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488 Cards in this Set
- Front
- Back
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TRUE or FALSE: The auditor is responsible for detecting theft or fraud.
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-FALSE, the auditor is NOT responsible for detecting theft or fraud. Instead, the auditor provides reasonable assurance that the financial statements are not materially misstated.
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The __________ the auditor is hired prior to the Balance Sheet Date, the better for audit planning and efficiency.
A. later B. earlier C. Neither A or B |
-B. earlier
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TRUE or FALSE: Audit procedures MUST be carried out at interim dates if Control Risk for the accounts/transactions is HIGH.
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-FALSE, Audit procedures CAN be carried out at interimdates if Control Risk for the accounts/transactions is LOW.
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In planning the Scope and Objectives of the audit, the auditor should use __________ __________. (P-S)
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-[P]rofessional [S]kepticism
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The auditor should use Professional Skepticism in planning the __________ and __________ of the audit.
A. Purpose; Rationale B. Procedures; Timing C. Scope; Objectives |
-C. Scope; Objectives
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TRUE or FALSE: When planning an audit, the role and involvement of the client's Internal Auditors doesn't matter - the external auditor must approach their client with full skeptism.
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-FALSE, the Role and involvement of client’s Internal Auditors should be decided.
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TRUE or FALSE: When planning an audit, analytical procedures performed compares actual vs. forecasted data.
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-TRUE
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If audit procedures are carried out by an auditor's assistants, the auditor should ask himstelf if the procedures were adequately performed? To get that answer, the auditor should review the __________. Once the answer is obtained, the auditor should verify that the results are consistent with the __________.
A. Working Papers; Audit Report B. Assistant's Track Record; Working Papers C. Independence Disclosure of the Assistant; Control Log D. Control Log; Audit Report |
-A. Working Papers; Audit Report
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When planning an audit, an audit strategy should be mapped out to address the __________ and the __________ of the audit.
A. Purpose; Rationale B. Procedures; Timing C. Scope; Objectives D. Reporting Objectives; Scope |
-D. Reporting Objectives; Scope
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The two foundations of GAAS are __________ and ___________.
A. Professional Qualifications; Judgment B. Materiality; Audit Risk C. Training; Proficiency D. Independence; Professional Care |
-B. Materiality; Audit Risk
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The two foundations of GAAS, Materiality and Audit Risk, measure the Auditor's __________ and __________.
A. Professional Qualifications; Judgment B. Materiality; Audit Risk C. Training; Proficiency D. Independence; Professional Care |
-A. Professional Qualifications; Judgment
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What are the three standards of GAAS? (G-F-R)
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-[G]eneral Standards
-Standards of [F]ieldwork -Standards of [R]eporting |
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Name the Three General Standards which fall under GAAS. (T-I-P)
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-[T]raining and Proficiency
-[I]ndependence -[P]rofessional Care |
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Name the Three Standards of Fieldwork which fall under GAAS. (P-I-E)
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-[P]lanning and Supervision
-[I]nternal Control -[E]vidence |
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Name the Four Standards of Reporting which fall under GAAS. (C-D-O-G)
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-[C]onsistency
-[D]isclosures -[O]pinion -[G]AAP |
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The following falls under __________, one of the General Standards (TIP) of GAAS.
1. Education and Experience A. Training and Proficency B. Independence C. Professional Care |
-A. Training and Proficency
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The following falls under __________, one of the General Standards (TIP) of GAAS:
1. In Fact and Appearance 2. Honest 3. No Direct Financial Interest 4. No Indirect Material Financial Interest A. Training and Proficency B. Independence C. Professional Care |
-B. Independence
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The following falls under __________, one of the General Standards (TIP) of GAAS:
1. Technical abilities mirror those held by peers in the profession 2. Follow GAAS Standards 3. Obtain a Reasonable Level of Assurance 4. Maintain Reasonable Level of Skepticism 5. Supervise Audit Staff 6. Review judgement at every level. A. Training and Proficency B. Independence C. Professional Care |
-C. Professional Carea
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The following falls under __________, one of the Standards of Fieldwork (PIE) of GAAS:
1. Audit should be adequately-planned and the work of any supporting staff should be supervised. A. Planning and Supervision B. Internal Control C. Evidence |
-A. Planning and Supervision
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The following falls under __________, one of the Standards of Fieldwork (PIE) of GAAS:
1. Auditor must understand the entity and its internal control environment. A. Planning and Supervision B. Internal Control C. Evidence |
-B. Internal Control
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The following falls under __________, one of the Standards of Fieldwork (PIE) of GAAS:
1. Auditor must obtain sufficient & appropriate audit evidence. A. Planning and Supervision B. Internal Control C. Evidence |
-C. Evidence
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The following falls under __________, one of the Standards of Reporting (CDOG) of GAAS.
1. __________ is Implied. Report only refers to __________ if accounting principles have not been __________ applied period-to-period. A. Consistency B. Disclosures C. Opinion D. GAAP |
-A. Consistency
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The following falls under __________, one of the Standards of Reporting (CDOG) of GAAS.
1. Adequacy is Implied. Report only refers to __________ if they are NOT adequate. A. Consistency B. Disclosures C. Opinion D. GAAP |
-B. Disclosures
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The following falls under __________, one of the Standards of Reporting (CDOG) of GAAS.
1. Audit __________ is based on Financial Statements as a whole. A. Consistency B. Disclosures C. Opinion D. GAAP |
-C. Opinion
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The following falls under __________, one of the Standards of Reporting (CDOG) of GAAS.
1. Audit Report MUST state whether the financial statements have been prepared in accordance with __________. A. Consistency B. Disclosures C. Opinion D. GAAP |
-D. GAAP
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TRUE or FALSE: Consistency, one of the four Standards of Reporting under GAAS, is implied. Report only refers to consistency is accounting principles have NOT been consistently applied period-to-period.
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-TRUE
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TRUE or FALSE: In regards to disclosures, one of the four Standards of Reporting under GAAS, Adequacy is NOT implied - it must be explicitly written.
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-FALSE, Adequacy is Implied. Report only refers to disclosures if disclosures are NOT adequate.
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TRUE or FALSE: The audit Opinion, one of the four Standards of Reporting under GAAS, is based on Financial Statements as a whole.
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-TRUE
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TRUE or FALSE: The Audit report need not state whether the financial statements have been prepared in accordance with US GAAP, one of the four Standards of Reporting under GAAS.
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-FALSE, the Audit Report MUST state whether the financial statements have been prepared in accordance with US GAAP.
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The following falls under __________, one of the Standards of Fieldwork (PIE) of GAAS:
1. Auditor must obtain sufficient & appropriate audit evidence. A. Planning and Supervision B. Internal Control C. Evidence |
-C. Evidence
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Prior to Accepting and Audit Engagement, you should do three things. What are they? (F-3-P)
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-Review client's [F]inancial Statements
-Speak to [3]rd Parties -Contact [P]redecessor Auditor to evaluate whether engagement should be accepte |
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The following falls under __________, one of the Standards of Reporting (CDOG) of GAAS.
1. __________ is Implied. Report only refers to __________ if accounting principles have not been __________ applied period-to-period. A. Consistency B. Disclosures C. Opinion D. GAAP |
-A. Consistency
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The following falls under __________, one of the Standards of Reporting (CDOG) of GAAS.
1. Adequacy is Implied. Report only refers to __________ if they are NOT adequate. A. Consistency B. Disclosures C. Opinion D. GAAP |
-B. Disclosures
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The following falls under __________, one of the Standards of Reporting (CDOG) of GAAS.
1. Audit __________ is based on Financial Statements as a whole. A. Consistency B. Disclosures C. Opinion D. GAAP |
-C. Opinion
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The following falls under __________, one of the Standards of Reporting (CDOG) of GAAS.
1. Audit Report MUST state whether the financial statements have been prepared in accordance with __________. A. Consistency B. Disclosures C. Opinion D. GAAP |
-D. GAAP
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TRUE or FALSE: Consistency, one of the four Standards of Reporting under GAAS, is implied. Report only refers to consistency is accounting principles have NOT been consistently applied period-to-period.
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-TRUE
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TRUE or FALSE: In regards to disclosures, one of the four Standards of Reporting under GAAS, Adequacy is NOT implied - it must be explicitly written.
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-FALSE, Adequacy is Implied. Report only refers to disclosures if disclosures are NOT adequate.
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TRUE or FALSE: The audit Opinion, one of the four Standards of Reporting under GAAS, is based on Financial Statements as a whole.
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-TRUE
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TRUE or FALSE: The Audit report need not state whether the financial statements have been prepared in accordance with US GAAP, one of the four Standards of Reporting under GAAS.
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-FALSE, the Audit Report MUST state whether the financial statements have been prepared in accordance with US GAAP.
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Prior to Accepting and Audit Engagement, you should do three things. What are they? (F-3-P)
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-Review client's [F]inancial Statements
-Speak to [3]rd Parties -Contact [P]redecessor Auditor to evaluate whether engagement should be accepte |
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TRUE or FALSE: If the client does not give you permission to contact the predecessor auditor, you should abide by the clients decision and perform more substantive testwork.
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-FALSE, No Permission = No Engagement!
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What are some questions that you should typically ask the predecessor auditor? (A-S-I-I)
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-Why the [A]uditor Change?
-Any [S]erious Discussions with Audit Committee? -How is Management [I]ntegrity? Disagreements? -How was [I]nternal Control? |
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TRUE or FALSE: If there is a scope limitation, whereby there is limited evidence available, you should make a note of it and disclaim that you are not responsible for potential mistatement, and perform more substantive testwork.
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-FALSE, Limited evidence available = No Engagement!
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TRUE or FALSE: The Audit Engagement Agreement need not be written.
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-FALSE, it MUST be written!
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The Audit Engagement Agreement covers all 8 of the following: (O-L-RA-RM-E-F-C-I)
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-[O]bjectives of Engagement
-[L]imitations of Engagement -[R]esponsibilities of [M]anagement -[R]esponsibilities of [A]uditor -[E]xpectations of Access to Records -[F]inancial Statements (and Disclosures) are Management's Responsibilities -[C]ompliance with Laws -[I]nternal Control |
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The Audit Engagement Agreement covers the Responsibilities of Management. Specifically, what is the primary Responsibility of Management?
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-to provide written assertions
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The Audit Engagement Agreement covers the Responsibilities of the Auditor Specifically, what is the primary Responsibility of the Auditor?
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-Limited Error/Fraud Responsibility
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TRUE or FALSE: The Audit Committee is NOT part of the Board of Directors.
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-FALSE, it is part of the Board of Directors.
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TRUE or FALSE: Corporate Officers are NOT allowed on the Audit Committee.
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-TRUE
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TRUE or FALSE: The Audit Committee is responsible for hiring the auditor.
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-TRUE
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The Audit Committee must agree with the auditor on the following: (R-F-T-P)
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-[R]esponsibility of the Parties
-Audit [F]ee -[T]iming of the Audit -Audit [P]lan |
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TRUE or FALSE: The Audit Committee acts as a liason between the auditor and the board.
