Test Wrong Answers Part IV

Question 1

The overall audit strategy

Answer 1

Sets the scope, timing, and direction of the audit and guides the development of the audit plan

NOTE:
The auditor should update and change the overall audit strategy and audit plan, as necessary, during the course of the audit. As a result of unexpected events, changes in conditions, or the audit evidence obtained from the results of audit procedures, the auditor may need to modify the overall audit strategy and audit plan and, thereby, the resulting planned nature, timing, and extent of further audit procedures, based on the revised consideration of assessed risks.

Question 2

US GAAS require that analytics are to be used to some extent in all audits in what stages of the audit?

Planning?

Substantive?

Final Review?

Answer 2

US GAAS require that analytics are to be used to some extent in all audits in the planning of the audit and in the final review stages. The use of analytics as a substantive test is not mandated, but it should be noted that analytics can be more effective or efficient than tests of details for achieving certain substantive testing objectives.

Question 3

Does a CPA performing a consulting engagement need a signed engagement letter?

Answer 3

No, the understanding of the scope of the engagement may be written or oral.

Question 4

Regarding fraud, the auditor is primarily concerned with

Answer 4

Fraud that causes a material misstatement in the financial statements

Question 5

The audit documentation related to fraud should include

Answer 5

Communications about fraud made to management, those charged with governance, regulators, and others

Question 6

The auditor should include in the audit documentation related to materiality considerations

Answer 6

Materiality for the financial statements as a whole

Performance materiality

And, if applicable, the materiality level or levels for:

• particular classes of transactions
• account balances
• or disclosures

Question 7

An auditor is planning a test of control and expects numerous errors in the application of the control. Which approach is most appropriate?

Answer 7

Sequential Sampling

the sample size will need to be expanded through sequential, stop or go sampling–each step is conditional on the results of the previous steps.

Question 8

Discovery sampling is used when

Answer 8

Discovery sampling is used when the auditor expects an extremely low error rate.

Discovery sampling is a form of attribute sampling that is designed to locate at least one exception if the rate of occurrence in the population is at or above a specified rate.

Question 9

The primary responsibility of a bank acting as registrar of capital stock is to

Answer 9

Verify that stock is issued in accordance with the authorization of the board of directors and the articles of incorporation

Question 10

When a CPA assists in preparing the financial statements of a public entity, but has not audited or reviewed them, the CPA should issue a disclaimer of opinion. In such situations, the CPA has no responsibility to apply any procedures beyond

Answer 10

Reading the financial statements for obvious material misstatements

Question 11

An auditor uses the assessed risk of material misstatement to

Answer 11

Determine the acceptable level of detection risk for financial statement assertions.

Question 12

When is timely, i.e., as soon as practicable, communication of matters involving noncompliance with laws and regulations to those charged with governance required?

Answer 12

When the noncompliance is believed to be intentional and its effect on the financial statements is material

Question 13

An nonissuer engaged a CPA to determine whether the client’s web sites meet defined criteria for standard business practices and controls over transaction integrity and information protection. In performing this engagement, the CPA should comply with the provisions of

Answer 13

Statements on Standards for Attestation Engagements

Question 14

When an auditor of a nonissuer becomes aware that one or more auditing procedures that the auditor considered necessary in the circumstances existing at the time of the audit were omitted from the audit of the financial statements,

Answer 14

The US GAAS guidance relevant to this matter relates to the period subsequent to the AUDIT REPORT RELEASE DATE regarding when the auditor became aware of the omission.

Question 15

An audit client has a valid reason for requesting that a certain account receivable that the auditor has selected for confirmation not be confirmed. Under these circumstances, the auditor should

Answer 15

Verify the account balance by inspecting the client’s bank statements and cash receipt records.

Question 16

If a public company client makes a justified change in accounting estimate effected by a change in accounting principle, the auditor should evaluate the change as:

Answer 16

Principle and the auditor would include an Explanatory Paragraph

Question 17

“Substantial Doubt About the Entity’s Ability to Continue as a Going Concern” paragraphs should be placed where?

Answer 17

“Substantial Doubt About the Entity’s Ability to Continue as a Going Concern” paragraphs should be placed

immediately after the “Basis for Opinion” paragraph in the audit report.

Question 18

Vouchers payable department internal controls typically performed:

Answer 18

Matching the vendor’s invoice with the related receiving report

Approving vouchers for payment by having an authorized employee sign the vouchers

Indicating the asset and expense accounts to be debited

Question 19

Which of the following statements is correct concerning probability-proportional-to-size (PPS) sampling, also known as dollarunit sampling?

Answer 19

The auditor controls the risk of incorrect acceptance by specifying that risk level for the sampling plan.`

Question 20

Which of the following procedures would the auditor most likely perform to determine that an interest rate swap contract is properly stated at fair value on the client’s balance sheet?

A
Testing the data used to arrive at the fair value of the interest rate swap contract.
B
Sending a positive confirmation to the interest rate swap contract custodian.

Answer 20

Test data for fair value

Question 21

How to identify fictitious customers?

Answer 21

Send positive confirmations –> test existence

Question 22

Which of the following activities is an analytical procedure an auditor would perform in the final overall review stage of an audit to ensure that the financial statements are free from material misstatement?

Comparing the current year’s financial statements with those of the prior year

Ensuring that a representation letter signed by management is in the file

Answer 22

Comparing the current year’s financial statements with those of the prior year

Question 23

An auditor of a nonissuer should request that management provide written representations regarding uncorrected misstatements in the financial statements that state

Answer 23

Whether management believes that the effects of uncorrected misstatements are immaterial, individually and in the aggregate, to the financial statements as a whole.

Question 24

The correction of a material misstatement in the previously issued financial statements of an issuer

Answer 24

Should be recognized in the auditor’s report through the addition of an explanatory paragraph FOLLOWING the opinion paragraph

Question 25

Which of the following sets of information does an auditor usually confirm on one form?

Answer 25

Cash in bank and collateral for loans

Question 26

A disclaimer of opinion or withdrawal from the engagement is required if a written representation requested from management relating to which matter is not provided?

Answer 26

For preparation and fair presentation of the financial statements and for information provided and completeness of transactions

Question 27

Which of the following is not one of the elements that form a framework for applying the field work requirements for a performance audit conducted in accordance with Government Auditing Standards?

A Sufficiency
B Significance
C Reasonable assurance
D Audit risk

Answer 27

Sufficiency

Field work requirements for performance audits relate to

• planning the audit;
• supervis­ing staff;
• obtaining sufficient, appropriate evidence;
• and preparing audit documentation.

Reasonable assurance, significance, and audit risk form a framework for applying these requirements.

Question 28

How should differences of opinion between the engagement partner and the quality control reviewer be resolved?

Answer 28

By following the firm’s policies and procedures.