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73 Cards in this Set
- Front
- Back
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A departure from GAAP can modify the paragraphs:
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opinion and explanatory
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A departure from GAAP requires a _________ opinion if material or a __________ opinion if pervasive.
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qualfied, adverse
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a scope limitation means that
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the auditors are unable to obtain sufficient appropriate evidence
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A scope limitation if material requires a ______ opinion or if pervasive a ____________ opinion
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qualified, disclaimer of opinion
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A scope limitation modifies these paragraphs:
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Scope, Opinion, explanatory
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If alternate procedures are available and performed then a scope limitation can issue a:
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standard report
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A material lack of independence requires a ________ opinion or pervasive a ______________ opinion
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ALWAYS single paragraph disclaimer of opinion
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A material lack of consistency requires a ______ opinion or pervasive a ____________ opinion
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ALWAYS a unqualified opinion with an explanatory paragraph
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A material going-concern requires a _____________ opinion or pervasive a __________ opinion
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unqualified, disclaimer
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All reporting issues require an explanatory paragraph to be added except _____ & _____ because they require a single paragraph disclaimer of opinion instead
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lack of independence, association with unaudited financial statements
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A justified departure from GAAP lets you put the explanatory peragraph either before or after the
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opinion paragraph
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If the auditors assume responsibility for other auditors' work, then division of responsibility is
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not an issue, unqualfied opinion
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Auditors must change the following paragraphs if a division of responsibility occured and they don't want to take responsibility for the other auditors' work:
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Intro, Scope, Opinion, and Explanatory
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An emphasis of a matter just requires
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an explanatory paragraph
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If association with unaudited financial statements, auditors must
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issue one paragraph disclaimer of opinion
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A disclaimer of opinion is required if
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lack of independence occurs, or association with unaudited financial statements
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Explicit standards required in every audit report are
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GAAP and Opinion
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Implicit standards required only under certain conditions are
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Consistency and Disclosure
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Auditors found that the entity has not capitalized a materiual amt of leases in the F/S's. When considering materiality of this departure from GAP, the auditors would choose between which reporting options?
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qualified or adverse opinion
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Auditors determined that the entity is suffering financial difficulties and the going concern status is seriously in doubt. assuming the entity adequately disclosed this matter in the F/S's, they must choose between which report alternatives?
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unqualified w/going-concern explanatory paragraph or disclaimer of opinion
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An entity accomplished an early extinguishment of debt and the auditors believe that literal application of SFAS 98 would cause recognition of a loss that would materially distort the F/S's and cause them to be misleading. Given this situation, the auditors should
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explain the situation and isssue an unqualfied opinion, relying on Rule 203 of AICPA prof code of conduct
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Which would require auditors to append an explanatory paragragh about consistency to an otherwise unqualified opinon?
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entity changed its inventory costing method from FIFO to LIFO
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Wolfe became the new auditor for Royal Corp, succeeding Mason, who audited the statements last year. Wolfe needs to report on Royal's comparative F/S's and s/disclose in his report an explanation about other auditors having audited the prior year
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describing the prior audit and the opinion but not naming mason as the predecessor auditor
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When other independent auditors are involved in the current audit of parts of the entity's business, the principal auditors may issue a report that
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1) mentions the other auditors, describes the extent of the other auditors work, and expresses an unqualfied opinion. 2)Does not mention the other auditors and expresses an unqualified opinion in a standard report.
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an "emphasis of a matter" paragraph inserted in a std report causes the report to be characterized as a
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unqualified opinion
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Company A hired Samson & Delilah, CPAs, to audit the F/S's of Company B and deliver the report to Megabank. Who is the client?
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Company A
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Which is not included in the std report on thee F/S's?
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an emphasis paragraph commenting on the effect of economic conditions on the entity
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If the auditors decide to present separate reports on the entity's F/S's and internal control over financial reporting, which of the following reports should be modified to reference the other report?
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Both the report on Financial Statements and Report on Internal Control over Financial Reporting
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Auditors consider statistical sampling to be characterized by the following
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Representative sample selection and mathematical calculation of the results.
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The risk that the decision made based on the sample will differ from the decision made based on the entire population is referred to as
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sampling risk
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Which is an advantage of nonstatistical sampling?
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it is typically less complex than statistical sampling
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Selecting a sample using a series of random numbers to identify sample items is referred to as
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unrestricted random sampling
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if systematic sampling is used with a starting point of 10, a populatin size of 100, and a necessary sample size of 20, the first three items selected for exam would be
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10,15,20
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A limitation of systematic random selection is that this method
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can result in bypassing a number of items having similar characteristics
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Which pairs of selection methods could appropriately be used in statistical sampling applications?