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-TRUE
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The Auditor communicates concerns about the following to the Audit Committee: (I-E-F-I)
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-[I]nternal Control Deficiencies
-[E]rrors -[F]raud -[I]llegal Activities |
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TRUE or FALSE: In determining Materiality, Qualitiative measuresments are NOT taken into consideration - only Quantitative.
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-FALSE, Materiality includes both Quantitative and Qualitative Measurements.
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TRUE or FALSE: Materiality is only measured on the Financial Statement level - not the Transactional level.
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-FALSE, Materiality is measured on both the Transactional OR the Financial Statement level.
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TRUE or FALSE: The audit plan should be based on the LARGEST misstatement that could be material to Financial Statements.
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-FALSE, the audit plan should be based on the SMALLEST missatement that could be material to Financial Statements.
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TRUE or FALSE: Materiality is based on the Auditor's Judgment.
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-TRUE
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TRUE or FALSE: In determining materiality, the Auditor must consider the needs of users.
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-TRUE
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TRUE or FALSE: An audit should be planned to allow "Reasonable Assurance" than no misstatements exist, both material and non material.
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-FALSE, an audit should be planned to allow "Reasonable Assurance" than no MATERIAL misstatements exist. Non material misstatements do not matter; hence they are NOT material.
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As acceptable Materiality level Decreases, the auditor must find _________ misstatements, which include __________ individual account testing. This will include __________ testing closer to the Balance sheet Date.
A. Larger; Less: More B. Smaller; More; More C. Larger; More; Less D. Smaller; Less; Less |
-B. Smaller; More; More
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Audit Risk is comprised of the the following three variables: (D x I x C)
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-Detection Risk
-Inherent Risk -Control Risk |
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The risk that material mistaktes, errors, omissions, or fraud will result in an inaccurate audit report is known as __________.
A. Detection Risk B. Audit Risk C. Inherent Risk D. Control Risk |
-B. Audit Risk
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TRUE or FALSE: Audit Risk is based on the 'make-up' and 'climate' at the client as a whole.
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-FALSE, Audit Risk is based on the auditor's judgment.
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Audit Risk is a __________ type of measurement.
A. Qualitative B. Quantitative C. Qualitative and Quantitative D. Qualitative or Quantitative |
-C. Qualitative and Quantitative
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Control Risk addresses the question, __________.
A. Will Internal Control detect error or fraud? B. Which transactions have a higher level of risk? C. Will the auditor fail to detect a material misstatement? |
-A. Will Internal Control detect error or fraud?
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Inherent Risk addresses the question, __________.
A. Will Internal Control detect error or fraud? B. Which transactions have a higher level of risk? C. Will the auditor fail to detect a material misstatement? |
-B. Which transactions have a higher level of risk?
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Detection Risk addresses the question, __________.
A. Will Internal Control detect error or fraud? B. Which transactions have a higher level of risk? C. Will the auditor fail to detect a material misstatement? |
-C. Will the auditor fail to detect a material misstatement?
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TRUE or FALSE: The auditor cannot control Control Risk.
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-TRUE
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TRUE or FALSE: The auditor cannot control Inherent Risk.
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-TRUE
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TRUE or FALSE: The auditor cannot control Detection Risk.
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-FALSE, the auditor CAN control Detection Risk.
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The auditor can control Detection Risk by performing __________ testing at year-end, as well as __________ the amount of substantive testing.
A. More; Decreasing B. Less; Increasing C. More; Increasing D. Less; Decreasing |
-C. More; Increasing
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If you have a less acceptable level of Detection Risk, you should run _________ substantive tests.
A. More B. Less C. Neither |
-A. More
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If you have a more acceptable level of Detection Risk, you should run _________ substantive tests.
A. More B. Less C. Neither |
-B. Less
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Running __________ substantive tests = Less Audit Risk.
A. More B. Less C. Neither |
-A. More
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Running __________ substantive tests = More Audit Risk.
A. More B. Less C. Neither |
-B. Less
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TRUE or FALSE: In regards to Quantitative Measuremnts, Detection, Inherent, and Control Risk can all be measured in terms of percentages.
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-TRUE
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TRUE or FALSE: In regards to Non-Quantitative Measuremnts, Detection, Inherent, and Control Risk can all be measured in terms of percentages.
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-FALSE, Detection, Inherent, and Control Risk can all be measured in terms of Acceptable Ranges.
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TRUE or FALSE: It is the auditor's responsiblity to FIND and PREVENT fraud and illegal acts.
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-FALSE, it is management's responsibilty.
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TRUE or FALSE: It is the auditor's responsibility to ASSESS THE RISK that such things will lead to material misstatements.
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-TRUE
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It is the auditor's responsibility to design the audit to ________ fraud.
A. Prevent B. Provide reasonable assurance against C. Locate D. Provide absolute assurance against |
-B. Provide reasonable assurance against
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It is the auditor's responsibility to design the audit to provide reasonable assurance against illegal acts that __________ affect the F/S.
A. Directly B. Indirectly C. Both Directly and Indirectly D. Adversely |
-A. Directly
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TRUE or FALSE: If the auditor cannot provide reasonable assurance against illegal acts that directly affect the F/S, INCLUDING FRAUD, the auditor should seek to understand the situation and whether it affects the Financial Statements.
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-FALSE, when the auditor cannot provide reasonable assurance against illegal acts that directly affect the F/S, the auditor should seek to understand the situation and whether it affects the Financial Statements; however, this DOES NOT INCLUDE FRAUD!
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It is the auditor's responsibility to design the audit to provide reasonable assurance against __________ errors that have been detected.
A. Immaterial B. Material C. Both Material and Immaterial D. All |
-B. Material
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TRUE or FALSE: It is the auditors' responsibility to report fraud to the audit committee, but only when the fraud is material.
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-FALSE, all fraud must be reported to the audit committee.
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TRUE or FALSE: Minor fraud by low-level employees does not need to be reported to the audit committee.
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-TRUE
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TRUE or FALSE: Minor fraud by management must be reported to the audit committee.
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-TRUE
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The auditor is responsible for required inquiries and procedures, including __________.
A. Management Inquiries B. Analytical Procedures C. Discussions with Audit Personnel About D. Fraud leading to Material Misstatement E. Both A and D F. Both A, B, and D G. All of the Above |
-G. All of the Above
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Misappropriation is when fraud is __________.
A. Material B. Committed by Management C. Intentional D. Unintentional |
-C. Intentional
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Missappropriation (Intentional Fraud) is born out of: (R-I-O)
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-[R]ationalization
-[I]ncentive -[O]pportunity |
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Fraud when the errors are unintentional are considered _________.
A. Misappropriation B. Misintrepretation C. A mistake D. All of the Above |
-B. Misintrepretation
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An example(s) of an audit red flag(s) is/are __________.
A. Management compensation tied to stock. B. Aggressive financial forecasting. C. Former auditor disagreed with managements. D. Records not available for audit. E. Both A and D F. Both A, B, and D G. All of the Above |
-G. All of the Above
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Current audit procedures __________ if red flags exist.
A. MAY need to be reconsidered B. MUST be changed |
-A. MAY need to be reconsidered
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TRUE or FALSE: If an auditor observes in similar situations, large sums of client cash on hand or earnings growth without cash flow, this is NOT a fraud risk factor because these examples do not necessarily mean that there is a material weakness in internal control.
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-FALSE, these are BOTH audit risk factors!
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TRUE or FALSE: A fraud risk factor does NOT neccessarily mean that there is a material weakness in internal control.
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-TRUE
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TRUE or FALSE: Internal control anaylsis can result in the conclusion that Internal Control is weak, but it PROBABLY WON'T identify illegal acts.
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-TRUE
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TRUE or FALSE: A fraud risk factor leads to an auditor taking action.
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-TRUE
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In taking action against a fraud risk factor, the auditor should __________.
A. Strive to make audit engagement procedures more patterned and less predictible. B. Strive to make audit engagement procedures less patterned and less predictible. C. Re-evaluates management's application of accounting procedures. D. Finds and assigns audit personnel with relevant skills in this area. E. Both B, C, and D F. All of the Above |
-E. Both B, C, and D
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In regards to fraud risk factors, the auditor should document __________.
A. Any fraud risks identified that could lead to material misstatement. B. All fraud risks, even if immaterial. C. Audit procedures performed to assess risks. D. Nature of communication made to audit committee and company management. E. Disclosure to third parties regarding fraud which is NOT normally the auditor's responsibly. F. Disclosure to third parties regarding fraud which IS normally the auditor's responsibility. G. Both B, C, D, and E H. Both B, C, and F I. Both A, C, D, and E J. Both A, D, and E K. All of the Above |
-I. Both A, C, D, and E
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Fraud by management should normally be reported to the __________.
A. SEC B. Audit Committee C. All of the Above |
-B. Audit Committee
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SOX created the __________.
A. SEC B. IRS C. PCAOB D. IFRS |
-C. PCAOB
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TRUE or FALSE: SOX designates officer responsibility for internal control.
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-TRUE
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Per SOX requirements, it is now the officer's responsibility to disclose significant internal control weaknesses to the __________.
A. Auditor B. Audit Committee C. Board of Directors D. SEC E. Both A and B F. Both A, B, and C G. All of the Above |
-E. Both A and B
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TRUE or FALSE: Per SOX requirements, it is now the officer's responsibility to disclose ANY level of fraud discovered by EMPLOYEES with internal control responsibilities.
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-TRUE
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What is the proper order of the Authoritative Literature Heirarchy, from most authoritative to least authoritative?
-Auditing Intepretations, AICPIA Guides & SOPS -Industry Articles -Statements on Auditing Standards (SAS) |
1. Statements on Auditing Standards (SAS)
2. Auditing Interpretations, AICPA Gudies & SOPS 3. Industry Articles (no authority) |
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In regards to Quality Control for CPA Firms, firm __________ exhibits quality and leads by examples and sets the tone for the organization.
A. Internal Controls B. Heirarchy C. Leadership D. Documents |
C. Leadership
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To ensure good Quality Control for CPA Firms, firms should __________.
A. Monitor and document that its policies and procedures are being followed. B. Have relevant ethical requirements. C. Have competent and ethical personnel. D. Ensure that their engagements are performed, supervised, and reviewed in accordance with professional standards and regulations. E. All of the Above |
-E. All of the Above
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o ensure good Quality Control for CPA Firms, acceptance and continuance of client engagements should continue to be evaluated for __________. (CI - AC- L)
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-[C]lient [I]ntegrity (Does management have integrity?)
-[A]uditor [C]ompetency (Is the CPA firm competent enough to take the engagement?) -[L]egality |
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TRUE or FALSE: SSARS, the Statements on Standards for Accounting and Review Services to be followed, must be followed by BOTH public and non-public entities.
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-FALSE, SSARS is only applicable for non-public entities.
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TRUE or FALSE: Independence is NOT required for compilations.
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-TRUE
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TRUE or FALSE: No internal control work is allowed for compilations.
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-TRUE
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TRUE or FALSE: No assurance is given for compilations.
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-TRUE
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When preparing unaudited Financial Statements to a non-public company to a non-public company to a client or third party, the CPA firm should comply with the provisions of __________.
