entity’s ability to record, process, summarize, and report financial data consistent with the assertions embodied in the financial statements.

41
Q

Which of the following is a management control method that most likely could improve management’s ability to supervise company activities effectively?

A

Establishing budgets and forecasts to identify variances from expectations.

42
Q

Decision tables differ from program flowcharts in that decision tables emphasize?

A

Logical relationships among conditions and actions.

43
Q

What is true about internal control?

A

The cost benefit relationship is a primary criterion that should be considered in designing an internal control structure.

44
Q

As part of understanding internal control an auditor is not required to do what?

A

Obtain knowledge about the operating effectiveness of the internal control structure.

Operating effectiveness refers to test of controls which u have to consider the cost benefit relationship

45
Q

Name 4 Test of control

A
  1. Inquires of personnel
  2. Inspection of documents
  3. observation of activities
  4. Re performance of the control procedure
46
Q

What are the inherent limitations of internal control?

A
  1. Costs should not outweigh benefits
  2. Mistakes in misunderstandings judgement carelessness and fatigue.
  3. collusion and management override
47
Q

An auditor would only use substantive procedures because what?

A

Testing the operating effectiveness would not be efficient

48
Q

GAAS and GAAP are mentioned in the audit report explicitly or implicitly?

A

Explicitly

49
Q

What is the control environment of internal control?

A

The control environment sets the tone of an organization, influencing the control consciousness of its people.

It includes the following factors: integrity and ethical values, commitment to competence, board of directors or audit committee participation, management’s philosophy and operating style, organizational structure, assignment of authority and responsibility, and human resource policies and practices.

50
Q

Which of the following actions should the auditor take in response to discovering a deviation from the prescribed control procedure?

A

A. Make inquiries to understand the potential consequence of the deviation.

51
Q

An auditor should obtain sufficient knowledge of an entity’s accounting system to understand the

A

Process used to prepare significant accounting estimates.

Accounting estimates are an area of concern to the auditors because of the amount of judgment and discretion they entail. The internal control structure may reduce the likelihood of material errors occurring related to the preparation of accounting estimates. As a result, the auditor should understand the internal control structure related to preparing accounting estimates.
52
Q

Which of the following audit techniques most likely would provide an auditor with the most assurance about the effectiveness of the operation of an internal control procedure?

A

Observation of client personnel.

Confirmation with outside parties and recomputation of account balances are substantive procedures designed to gather evidence about the fair presentation of account balances. Inquiry of client personnel would provide some evidence about the operation of an internal control, but the best evidence about the effectiveness of operation of an internal control would be provided through the auditor’s observation of client personnel.

53
Q

In obtaining an understanding of an entity’s internal control structure in a financial statement audit, an auditor is not obligated to

A

Search for significant deficiencies in the operation of the internal control structure.

An auditor is not required to search for significant deficiencies in the operation of internal control. However, if such deficiencies come to the auditor’s attention, the auditor must report them to the audit committee.

54
Q

What is a hash total?

A

A hash total is a meaningless total computed to verify the accuracy and completeness of input

55
Q

When IT is used extensively in a company, the auditor should use what kind of software to extract data?

A

Generalized audit software

Aud Exam (3 decks)

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