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unrestricted random selection, systematic random selection
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A range around the sample estimate that has a certain likelihood (equal to reiability) of including the true population value is known as the
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precision/precision interval
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the likelihood that an identified precision interval contains the true (but unknown) population value is the
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confidence
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Which statement is not true of the precision interval for a sampling risk of 10 % ranges from 60 to 70?
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A 90% probability exists that the true population value is less than 60 or more than 70.
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the risk of incorrect acceptance in variables sampling and of assessing control risk too low in attribute sampling both relate to
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effectiveness of an audit
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the type of sampling most frequently used by auditors during their study of internal control is referred to as
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attribute sampling
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The auditor will choose to reduce the reliance on controls if the _____ is greater than the ______
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upper limited deviation rate, tolerable deviation rate
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when using sampling in the study of internal control, the auditor would compare a conservative estimate of the deviation rate to the
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tolerable deviation rate
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in a sampling application to determine the average weight of the students enrolled in a fitness class, if the sample estimate is 120 lbs, the precision is 10 lbs, and the reliability is 90%, which statement is true?
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there is a 90% likelihood that the average weight of a student in the class is between 110 and 130 lbs
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the risk of incorrect rejection and the likelihood of assessing control risk too high relate to the
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efficiency of the audit
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auditors are interested in having independence in appearance because
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they want the public at large to have confidence in the profession
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assuring that the auditor is independent in appearance is the responsibility of the
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audit committee
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if a public accounting firm says it always follows the rule that requires adherence to FASB pronouncements in order to give a std unqualified auditors report, it is following a philosophy characterized by
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the imperative principle in ethics
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which agency issues independence rules for the auditors of public companies?
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PCAOB
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auditor independence in fact is most clearly lost when
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an auditor agrees to the argument of the client's financial VP that deferring losses on debt refinancing is in accordance with GAAP
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the audit committe's responsibility for auditor independence concerns
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ensuring the nonaudit services provided by the auditor do not impair independence
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AICPA memebers who work in industry and government must always uphold which 2 AICPA rules of conduct?
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Rule 102 - Integrity and Objectivity, & Rule Rule 501 - Acts Discreditable
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a public accounting firm's independence is not impaired when memebrs of the audit engagement team perform for an audit client
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operational internal audit assignments under the directions of the client's director of internal auditing
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when the public accounting firm audits FUND-A in a nutual fund complex that has sister funs FUND-B and FUND-C, independence for the audit of FUND-A is not impaired when
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BOTH! mgr level professionals located in the office where the audit partner is, but who are not on the engagement team own shares of FUND-B which is not an audit client. 2) the wife of the FUND-A audit engagement partner owns shares in FUND-C (an audit client of another of the firm's offices) and these shares are held through the wife's employee benefit plan funded by her employer.
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Which is considered a close relative, but not an immediate family member, as defined by the AICPA?
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Parent
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Is the following true? the public accounting firm mustr discuss with teh audit client's board or its audit committee the independence implications of the client's having hied the audit engagement team mgr as its financial VP.
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TRUE
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Phil Greb has a thriving practice in which he assists attorneys in preparing litigation dealing with accting and audit matters. Phil is "practicing public accounting" if he
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uses his CPA designation on his letterhead and business card
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the AICPA removed its general prohibition of CPA's taking commissions and contingent fees b/c
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nothing is inherently wrong about the form of fees charged to nonaudit clients
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CPA Rambo is the auditor of Ajax corporation. Her audit independence will not be considered impaired if she
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owns 1k worth of the stock of Pericles Corp, which is controlled by Ajax as a result of Ajax's ownership of 40% of Pericles stock, and Pericles contributes 3% of the total assets and income in Ajax's financial statements.
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which would not be considered confidential info obtained in the course of an egmgt for which the client's consent would be needed for disclosure?
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info about material contingent liabilities relevant for audited F/S's
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According to the AICPA Code of Conduct, which act is generally forbidden to CPA's in public practice?
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having a commission arrangement with an accounting software developer to receive 4% of the price of programs recommended and sold to audit clients.
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A CPA's legal license to practice public accounting can be revoked by the
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state board of accountancy
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an auditor's independence would not be considered impaired if he had
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owned common stock of the audit client but sold it before the company became a client
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AICPA Rule 101 is
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Independence
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AICPA Rule 102 is
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Integrity and objectivity, required of public CPA's
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AICPA 201 is
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general GAAS standards, competence
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AICPA 202
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compliance with GAAS standards
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AICPA 203
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GAAP departure, unless misleading
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AICPA 301
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confidential client info, disclosure
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AICPA 302
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contingent fees
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AICPA 501
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discretitable acts, required of all public CPA's
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AICPA 502
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Solicitation
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AICPA 503
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Referral fees
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AICPA 505
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Organization type and name
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