A. SSARS B. SOX C. US GAAP D. AR 100 |
-A. SSARS (Statements on Standards for Accounting and
Review Services) |
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TRUE or FALSE: When performing compilation services, the CPA firm need not understand the client industry.
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-FALSE, the CPA firm MUST understand the client industry.
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A CPA firm should comply with the provisions of SSARS, the Statements on Standards for Accounting and Review Services, for BOTH Compilation Services and Review Services.
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-TRUE
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TRUE or FALSE: A CPA Firm's Review Services provide positive assurance.
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-FALSE, review services provide NEGATIVE assurance.
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TRUE or FALSE: Like compilation reviews, independence is NOT required for reviews.
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-FALSE, per AR 100, independence IS required for reviews.
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No Internal Control work is allowed for a CPA firm performing __________.
A. Review Services B. Compilation Services C. Neither A or B D. Both A and B |
-D. Both A and B
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Per the requirement for Independence which is addressed in AR 100, a CPA firm performing __________ services MUST perform analytical procedures.
A. Review B. Compilation C. Neither A or B D. Both A and B |
A. Review Services
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If a CPA firm performs review services for a client, no __________ __________ financial interest is allowed and no __________ __________ is allowed.
A. Immaterial; Indirect; Material; Direct B. Material; Indirect; Immaterial; Direct |
-B. Material; Indirect; Immaterial; Direct
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TRUE or FALSE: When performing review services, a CPA firm MUST understand the client industry.
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-TRUE
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TRUE or FALSE: When provide attestation services for a client, a CPA firm need not be independent.
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-FALSE, independence is required!
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TRUE or FALSE: When performing attestation services for a client, the CPA's goal is to express a conclusion about an assertion.
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-TRUE, the CPA should be asking himself, 'Is the client compliant with laws?'
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TRUE or FALSE: If a CPA firm is to provide consulting services, independence is NOT required.
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-TRUE
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When issuing prospective financial statements, the report is __________ to __________ users.
A. Restricted; Specified B. Unrestricted; All C. Restricted; All D. Unrestricted; Specified |
-A. Restricted; Specified
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TRUE or FALSE: When issuing prospective financial statements, agreed-upon procedures are implemented.
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-TRUE
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Internal Control provides reasonable assurance that __________.
A. Material Misstatements will be prevented. B. Reliability & Integrity of Financial Statements will be preserved. C. Assets are protected against misuse. D. Both B and C E. All of the Above |
E. All of the Above
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TRUE or FALSE: Examination of Internal Control by management is REQUIRED under SOX.
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-TRUE
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In their examination of Internal Control which is required by SOX, the auditor must __________.
A. Disclose deficiencies B. Assess internal controls C. Certify Financial Statements D. All of the Above E. None of the Above |
E. None of the Above
It is MANAGEMENT'S responsibility to do assess internal controls and certify financial statements. Further, it is the CEO/CFO's responsibility to disclose any deficiencies. |
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TRUE or FALSE: Internal Controls has a parallel relationship with substantive testing.
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-FALSE, it has an INVERSE relationship with substantive testing, whereby:
Stronger Internal Controls = Less Testing Needed Weaker Internal Controls = More Testing Needed |
|
|
What are the three objectives of internal control? (R-O-C)
|
-[R]eliability of Financial Reporting
-[O]perational Efficiency/Effectiveness -[C]ompliance with Law and Regulations |
|
|
What are the five components of internal control? (C-R-I-C-M)
|
-[C]ontrol Environment
-[R]isk Assessment -[I]nformation and Communication -[C]ontrol Activities -[M]onitoring |
|
|
In assessing the control environment of an entity, which of the following does not belong?
1. The Control Environment sets the tone for the entire company. 2. How are Management Integrity/Ethics? 3. Is Management Competent? 4. Healthy Organizational Structure? 5. Appropriate HR Policies? 6. Authority/Responsibility Assignments? 7. What is Managements’ Style? 8. Riskier with a dominant, aggressive individual(s) 9. Are the Board/Audit Committee Actively Involved? |
-None of the Above - they all belong!
|
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The Risk of Material Misstatement (ROMM) determines __________ level of Detection Risk.
A. Minimum B. Maximum C. Acceptable D. Quantifiable |
C. Acceptable
|
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Detection Risk determines the __________, __________, and __________ of audit procedures. (N-T-E)
|
-[N]ature
-[T]iming [E]xtent |
|
|
In making a risk assessment of an entity, a firm that experiences rapid growth is not a risky sign because the economic markets are very volatile and unpredictable.
|
-FALSE, in a determination of a firm's risk assessment, rapid growth is risky.
|
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|
In making a risk assessment of an entity, the auditor do three things. What are they? (I-E-A)
|
-[I]dentify Risk?
-[E]stimate Significance? -[A]ssess Occurrence Likelihood? |
|
|
In making a risk assessment of an entity, the auditor should inquire where there were any major changes to the following. Which one(s) do not belong on this list?
1. Operations 2. Personnel 3. Systems 4. IT 5. Products 6. Corporate Organization 7. Foreign Ops |
-None of the Above - they all belong!
|
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|
When Control Risk is assessed to be at a __________, Internal Control testing __________ performed.
A. Maximum; is B. Below Maximum; is not C. Maximum; is not D. Below Maximum; is E. Both C and D F. None of the Above |
E. Both C and D
|
|
|
TRUE or FALSE: The auditor evaluates Control Risk based on tests, and adjusts substantive tests accordingly.
|
-TRUE
Weaker Internal Control = More Substantive Testing Stronger Internal Control = Less Substantive Testing |
|
|
Control Activities should include each of the following, except:
1. Performance Reviews 2. Information Processing 3. Physical Controls 4. Segregation of Duties A. Performance Reviews B. Information Processing C. Physical Controls D. Segregation of Duties E. None of the Above |
E. None of the Above
|
|
|
In order to assess the information and communication of a firm, the auditor needs to understand which of the following?
1. Major transaction classes 2. Transaction initiation 3. Support records/documents 4. Transaction processing 5. Financial Statement Internal Reporting process 6. Financial Statement External Reporting process |
-All of the Above!
|
|
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TRUE or FALSE: An independent auditor need not document their understanding of internal controls - as long as the auditor can gain confidence, that is sufficient.
|
-FALSE, Auditor MUST document understanding of Internal Control via Memos, Flowcharts (easy to follow) and Questionnaires (easy to complete)
|
|
|
Understanding Intercnal Control allows the auditor to determine the __________ of planned audit procedures. (N-E-T)
|
-[N]ature
-[E]xtent -[T]iming |
|
|
What are six questions that the auditor should be questioning in determining an engagement's ROMM? (M-A-R-C-D-T)
|
-Did [M]anagement communicate their responsibilities?
-Measured [A]ppropriately? -Were all transactions [R]ecorded? -Recorded in [C]orrect Period? -Presented and [D]isclosed Properly? -Were they recorded [T]imely? |
|
|
TRUE or FALSE: In testing Internal Controls, the auditor needs absolute insurance that controls are functioning as designed and effective.
|
-FALSE, the auditor needs REASONABLE ASSURANCE.
|
|
|
Internal Control Testing should be as strong as (I-R-O-N) so that nothing gets past them. What does IRON stand for?
|
-[I]nquiry - Interview company personnel.
-[R]e-performance - Can it be replicated? [O]bservation - Watch the control be applied. -I[N]spection - dig into the details/documents. |
|
|
TRUE or FALSE: If the results of testing internal controls are as expected, substantive procedures should be adjusted for the level of materiality.
|
-FALSE, if the results of testing internal controls are as expected, substantive procedures do not need to be adjusted.
|
|
|
Controls tested by auditor in a prior eyar can be used in the current year's audit assuming they are re-tested every __________ year.
A. Second B. Third C. Fourth D. Never, controls tested by auditor in PY can never be used by another auditor. |
-B. Third
Exception: This is not allowed if the control has CHANGED since the last audit. |
|
|
If Internal Controls are deficient, Control Risk __________.
A. Increases B. Decreases C. Neither D. Contingent on the Circumstances |
-A. Increases
|
|
|
If Internal Controls are deficient, the scope of substantive procedures __________.
A. Increases B. Decreases C. Neither D. Contingent on the Circumstances |
-A. Increases
|
|
|
If Internal Controls are deficient, Detection Risk __________.
A. Increases B. Decreases C. Neither D. Contingent on the Circumstances |
-B. Decreases
|
|
|
TRUE or FALSE: If there a reasonable possibility that a material misstatement in the financial statements would not be found, this is NOT a material weakness.
|
-FALSE, this is a material weakness.
|
|
|
TRUE or FALSE: If there is a more than a remote chance of a material misstatement occurring, this IS a material weakness.
|
-TRUE
|
|
|
If controls are deemed reliable, control risk will be ________; acceptable detection risk will be __________, and the auditor should __________ substantive procedures for the engagement.
A. Higher; Lower; Stop B. Lower; Higher; Continue C. Lower; Higher; Stop D. Lower; Lower; Continue |
-B. Lower; Higher; Continue
|
|
|
If controls are deemed NOT reliable, control risk will be ________; acceptable detection risk will be __________, and the auditor should __________ substantive procedures for the engagement.
A. Higher; Lower; Stop B. Lower; Higher; Continue C. Lower; Higher; Stop D. Lower; Lower; Continue |
-A. Higher; Lower; Stop
|
|
|
__________ tests the __________ assertion.
A. Vouching; Completeness B. Tracing; Existence C. Tracing; Completeness D. Vouching; Existence E. Both A and B F. Both C and D |
-F. Both C and D
Tracing = Completeness Vouching = Existence Think both T before V and C before E in alphabet! |
|
|
TRUE or FALSE: Recording of Assets, Custody of Assets, and Authorization of Asset Disbursement should be handled by the same department.
|
-FALSE, each should be segregated duties.
Tip - Someone in charge of petty cash should not also control the petty cash records. |
|
|
TRUE or FALSE: If an auditor is trying to confirm a segregation of duties and supporting audit evidence does not exist, the auditor may use and RELY on observation and inquiry.
|
-TRUE
|
|
|
TRUE or FALSE: Accounting should be segregated from Production.
|
-TRUE
|
|
|
TRUE or FALSE: Employees who prepare vouchers/invoices should also be signing the corresponding checks.
|
-FALSE, Employees who prepare vouchers/invoices should not also have the authority to SIGN CHECKS!
Tip – Remember this as an underlying theme with Segregation of Duties – authority to make a payment should not also lie in the hands of those creating invoices/vouchers. Why? People commit fraud by setting up fake companies and basically paying themselves. |
|
|
TRUE or FALSE: Employees who have custody of assets should not also RECORD those assets.
|
-TRUE
Tip - Someone in charge of petty cash should not also control the petty cash records. |
|
|
TRUE or FALSE: Treasury Department (custodians) should NOT have record keeping duties.
|
-TRUE
Tip - They control assets and should not be able to adjust any recording of those assets. |
|
|
TRUE or FALSE: Good internal controls will stop collusion or bad judgment.
|
-FALSE, controls cannot stop collusion or bad judgment.
(This is a control limitation) |
|
|
TRUE or FALSE: Management can override controls.
|
-TRUE
(This is a control limitation) |
|
|
Cost vs. Benefit relationship of Internal Control is an example of an __________.
A. Event from Collusion B. Audit Red Flag C. Incentive for Fraud D. Control Limitation |
-D. Control Limitation
|
|
|
If there is a __________ possibility that controls will not prevent a material misstatement, there is a material weakness.
A. Remote B. Reasonable Possibility C. Possibility |
-B. Reasonable Possibility
|
|
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TRUE or FALSE: If there is a material weakness, the auditor must provide management with a written report.
|
-TRUE
|
|
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TRUE or FALSE: If there are no material weaknesses, the auditor need not provide a report.
|
-FALSE, there must be a report declaring that no material weaknesses
|
|
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A report declaring that no material weaknesses were found is __________.
A. Not Allowed B. Allowed C. Recommended D. Not Recommended |
-B. Allowed
|
|
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TRUE or FALSE: Previous weaknesses reported that still exist should be reported again.
|
-TRUE
|
|
|
A report on material weaknesses should be reported no later than _________ days _________ the audit report release date.
A. 60; After B. 60; Before C. 30; After D. 30; Before |
-A. 60; After
|
|
|
If one or more material weakness is uncorrected at year end, an __________ on internal control must be given.
A. Qualified Opinion B. Unqualified Opinion C. Adverse Opinion D. Disclaimer of Opinion |
-C. Adverse Opinion
|
|
|
A __________ adversely affects the company's ability to report Financial Statements in accordance with GAAP.
A. Material Weakness B. Significant Deficiency C. Control Deficiency |
-B. Significant Deficiency
|
|
|
A _________ is when there is "more than a remote likelihood" of material misstatement by "more than an inconsequential amount."
A. Material Weakness B. Significant Deficiency C. Control Deficiency |
-B. Significant Deficiency
|
|
|
TRUE or FALSE: If there is a significant deficiency in internal controls, a written report to management is required.
|
-TRUE
|
|
|
When using the work of third parties, you should ask yourself whether they are __________.
A. Competent B. Objective C. Profitable D. Both A and B |
-D. Both A and B
|
|
|
TRUE or FALSE: When relying on an internal auditor, the external auditor should treat the internal auditor as if they are relying on the work of a third party.
|
-TRUE
|
|
|
If an internal auditor reports to the audit committee, they are __________ objective, meaning you can place __________ reliance on them.
A, More; Less B. More; More C. Less; More D. Less; Less |
-B. More; More
|
|
|
If an internal auditor reports to a manager, they are __________ objective, meaning you can place __________ reliance on them.
A, More; Less B. More; More C. Less; More D. Less; Less |
-D. Less; Less
|
|
|
TRUE or FALSE: The auditor needs to understand the role of Internal Auditors within the organization because their work affects the audit plan.
|
-TRUE
|
|
|
TRUE or FALSE: Responsibility for judgments about materiality or appropriateness of entries cannot be shared with third parties; however, they may be shared with internal auditors if necessary.
|
-FALSE, it CANNOT be shared with third parties LIKE internal auditors.
|
|
|
TRUE or FALSE: Internal auditors should be asked to do some of the legwork like preparing schedules or running reports.
|
-TRUE
|
|
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TRUE or FALSE: Internal Auditors should NOT be asked to make any decisions or judgments.
|
-TRUE
|
|
|
Auditing internal control in a company's IT environment helps to __________.
A. Plan the rest of he audit. B. Assess the level of detection risk. C. Assess the level of control risk. D. All of the Above E. Both B and C F. Both A and C G. Both A and B |
-F. Both A and C
|
|
|
When auditing IT, there is usually __________ documentation.
A. More B. Less C. None of the Above D. It Depends |
B. Less
|
|
|
In assessing the level of control risk for IT controls, unauthorized access to systems or data is __________ to catch.
A. More Difficult B. Easier C. Neither D. It Depends |
-A. More Difficult
|
|
|
TRUE or FALSE: In assessing the level of control risk for IT controls, systems access controls REMOVES a layer from the separation of duties analysis.
|
-FALSE, system access controls ADDS another layer to separation of duties analysis.
|
|
|
True or FALSE: In assessing the level of control risk for IT controls, the focus should be on SPECIFIC controls.
|
-FALSE, the focus should be on GENERAL controls.
|
|
|
TRUE or FALSE: In assessing the level of control risk for IT controls, appropriate questions would be if there are any new system developments, such as current system changes.
|
-TRUE
|
|
|
TRUE or FALSE: In assessing the level of control risk for IT controls, current system changes include program/data access changes or computer ops control changes.
|
-TRUE
|
|
|
TRUE or FALSE: An audit of IT is NOT required when controls are redundant to another department.
|
-TRUE
|
|
|
TRUE or FALSE: An audit of IT is required when the system doesn't appear to be reliable and testing controls wouldn't be an efficient use of time.
|
-FALSE, an audit of IT is NOT required under this circumstance.
|
|
|
TRUE or FALSE: An audit of IT is required when costs of the IT system seem to be greater than its benefits.
|
-FALSE, an audit of IT is NOT required under this circumstance.
|
|
|
TRUE or FALSE: An audit of IT can be performed without directly interacting with the system if the system isn't too complex/complicated.
|
-TRUE
|
|
|
TRUE or FALSE: An audit of IT can be performed without directly interacting with the system if the system output is detailed enough.
|
-TRUE
|
|
|
A __________ is considered an IT Personnel.
A. Database Admin B. Systems Analyst C. Librarian D. All of the Above |
-D. All of the Above
|
|
|
The duties of a Database Admin include __________.
A. Maintaining the Database B. Restricting User Access C. Being Responsible for IT Internal Control D. Both A and B E. A, B, and C |
-E. A, B, and C
|
|
|
A System Analyst's duties include __________.
A. Recommending changes or upgrades. B. Acting as a liaison between IT and users. C. Being responsible for disk storage. D. Holding system documentation. E. Both A and B F. Both C and D G. Both A and C H. Both B and D I. All of the Above |
-E. Both A and B
|
|
|
A Librarian duties include __________.
A. Recommending changes or upgrades. B. Acting as a liaison between IT and users. C. Being responsible for disk storage. D. Holding system documentation. E. Both A and B F. Both C and D G. Both A and C H. Both B and D I. All of the Above |
-F. Both C and D
|
|
|
__________ Audit Software uses computer speed to quickly sort data and files, which leads to a more efficient audit.
A. Generalized B. Standardized C. Specialized D. Compatible |
-A. Generalized
|
|
|
_________ Audit Software is compatible with different client IT systems.
A. Generalized B. Standardized C. Specialized D. Compatible |
-A. Generalized
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|
|
__________ extracts evidence from client databases.
A. Structured Query Language B. Generalized Audit Software C. Substantive Analytic Procedures D. Electronic Interviewing |
-B. Generalized Audit Software
|
|
|
TRUE or FALSE: Generalized Audit Software tests data without auditor needing to spend time learning the IT system in detail.
|
-TRUE
|
|
|
TRUE or FALSE: Generalized Audit Software can be client tailored or commercially produced.
|
-TRUE
|
|
|
Relational database, Data Definition Language, Data Manipulation Language, and Data Control Language are all subsets of __________.
A. Generalized Audit Software B. Structured Query Language C. Data Control Language D. Test Data Method |
-B. Structured Query Language (SQL)
|
|
|
Under SQL, __________ uses a group of related spreadsheets and retrieves information through Queries.
A. Relational Databases B. Data Definition Language C. Data Manipulation Language D. Data Control Language |
-A. Relational Databases
|
|
|
Under SQL, __________ defines a database gives information on database structure, maintains tables (tables can be joined together), and establishes database constraints.
A. Relational Databases B. Data Definition Language C. Data Manipulation Language D. Data Control Language |
-B. Data Definition Language
|
|
|
Under SQL, __________ maintains and queries a database and retrieves information for the auditor.
A. Relational Databases B. Data Definition Language C. Data Manipulation Language D. Data Control Language |
-C. Data Manipulation Language
|
|
|
Under SQL, __________ controls a database and restricts access.
A. Relational Databases B. Data Definition Language C. Data Manipulation Language D. Data Control Language |
-D. Data Control Language
|
|
|
In Auditing IT Controls, __________ are consistently added to a set of numbers and this makes it more difficult for a fraudulent account to be set up or go undetected.
A. Code Review B. Test Data Method C. Check Digits D. Limit Test |
-C. Check Digits
|
|
|
In Auditing IT Controls, __________ tests a program's processing logic and is advantageous because the auditor gains a greater understanding of the program.
A. Code Review B. Test Data Method C. Check Digits D. Limit Test |
-A. Code Review
|
|
|
In Auditing IT Controls, __________ examines data and looks for reasonableness using upper and lower thresholds (i.e. did anybody score higher than 100%?).
A. Code Review B. Test Data Method C. Check Digits D. Limit Test |
-D. Limit Test
|
|
|
In Auditing IT Controls, a __________ is when an auditor processes data with the client's computer; fake transactions are used to test program control procedures; and each control only needs to be tested ONCE.
A. Code Review B. Test Data Method C. Check Digits D. Limit Test |
-B. Test Data Method
|
|
|
A problem with __________ is that fake data could combine with real data.
A. Code Review B. Test Data Method C. Check Digits D. Limit Test |
-B. Test Data Method
|
|
|
In auditing IT controls, ___________ are used so the auditor can review logs to see which applications were run and by whom.
A. Access Security Software B. Library Management Software C. Operating Systems Logs D. Embedded Audit Modules |
-C. Operating Systems Logs
|
|
|
In auditing IT controls, ___________ are helpful in online environments and restricts computer access. (may use encryption)
A. Access Security Software B. Library Management Software C. Operating Systems Logs D. Embedded Audit Modules |
-A. Access Security Software
|
|
|
In auditing IT controls, ___________ logs any changes to system/applications, etc.
A. Access Security Software B. Library Management Software C. Operating Systems Logs D. Embedded Audit Modules |
-B. Library Management Software
|
|
|
In auditing IT controls, ___________ assists with audit calculations, and enables continuous monitoring in an environment that is changing.
A. Access Security Software B. Library Management Software C. Operating Systems Logs D. Embedded Audit Modules |
-D. Embedded Audit Modules
|
|
|
In auditing IT controls, a weakness of __________ is that it requires implementation into the system design.
A. Access Security Software B. Library Management Software C. Operating Systems Logs D. Embedded Audit Modules |
-D. Embedded Audit Modules
|
|
|
In auditing IT controls, an example of __________, known as SCARF, collects information based on some criteria and can be analyzed at a later time (necessary because the audit environment is continually changing).
A. Access Security Software B. Library Management Software C. Operating Systems Logs D. Embedded Audit Modules |
-D. Embedded Audit Modules
|
|
|
In auditing IT controls, ___________ is an application instruction that gives the auditor control over the application to grab transaction for analysis.
A. Real Time Processing B. Extended Records C. Transaction Tagging D. Audit Hook |
-D. Audit Hook
|
|
|
In auditing IT controls, ___________ is when the auditor 'marks' transactions and traces them through the system
A. Real Time Processing B. Extended Records C. Transaction Tagging D. Audit Hook |
-C. Transaction Tagging
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|
|
In auditing IT controls, ___________ adds audit data to financial records to assist in audit trail creation.
A. Real Time Processing B. Extended Records C. Transaction Tagging D. Audit Hook |
-B. Extended Records
|
|
|
In auditing IT controls, ___________ destroys prior data when updated (aka 'destructive updating'), and requires a well-documented Audit Trail.
A. Real Time Processing B. Extended Records C. Transaction Tagging D. Audit Hook |
-A. Real Time Processing
|
|
|
TRUE or FALSE: Regarding Systems vs. Application outputs in IT Controls, it is sufficient for the auditor to only audit the outputs of a computer system and not the software applications, because the software applications are based on the computer system.
|
-FALSE: If the auditor only audits the outputs of a
computer system and doesn’t also audit the software applications, an error in the applications could be missed. |
|
|
In auditing IT controls, a(n) __________ is software that translates source program (similar to English) into a language that the computer can understand.
A. Parallel Simulation B. Compiler C. Extended Records D. Audit Hook |
-B. Compiler
|
|
|
In auditing IT controls, a(n) __________ is client data that is processed using Generalized Audit Software (GAS) where the sample size can be expanded without significantly increasing the audit cost, and the GAS output can be compared to the client output.
A. Parallel Simulation B. Compiler C. Extended Records D. Audit Hook |
-A. Parallel Simulation
|
|
|
TRUE or FALSE: A majority of the auditor's work in determining an audit opinion involves the collection of evidence.
|
-TRUE
|
|
|
TRUE or FALSE: Evidence consists of client accounting data and supporting documentation (from client and from 3rd parties).
|
-TRUE
|
|
|
TRUE or FALSE: Evidence has a linear relationship with Detection Risk.
|
-FALSE, Evidence has an Inverse relationship with Detection Risk.
|
|
|
The fact that evidence has an inverse relationship with Detection Risk is the one aspect of audit risk that an auditor can control through the N__________, T__________, and E__________ of audit procedures.
|
-[N]ature
-[T]iming -[E]xtent |
|
|
TRUE or FALSE: A high level of detection risk is acceptable.
|
-TRUE
|
|
|
TRUE or FALSE: Regarding the Nature of audit procedures performed for scenarios where there is a higher level of detection risk, more-competent evidence is collected.
|
-FALSE, less-competent evidence is collected.
|
|
|
Regarding the Timing of audit procedures performed for scenarios where there is a higher level of detection risk, __________ testing is acceptable, as it opens the door for incremental audit risk. Further, internal control should be strong, and business and transactions should be relatively stable and predictable.
A. Interim B. Quarterly C. Year End D. Cyclical |
-A. Interim
|
|
|
TRUE or FALSE: Regarding the Extent of audit procedures performed for scenarios where there is a higher level of detection risk, fewer transactions are verified.
|
-TRUE
|
|
|
TRUE or FALSE: A low level of detection risk is acceptable.
|
-TRUE
|
|
|
TRUE or FALSE: Regarding the Nature of audit procedures performed for scenarios where there is a higher level of detection risk, more-competent evidence is collected.
|
-TRUE
|
|
|
Regarding the Timing of audit procedures performed for scenarios where there is a lower level of detection risk, there should be __________ balance testing.
A. Interim B. Quarterly C. Year-End D. Cyclical |
-C. Year-End
|
|
|
TRUE or FALSE: Regarding the Extent of audit procedures performed for scenarios where there is a lower level of detection risk, fewer transactions are verified.
|
-FALSE, MORE transactions are verified.
|
|
|
Auditors need to verify that assets & revenues are not __________, and expenses & liabilities are not __________.
A. Overstated; Understated B. Understated; Understated C. Understated; Overstated D. Overstated; Overstated |
-A. Overstated; Understated
|
|
|
For a "tax-driven" company, auditors need to verify that assets & revenues are not __________, and expenses & liabilities are not __________.
A. Overstated; Understated B. Understated; Understated C. Understated; Overstated D. Overstated; Overstated |
-C. Understated; Overstated
|
|
|
Auditors want evidence that is sufficient in __________; however, Cost vs Benefit is a constraint.
A. Cost B. Demand C. Quantity D. Quality |
-C. Quantity
|
|
|
Auditors want evidence that is __________, where there is a relevant & reliable quality of evidence.
A. Sufficient B. Appropriate C. In Abundance D. Scarce, yet Accurate |
-B. Appropriate
|
|
|
The following is the best order of appropriate audit evidence:
I. Evidence that originates from external parties (i.e. sent directly to auditor; held at client; bank statements, etc) II. Observation by Auditor III. Oral Evidence from Management A. I, II, and III B. III, II, and I C. II, I, and III D. III, I, and II |
-C. II, I, and III
|
|
|
TRUE or FALSE: Internally-prepared documents are more persuasive and credible than 3rd party documents.
|
-FALSE, 3rd party documents are more persuasive and credible than internally-prepared docs.
|
|
|
The following is the best order of appropriate audit evidence:
I. Internally-Prepared Document II. 3rd Party Info Given to Auditor III. Auditor Knowledge IV. 3rd Party Info Given to Client A. IV, III, I, II B. III, II, IV, I C. II, I, IV, III D. I, IV, III, II |
-B. III, II, IV, I
|
|
|
TRUE or FALSE: Substantive Procedures help reduce the risk of Material Misstatements.
|
-TRUE
|
|
|
TRUE or FALSE: In addition to testing the accuracy of Financial Statements and dollar amounts, substantive procedures also test internal controls.
|
-FALSE: substantive procedures only test accuracy of Financial Statements and
dollar amounts – they don’t test Internal Controls. |
|
|
Which Substantive Procedure emphasizes the following?
• Track Financial Statement data to evidence • Did the invoice make it to the Financial Statements? • Are the Financial Statements backed by support/ invoices? A. Trace (Vouch) B. Reconcile C. Analytical Procedures D. Confirm E. Examine |
A. Trace (Vouch)
|
|
|
Which Substantive Procedure emphasizes the following?
• Account for any difference between support and Financial Statements. A. Trace (Vouch) B. Reconcile C. Analytical Procedures D. Confirm E. Examine |
-B. Reconcile
|
|
|
Which Substantive Procedure emphasizes the following?
• Not always appropriate or effective with Substantive Testing A. Trace (Vouch) B. Reconcile C. Analytical Procedures D. Confirm E. Examine |
-C. Analytical Procedures
|
|
|
Which Substantive Procedure emphasizes the following?
• Test of Controls (Inquire, Observe, Inspect, Re-perform) A. Trace (Vouch) B. Reconcile C. Analytical Procedures D. Confirm E. Examine |
-D. Confirm
|
|
|
Which Substantive Procedure emphasizes the following?
• Evidence that supports Management Assertions A. Trace (Vouch) B. Reconcile C. Analytical Procedures D. Confirm E. Examine |
-E. Examine
|
|
|
State the 4 Test of Controls. (I-O-I-R)
|
-[I]nquire
-[O]bserve -[I]nspect -[R]eperform |
|
|
TRUE or FALSE: Auditors should focus first on Income Statement Items, then associated Balance Sheet Accounts.
|
-FALSE, auditors focus first on Balance Sheet Accounts, then associated Income Statement items.
|
|
|
In auditing the cash account, assurance level is __________ and acceptable detection risk is __________.
A. High, High B. High, Low C. Low, Low D. Low, High |
-B. High, Low
|
|
|
In auditing accounts receivable, when acceptable detection risk is set as high, a __________ confirmation is used.
A. Negative B. Positive C. Neutral D. Pervasive |
-A. Negative
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TRUE or FALSE: In auditing accounts receivable, when the acceptable detection risk is high, customers are asked to confirm balances.
|
-FALSE, customer only responds if balance is materially wrong.
|
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|
In auditing accounts receivable, when acceptable detection risk is set as low, a __________ confirmation is used.
A. Negative B. Positive C. Neutral D. Pervasive |
-B. Positive
|
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|
TRUE or FALSE: In auditing accounts receivable, when the acceptable detection risk is low, customers only responds if balance is materially wrong.
|
-FALSE, customers are asked to confirm balances.
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The corresponding income statement account for accounts receivable is __________.
A. Expense B. Revenue C. COGS D. A Temporary Account |
-B. Revenue
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In auditing __________, auditors normally review purchase orders/invoices and confirm with vendors.
A. Accounts Receivable B. Cash C. Inventory D. Accounts Payable |
-D. Accounts Payable
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The corresponding income statement account for accounts payable is __________.
A. Expense B. Revenue C. COGS D. A Temporary Account |
-A. Expense
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In auditing __________, auditors normally examine purchase agreements and look at board minutes to see if it is held as collateral.
A. Accounts Receivable B. Cash C. Inventory D. Accounts Payable |
-C. Inventory
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TRUE or FALSE: Beginning balances should ALWAYS match last year's ending balances.
|
-TRUE
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In auditing __________, auditors should ask themselves whether cash-in transactions made it to the cash receipts journal and whether cash-out transactions got proper approval.
A. Cash B. Accounts Payable C. Additions & Subtractions D. Accounts Receivable |
-C. Additions & Subtractions
|
|
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TRUE or FALSE: If Beginning Balance, Additions & Subtractions are ok, then Ending Balances should also be ok.
|
-TRUE
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TRUE or FALSE: When auditing the statement of cash flows, auditors should foot all balances and trace cash flow items to other financial statements.
|
-TRUE
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When Auditing the statement of cash flows, auditors should check classifications whereby __________, __________, and __________ activities are classified properly. (O - I - F)
|
-[O]perating
-[I]nvesting -[F]inancing |
|
|
When using the __________ method on the statement cash flows, entities must disclose the amount of interest paid, income taxes paid, non-cash transactions, and the cash & cash equivalents definition.
A. Direct B. Indirect C. Temporary D. Neutral |
-B. Indirect
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When using the __________ method on the statement cash flows, entities must disclose the results as if you had used the __________, non-cash transactions, and cash & cash equivalents definition.
A. Direct; Indirect B. Indirect; Direct C. Temporary, Direct D. Neutral, Indirect |
-A. Direct; Indirect
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Subsequent Events & Post-Audit issues on the SCF are notable events that occur __________ balance sheet Date and __________ the audit report is issued.
A. After; After B. Before; After C. Before; Before D. After; Before |
-D. After; Before
|
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TRUE or FALSE: The auditor needs to make inquiries to assess if a subsequent event affects the audit report.
|
-TRUE
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If there was a subsequent event that occurred but the audit report was already issued, the auditor should inquire if the situation was present __________ the balance sheet date.
A. As of B. Before C. After D. Near |
-A. As of
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TRUE or FALSE: If a subsequent event was present as of the balance sheet date and the audit report was already issued, the client MUST ONLY revise the financial statements.
|
FALSE, the client should EITHER issue a disclosure to Financial Statement users AND/OR
revise the Financial Statements. |
|
|
Regarding subsequent events & post-audit issued, regulatory agencies might need to get involved under certain circumstances.
|
-TRUE
|
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TRUE or FALSE; If the auditor discovers that they forgot to perform a substantive procedure, they should determine if other substantive procedures performed will serve as a substitute, otherwise, support for their audit opinion could be jeopardized.
|
-TRUE
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TRUE or FALSE: Analytical procedures are not required when PLANNING the audit, but they are required in REVIEWING the audit.
|
-FALSE, they are ALWAYS required in both stages.
|
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TRUE or FALSE: Analytical procedures are OPTIONAL with substantive tests.
|
-TRUE
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TRUE or FALSE: The use of analytical procedures MUST be documented.
|
-TRUE
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__________ procedures help the auditor determine if management assertions are reasonable and help the auditor develop the audit plan & expectations regarding the financial statements.
A. Substantive B. Analytical C. Test of Controls D. Test of Details |
-B. Analytical
|
|
|
TRUE or FALSE: Analytical procedures focus on internal controls; not on dollar amounts.
|
-FALSE: Analytical Procedures focus is on dollar amounts (i.e.
not on internal controls). |
|
|
__________ procedures perform budget vs. actual comparisons.
A. Substantive B. Analytical C. Test of Controls D. Test of Details |
-B. Analytical
|
|
|
What is the Current Ratio?
|
Current Ratio = Current Assets / Current Liabilities
|
|
|
What is the Quick Ratio?
|
Quick Ratio = Liquid Assets / Current Liabilities
|
|
|
What are the Turnover Ratios?
|
Asset Turnover = Net Sales / Average Assets
|
|
|
What is the Gross Margin %?
|
Gross Margin % = Gross Margin / Sales
|
|
|
TRUE or FALSE: Analytical Procedures analyzes non-financial data.
|
-TRUE
|
|
|
__________ procedures can be used to predict a financial statement number. (i.e. Supply usage records a comparison year-to year; truck fleet data, etc)
A. Substantive B. Analytical C. Test of Controls D. Test of Details |
-B. Analytical
|
|
|
Analytics are __________, but __________.
A. efficient; effective B. not efficient; effective C. efficient; not effective D. not efficient; not effective |
-C. efficient; not effective
-They quickly (efficient) tell you something might be wrong -It’s up to auditor to find “what” (effective) |
|
|
__________ help the auditor plan the audit and select substantive tests.
A. Management Assertions B. Substantive Testwork C. Tests of Details D. Analytical Procedures |
-A. Management Assertions
|
|
|
Management Assertions tests assertions on ACCOUNT BALANCES for __________. (P-E-R-C-V)
|
-[P]resentation & Disclosure
1. Appropriately Presented 2. Adequately Disclosed -[E]xistence 1. Tests Overstatements 2. Balances Actually Exist -[R]ights & Obligations 1. Company has rights to assets 2. Company owes liabilities -[C]ompleteness 1. Tests understatements -[V]aluation & Allocation 1. Financial information is properly classified and valued |
|
|
Management Assertions tests assertions on TRANSACTIONS for __________. (O-C-C-C-A)
|
-[O]ccurance
1. Did these transactions actually occur? -[C]utoff 1. Was the correct account period used to record transactions? -[C]lassification 1. Were these transactions properly allocated and classified? -[C]ompleteness 1. Disclosures are properly presented? -[A]ccuracy 1. Was everything that was recorded done so accurately? |
|
|
Management Assertions tests assertions on DISCLOSURES for __________. (O-C-C-A)
|
-[O]ccurance
1. These actually occurred -[C]lassification 1. Disclosures are properly presented -[C]ompleteness 1. Disclosures are complete -[A]ccuracy 1. Disclosures are accurate. |
|
|
TRUE or FALSE: Testing of direct evidence is a basic audit procedure.
|
-FALSE, testing of direct evidence is NOT a basic audit procedure.
|
|
|
TRUE or FALSE: Auditors should take a loan covenant document and go search out that it’s a valid loan covenant.
|
-FALSE, you don’t have to take a loan covenant document and go search out that it’s a valid loan covenant. Instead, you consider the source – if it’s externally prepared, it’s more persuasive.
|
|
|
TRUE or FALSE: First and foremost, you need to judge the reasonableness of management estimates before you understand management's rationale and methods for developing estimates.
|
-FALSE, First and foremost, you need to understand
management’s rationale and methods for developing estimates before you can judge reasonableness. |
|
|
In auditing management estimates, what is the proper order of steps that an auditor should take?
I. Formulate your own opinion on what a good estimate should be and compare. II: Judge the reasonableness for management's estimates III: Ask yourself, do any subsequent events affect the estimate? IV. Understand management's rationale and methods for developing estimates. V. Start doing tests and collecting evidence. A. I, III, IV, II, V B. II, IV, III, V, I C. IV, II, V, I, III D. V, II, IV, I, III |
-C. IV, II, V, I, III
|
|
|
TRUE or FALSE: Audit working papers are the property of the auditor, not the client.
|
-TRUE
|
|
|
TRUE or FALSE: Audit working papers can be paper or electronic.
|
-TRUE
|
|
|
TRUE or FALSE: Audit working papers must include a written audit program.
|
-TRUE
|
|
|
TRUE or FALSE: The current file contains information pertaining to prior year's audit.
|
-FALSE, the current file contains information pertaining to current year's audit.
|
|
|
TRUE or FALSE: The permanent file contains information for this audit and future audits and gets updated as needed.
|
-TRUE
|
|
|
Working papers must be kept for __________ years after the audit release date or according to regulations, whichever is __________.
A. 5; longer B. 5; shorter C. 6; longer D. 6; shorter |
-A. 5; longer
|
|
|
Working papers must be kept for 7 years under __________ audit.
A. Traditional B. PCAOB C. SEC D. IRS |
-B. PCAOB
|
|
|
TRUE or FALSE: PCAOB audits require an Engagement Completion Document.
|
-TRUE
|
|
|
TRUE or FALSE: Any experienced auditor should be able to look at your work and understand what you did.
|
-TRUE
|
|
|
TRUE or FALSE: If further documents are added to the work papers after the audit report is issued, it must be
documented as to who added them, why they were added, and any affects on the audit report. |
-TRUE
|
|
|
After the audit report is released, the firm has 60 days
to __________ from the file. You can still __________ to the file if you document it, but you cannot __________ any information after 60 days. A. Add; Subtract; Add B. Subtract; Add; Delete C. Subtract; Add; Add D. Add; Subtract; Subtract |
-B. Subtract; Add; Delete
|
|
|
For SEC auditors, after the audit report is released, the firm has __________ days
to subtract from the file. You can still add to the file if you document it, but you cannot delete any information after __________ days. A. 30 B. 45 C. 60. D. 90 |
-B. 45
|
|
|
TRUE or FALSE: Financial Statements must confirm to GAAP.
|
-TRUE
|
|
|
TRUE or FALSE: Audit Reports must state if current and prior periods are consistent.
|
-FALSE, the report must state if periods are inconsistent. Prior period consistency is IMPLIED!
|
|
|
TRUE or FALSE: If there is inconsistency in audit reports between current and prior periods, you cannot give an unqualified opinion.
|
-FALSE, if inconsistent, an Unqualified Opinion is still ok. However, you must add an explanatory paragraph after the opinion.
|
|
|
TRUE or FALSE: If there is inconsistency in audit reports between current and prior periods, you can still give an unqualified opinion, even without an explanatory paragraph after the opinion.
|
-FALSE, if there is no explanatory paragraph, a qualified opinion must be issued.
|
|
|
Consistency is violated with...
A. Accounting Errors B. Reclassifications C. Prospective Treatment of a New Principle D. Accounting Estimate Change E. All of the above F. None of the above |
-F. None of the above
|
|
|
TRUE or FALSE: In regards to the adequacy of disclosures issued in an Audit Report, the report MUST STATE if the disclosures are lacking.
|
-TRUE
|
|
|
What are the 5 parts of an Unqualified Opinion? (T-A-I-S-O)
|
-[T]itle
-[A]ddress -[I]ntroduction Paragraph -[S]cope Paragraph -[O]pinion |
|
|
Which part of an Unqualified Opinion states that an auditor is independent?
A. Title B. Address C. Introduction Paragraph D. Scope Paragraph |
-A. Title
|
|
|
Which part of an Unqualified Opinion states whomever hired the auditor?
A. Title B. Address C. Introduction Paragraph D. Scope Paragraph |
-B. Address
|
|
|
Which part of an Unqualified Opinion states the nature of the engagement?
A. Title B. Address C. Introduction Paragraph D. Scope Paragraph |
-C. Introduction Paragraph
|
|
|
Which part of an Unqualified Opinion talks about the work that was performed on the engagement?
A. Title B. Address C. Introduction Paragraph D. Scope Paragraph |
-D. Scope Paragraph
|
|
|
Which part of an Unqualified Opinion states that US GAAP was followed (if SEC, use 'the standard of PCAOB')?
A. Title B. Address C. Introduction Paragraph D. Scope Paragraph |
-D. Scope Paragraph
|
|
|
Which part of an Unqualified Opinion states that reasonable assurance about material misstatements was obtained?
A. Title B. Address C. Introduction Paragraph D. Scope Paragraph |
-D. Scope Paragraph
|
|
|
Which part of an Unqualified Opinion states that financial statements and disclosures are supported by evidence?
A. Title B. Address C. Introduction Paragraph D. Scope Paragraph |
-D. Scope Paragraph
|
|
|
Which part of an Unqualified Opinion evaluates Management Estimates, Accounting Principles, and Financial Statement presentation?
A. Title B. Address C. Introduction Paragraph D. Scope Paragraph |
-D. Scope Paragraph
|
|
|
Which part of an Unqualified Opinion provides a reasonable basis for opinion?
A. Title B. Address C. Introduction Paragraph D. Scope Paragraph |
-D. Scope Paragraph
|
|
|
Which part of an Unqualified Opinion states scope limitations (if any)? Note that the auditor will try to work around them and still issue an Unqualified Opinion.
A. Title B. Address C. Introduction Paragraph D. Scope Paragraph |
-D. Scope Paragraph
|
|
|
In an Unqualified Opinion, the ___________ provides assurance that the financial statements are fairly presented in all material respects and in conformity with US GAAP.
A. Title B. Opinion C. Introduction Paragraph D. Scope Paragraph |
-B. Opinion
|
|
|
TRUE or FALSE: If the auditor's client is NOT an SEC client, the auditor does NOT have to include their location on their Unqualified Opinion.
|
-TRUE, if the client is an SEC client, they MUST disclose their location.
|
|
|
The Date of an Unqualified Opinion should be as of the date which the __________.
A. Financial Statements were issued. B. Audit fieldwork was completed. C. The date that the opinion was issued. D. The date that the opinion was signed. |
-B. Audit fieldwork was completed.
|
|
|
TRUE or FALSE: An Unqualified opinion speaks to only the current financial statements that are being issued - not PY financials.
|
-FALSE, an Unqualified Opinion speaks to ALL financial statements presented - past and present. (i.e. comparative financial statements must also meet the criteria for an Unqualified Opinion)
|
|
|
TRUE or FALSE: If an exception arises in the scope of an Unqualified Opinion, the Explanatory and Opinion paragraphs will address the issue.
|
-TRUE
|
|
|
TRUE or FALSE: In a prior year's issue has been corrected, the auditor may issue an Unqualified Opinion anyway and IGNORE the past issue.
|
-TRUE
|
|
|
An Unqualified Opinion with an Emphasis normally includes:
A. Immaterial GAAP Issues B. Going Concern Worries C. Auditor Shares Responsibility D. Emphasizing a particular aspect of Financial Statements E. All of the Above F. None of the Above |
-E. All of the Above
|
|
|
TRUE or FALSE: An Unqualified Opinion with an Emphasis is NOT AFFECTED by going concern worries.
|
-TRUE
|
|
|
TRUE or FALSE: The Explanatory paragraph comes BEFORE the Unqualified Opinion with an Emphasis.
|
-FALSE, it is added AFTER the opinion.
|
|
|
What are the 6 parts of an Unqualified Opinion with an Emphasis? (T-A-I-S-O-E)
|
-[T]itle
-[A]ddress -[I]ntroduction -[S]cope -[O]pinion -[E]xplanatory |
|
|
What are the 6 parts of a Qualified Opinion? (T-A-I-S-E-O)
|
-[T]itle
-[A]ddress -[I]ntroduction -[S]cope -[O]pinion -[E]xplanatory (same as an adverse opinion) |
|
|
TRUE or FALSE: A Qualified Opinion creates REDUCED assurances.
|
-TRUE
|
|
|
TRUE or FALSE: A Qualified Opinion does not result from Scope Limitations - Unqualified Opinions take care of Scope Limitations.
|
-FALSE, Qualified Opinions result from a variety of different problems, including Scope Limitations.
|
|
|
Qualified Opinions that result from Scope Limitations exhibit all of the following qualities except:
A. Scope Paragraph is Modified B. Explanatory Paragraph is inserted between the Scope and Opinion paragraphs C. Opinion paragraph will point out the scope limitation D. All of the Above |
-D. All of the Above
|
|
|
TRUE or FALSE: A Qualified Opinion results from major inconsistencies.
|
-TRUE
|
|
|
Qualified Opinions that result from Scope Limitations exhibit all of the following qualities except:
A. Scope Paragraph remains UNCHANGED B. Explanatory Paragraph is inserted between the Scope and Opinion paragraphs C. Opinion paragraph will point out the inconsistency D. All of the Above E. Both B and C |
-D. All of the Above
|
|
|
TRUE or FALSE Qualified Opinions may include immaterial problems with GAAP, Disclosures, or Segment Reporting.
|
-FALSE, they include MATERIAL problems with those items.
|
|
|
What are the 6 parts of an Adverse Opinion? (T-A-I-S-E-O)
|
-[T]itle
-[A]ddress -[I]ntroduction -[S]cope -[O]pinion -[E]xplanatory (same as a qualified opinion) |
|
|
If you relied on the work of another auditor, this should be disclosed in the __________ paragraph and referenced in the __________ (with their division of responsibility).
A. Scope, Introduction B. Introduction, Scope C. Introduction, Opinion D. Opinion, Introduction |
-C. Introduction, Opinion
|
|
|
TRUE or FALSE: If you relied on the work of another auditor, you MUST disclose their name in the Introduction Paragraph, with or without their permission.
|
-FALSE, don't name other auditor without their permission.
|
|
|
TRUE or FALSE: If you relied on the work of another auditor and they are NOT referenced, you must take responsibility for their conclusions. (i.e. consideration of independence, experience, credentials, etc is required)
|
-TRUE
|
|
|
Compilation Services are governed by __________.
A. SOX B. SSARS C. IRS D. Provision of Title V of the Auditor's Memorandum |
-B. SSARS (Statements on Standards for Accounting and Review Services)
|
|
|
TRUE or FALSE: Compilation Services are used by Non-SEC registrants only!
|
-TRUE
|
|
|
TRUE or FALSE: When providing Compilation Services, Accountants put together Financial Statements based on information which is provided by management.
|
-TRUE
|
|
|
TRUE or FALSE: When providing Compilation Services, disclosures are necessary.
|
-FALSE, Disclosures are not necessary, but they must state that they are not included.
|
|
|
TRUE or FALSE: When providing Compilation Services, there is no opinion expressed, no assurances given, and no independence required.
|
-TRUE
|
|
|
Review Services are governed by __________.
A. SOX B. SSARS C. IRS D. Provision of Title V of the Auditor's Memorandum |
-B. SSARS (Statements on Standards for Accounting and Review Services)
|
|
|
Review Services give __________ assurance.
A. Limited B. Complete C. No |
-A. Limited
|
|
|
TRUE or FALSE: When auditing an entity who provides Review Services, Analytical Procedures are REQUIRED, where documented predictions are compared to results.
|
-TRUE
|
|
|
TRUE or FALSE: When providing Review Services, there is no opinion expressed, limited assurances given, and independence is required.
|
-TRUE
|
|
|
When auditing a client's __________ Services, no opinion is expressed, limited assurances are given, and independence is required.
A. Review B. Compilation C. Agreed Upon Procedures |
-A. Review
|
|
|
When auditing a client's __________ Services, no opinion is expressed, no assurances given, and no independence is required.
A. Review B. Compilation C. Agreed Upon Procedures |
-B. Compilation
|
|
|
When auditing a client's __________ Services, no opinion is expressed, limited use is expressed, and independence is required
A. Review B. Compilation C. Agreed Upon Procedures |
-C. Agreed Upon Procedures
|
|
|
Prospective Financial Statements include __________, __________, and __________. (F-P-A)
|
-[F]orecasts
-[P]rojections -[A]greed Upon Procedures |
|
|
Which part of Prospective Financial Statements does the following belong?
-Uses normal circumstances A. Forecasts B. Projections C. Agreed Upon procedures D. Both B and C |
-A. Forecasts
|
|
|
Which part of Prospective Financial Statements does the following belong?
-General & Limited Use Allowed A. Forecasts B. Projections C. Agreed Upon procedures D. Both B and C |
-A. Forecasts
|
|
|
Which part of Prospective Financial Statements does the following belong?
-Uses Hypothetical Situations A. Forecasts B. Projections C. Agreed Upon procedures D. Both B and C |
-B. Projections
|
|
|
Which part of Prospective Financial Statements does the following belong?
-Only Limited use by client allowed A. Forecasts B. Projections C. Agreed Upon procedures D. Both B and C |
-D. Both B and C
|
|
|
Which part of Prospective Financial Statements does the following belong?
-Independence is required A. Forecasts B. Projections C. Agreed Upon procedures D. Both B and C |
-C. Agreed Upon procedures
|
|
|
Uncertainties and Likelihood of Losses fall into one of three buckets. What are they? (R-P-R)
|
-[R]emote
-[P]robable -[R]easonably Possible |
|
|
In assessing the uncertainty or likelihood of a REMOTE loss,__________.
A. there is no requirement for an explanatory paragraph. B. Accrue the loss if estimable C. Provide an explanatory paragraph if no estimable D. the auditor should assess the need for an explanatory paragraph based on the likelihood of loss. E. Both B and C |
A. there is no requirement for an explanatory paragraph.
|
|
|
In assessing the uncertainty or likelihood of a REMOTE loss,__________.
A. there is no requirement for an explanatory paragraph. B. Accrue the loss if estimable C. Provide an explanatory paragraph if no estimable D. the auditor should assess the need for an explanatory paragraph based on the likelihood of loss. E. Both B and C |
-E. Both B and C
|
|
|
In assessing the uncertainty or likelihood of a REMOTE loss,__________.
A. there is no requirement for an explanatory paragraph. B. Accrue the loss if estimable C. Provide an explanatory paragraph if no estimable D. the auditor should assess the need for an explanatory paragraph based on the likelihood of loss. E. Both B and C |
-D. the auditor should assess the need for an explanatory paragraph based on the likelihood of loss.
|
|
|
TRUE or FALSE: In Governmental Auditing, the Single Audit Act requires a report on Internal Control and Effective of Controls for anybody who takes funding from the US Government.
|
-TRUE
|
|
|
TRUE or FALSE: Governmental Accounting, as enforced by the Single Audit Act, must comply with US GAAP.
|
-TRUE
|
|
|
Statistical Sampling does all of the following EXCEPT:
A. Based on formulas B. Helps find an appropriate audit sample size C. Helps evaluate evidence obtained D. Helps evaulate results and quantify Sampling Risk |
-Statistical Sampling involves all of those things!!
|
|
|
Sampling that is based on human decision is __________.
A. Statistical B. Non-Statistical |
-D. Non-Statistical
|
|
|
TRUE or FALSE: Non-Statistical Sampling is as equally acceptable as Statistical Sampling
|
-TRUE
|
|
|
__________ involves variables sampling.
A. Statistical Sampling B. Non-Statistical Sampling C. Substantive Tests D. Control Tests |
-C. Substantive Tests
|
|
|
__________ involves attribute sampling.
A. Statistical Sampling B. Non-Statistical Sampling C. Substantive Tests D. Control Tests |
-D. Control Tests
|
|
|
__________ risk is the risk that your sample selection isn't representative of the population.
A. Statistical Sampling B. Non Statistical Sampling C. Sampling D. Control |
-C. Sampling
|
|
|
TRUE or FALSE: Sampling Risk is not applicable if the audit was done properly.
|
-FALSE, Sampling Risk can happen even if the audit is done properly.
|
|
|
Control Risk is too high when the sample __________ Control Risk.
A. Overstates B. Understates |
-A.Overstates
|
|
|
To lower Control Risk, the auditor should more __________ testing.
A. Control B. Substantive |
-B. Substantive
|
|
|
Assessing the Control Risk as too high will lead the auditor to an __________ - reliance on Internal Control, __________ - testing, and an overall Audit Inefficiency.
A. Over; Under B. Under; Over C. Over; Over D. Under; Under |
-B. Under; Over
The audit ends up being effective (correct result), but the auditor does more work than necessary. |
|
|
Control Risk is too low when the sample __________ Control Risk.
A. Overstates B. Understates |
-B. Understates
|
|
|
Assessing the Control Risk as too low will lead the auditor to an __________ - reliance on Internal Control, __________ - testing, and an overall Audit Inefficiency.
A. Over; Under B. Under; Over C. Over; Over D. Under; Under |
-A. Over; Under
|
|
|
When there is a higher accepted risk of assessing control risk as too low, there will be a __________ sample size.
A. Larger B. Smaller C. Unchanging D. It Depends |
-B. Smaller
|
|
|
When there is a lower accepted risk of assessing control risk as too low, there will be a __________ sample size.
A. Larger B. Smaller C. Unchanging D. It Depends |
-A. Larger
|
|
|
The Risk of Assessing Control Risk as too Low leads to a __________ Detection Risk.
A. Higher B. Lower |
-A. High
(thus, the auditor performs fewer Substantive Tests) |
|
|
Incorrect Acceptance of a particular balance results in a wrong __________.
A. Conclusion reached B, Opinion given C. Recommendation given |
-A. Conclusion reached
|
|
|
Incorrect Rejection of a particular balance results in a wrong __________.
A. Conclusion reached B, Opinion given C. Recommendation given |
-C. Recommendation given
|
|
|
__________ is the risk of an (human) auditor missing an error, exception, error, or deviation.
A. Sampling Risk B. Non-Sampling Risk |
-B. Non-Sampling Risk
|
|
|
__________ deals with the chance that your audit sample is flawed.
A. Sampling Risk B. Non-Sampling Risk |
-A. Sampling Risk
|
|
|
__________ deals with the chance that your human decisions/conclusions are flawed.
A. Sampling Risk B. Non-Sampling Risk |
-B. Non-Sampling Risk
|
|
|
TRUE or FALSE: Attribute Sampling focuses on Control Procedures. (i.e. Were invoices APPROVED when paid?)
|
-TRUE
|
|
|
In Attribute Sampling, errors are stated in _________.
A. % B. $ |
-A. %
i.e. 5 invoices out of 100 were not properly paid; error rate is 5%. note: if you see "error rate" on the CPA exam, they are referring to Attribute Sampling. |
|
|
TRUE or FALSE: Control Procedures are either operating properly or they are not operating properly - based on Error Rate and the tolerance you have for errors.
|
-TRUE
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TRUE or FALSE: Tolerable Rate, or the error rate in a population that you are willing to accept/tolerate, has an INVERSE relationship to Sample Size.
|
-TRUE
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__________ Tolerable Rate = Smaller Sample Size; __________ Tolerable Rate = Larger Sample Size.
A. Lower; Lower B. Lower; Higher C. Higher; Higher D. Higher; Lower |
-D. Higher; Lower
|
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For Attribute Sampling, If you are willing to accept a higher probability that errors exist, there is __________ pressure on the sample.
A. More B. Less C. No D. Some |
-B. Less
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TRUE or FALSE: The Attribute Error Rate for an expected population is not only a judgment call for the auditor, but is also based on the auditor's experience.
|
-TRUE
(and More Errors = Larger Samples; Less Errors = Smaller Samples) |
|
|
TRUE or FALSE: In attribute sampling, an attribute in the sample gives information about the ENTIRE audit population.
|
-TRUE
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TRUE or FALSE: Attribute Sampling is used to estimate Internal Control error rate.
|
-TRUE
|
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__________ is used to determine initial level of Control Risk.
A. Expected Population Deviation (error) Rate B. Allowable Risk of Over-reliance C. None of the Above D. All of the Above |
-A. Expected Population Deviation (error) Rate
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__________ is the risk of assessing control risk as too low and ALSO gives you sampling risk.
A. Expected Popululation Deviation (error) Rate B. Allowable Risk of Over-reliance C. None of the Above D. All of the Above |
-B. Allowable Risk of Over-reliance
|
|
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TRUE or FALSE: Attribute sampling is only useful when there is documented evidence (an audit trail) to test.
|
-TRUE
|
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Attribute sampling should be used when the __________ of an error needs to be verified or debunked.
A. Existence B. Completeness C. Accuracy D. All of the Above |
-A. Existence
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Classic Variables Sampling tests for a __________.
A. Percentage B. Quality C. Dollar Amount D. Variable |
-C. Dollar Amount
|
|
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TRUE or FALSE: In Classic Variables Sampling, the value in sample gives information about the value in the entire population.
|
-TRUE
|
|
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TRUE or FALSE: In Classic Variables Sampling, the Mean Per Unit is the Sample Average x Number in Population.
|
-TRUE
|
|
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In Classic Variables Sampling, __________ is when similar transactions are grouped together and then subject to audit procedures.
A. Traditional Sampling B. Stratification C. Mean Per Unit Sampling D. Statistical Sampling |
-B. Stratification
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In Classic Variables Sampling, __________decreases the effect pf variance in population and reduces the sampling size.
A. Traditional Sampling B. Stratification C. Mean Per Unit Sampling D. Statistical Sampling |
-B. Stratification
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Probability Proportionate to Size (PPS) __________.
A. A form of Variable Sampling B. Does NOT use Standard Deviation C. is when the Auditor focuses on a DOLLAR amount D. All of the Above |
-D. All of the Above
|
|
|
In Probability Proportionate to Size (PPS), smaller and less valuable items get picked more often as part of the sample.
|
-FALSE, Larger or more valuable items get picked more often
as part of the sample. |
|
|
TRUE or FALSE: In Probability Proportionate to Size (PPS), if a Projected Misstatement is found in the sample, the Auditor MUST project it to the remainder of the population.
|
-TRUE
|
|
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Match the type of sampling to its respective characteristic:
-Easy to expand sample size A. Probability Proportionate to Size (PPS) B. Classic Variables Sampling |
-B. Classic Variables Sampling
|
|
|
Match the type of sampling to its respective characteristic:
-Selecting zero and negative balances easy A. Probability Proportionate to Size (PPS) B. Classic Variables Sampling |
-B. Classic Variables Sampling
|
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Match the type of sampling to its respective characteristic:
-Easier to Use A. Probability Proportionate to Size (PPS) B. Classic Variables Sampling |
-A. Probability Proportionate to Size (PPS)
|
|
|
Match the type of sampling to its respective characteristic:
-Results in a stratified (homogenous) sample A. Probability Proportionate to Size (PPS) B. Classic Variables Sampling |
-A. Probability Proportionate to Size (PPS)
|
|
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Match the type of sampling to its respective characteristic:
-Results in a smaller sample size to audit A. Probability Proportionate to Size (PPS) B. Classic Variables Sampling |
-A. Probability Proportionate to Size (PPS)
|
|
|
Match the type of sampling to its respective characteristic:
-Easy to design A. Probability Proportionate to Size (PPS) B. Classic Variables Sampling |
-A. Probability Proportionate to Size (PPS)
|
|
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In regards to Factor that Affect Sample Size, Risk of Assessing Control Risk as too low has a/an __________ with Sample Size.
A. Similar B. Direct C. Inverse D. Distant |
-Inverse
|
|
|
In regards to Factor that Affect Sample Size, Expected Population Error Rate has a/an __________ with Sample Size.
A. Similar B. Direct C. Inverse D. Distant |
-Direct
|
|
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In regards to Factor that Affect Sample Size, Tolerable Rate for Error has a/an __________ with Sample Size.
A. Similar B. Direct C. Inverse D. Distant |
-Inverse
|
|
|
Population size _________ the sample size.
A. Does not affect B. Affects |
-A. Does not affect
As the population grows larger, the sample size doesn't grow with it. |
|
|
TRUE or FALSE: As the population grows larger, the sample size grows with it.
|
-FALSE, as the population grows larger, the sample size doesn't grow with it.
|
|
|
TRUE or FALSE: Sample Error Rate (SER) + Allowance for Sampling Risk (ASR) < Tolerable Error Rate (TER)
|
-TRUE
SER + ASR < TER |
|
|
Calculate Sample Error Rate (SER):
-5 out of 100 invoices were not approved correctly A. 95% B. 5 invoices C. 5% D. 95 invoices |
-C. 5%
|
|
|
The __________ is the amount that you add to the Sample Error Rate (SER) to get some cushion for your sample.
A. Allowance for Sampling Risk (ASR) B. Tolerable Error Rate (TER) C. All of the Above D. None of the Above |
-A. Allowance for Sampling Risk (ASR)
|
|
|
TRUE or FALSE: The Allowance for Sampling Risk (ASR) is based on JUDGEMENT.
|
-TRUE
|
|
|
If ASR (Allowance for Sampling Risk) is set to 2%, and if the Sample Error Rate is 5%, what is the highest that the Population Error Rate could reach?
A. 3% B. 97% C. 93% D. 7% |
-D. 7%
|
|
|
__________ is the error rate that the auditor is willing to accept.
A. Sampling Error Rate (SER) B. Allowance for Sampling Risk (ASR) C. Tolerable Error Rate (TER) D. Population Error Rate |
-C. Tolerable Error Rate (TER)
|
|
|
If Population Error Rate < TER, __________.
A. Accept the control as effective B. Do More testing to get SER Lower or conclude that the control isn't effective. |
-A. Accept the control as effective
|
|
|
If Population Error Rate > TER, __________.
A. Accept the control as effective B. Do More testing to get SER Lower or conclude that the control isn't effective. |
-B. Do More testing to get SER Lower or conclude that the control isn't effective.
|
|
|
TRUE or FALSE: The First Step in setting Sampling Plans is to Determine the Test Objective.
|
-TRUE
(i.e. Have sales shipments been billed?) |
|
|
TRUE or FALSE: The Second Step in setting Sampling Plans is to define the population and set deviation.
|
-TRUE
(i.e. take a sample of shipping documents and trace forward to see if they were billed) |
|
|
Sampling Plans determine sample size based on:
A. Tolerable Error Rate B. Risk of Assessing Control Risk as too low C. Expected Population Error Rate D. All of the Above |
-D. All of the Above
|
|
|
Select Sampling Technique uses all except __________ sampling.
A. Random B. Sequential C. Systematic D. Discovery |
-D. Discovery
|
|
|
Match the following sampling criteria to its respective sampling method.
-Every certain # of a population is selected. A. Systematic Sampling B. Sequential Sampling C. Discovery Sampling D. Block Sampling |
A. Systematic Sampling
|
|
|
Match the following sampling criteria to its respective sampling method.
-Population needs to be randomly ordered A. Systematic Sampling B. Sequential Sampling C. Discovery Sampling D. Block Sampling |
A. Systematic Sampling
|
|
|
Match the following sampling criteria to its respective sampling method.
-Primary advantage is that population doesn’t require pre-numbering A. Systematic Sampling B. Sequential Sampling C. Discovery Sampling D. Block Sampling |
A. Systematic Sampling
|
|
|
Match the following sampling criteria to its respective sampling method.
-Also called “Stop or Go” Sampling A. Systematic Sampling B. Sequential Sampling C. Discovery Sampling D. Block Sampling |
B. Sequential Sampling
|
|
|
Match the following sampling criteria to its respective sampling method.
-Each audit step determines the next step A. Systematic Sampling B. Sequential Sampling C. Discovery Sampling D. Block Sampling |
B. Sequential Sampling
|
|
|
Match the following sampling criteria to its respective sampling method.
-Audit is testing an area that is so crucial that zero population errors can be tolerated A. Systematic Sampling B. Sequential Sampling C. Discovery Sampling D. Block Sampling |
C. Discovery Sampling
(i.e. are there any phony employees on payroll>) |
|
|
Match the following sampling criteria to its respective sampling method.
-Easy to implement, but worst method of sampling A. Systematic Sampling B. Sequential Sampling C. Discovery Sampling D. Block Sampling |
-D. Block Sampling
(i.e. Auditor picks all transactions from June and then projects the results to the rest of the year) |
|
|
TRUE or FALSE: The AICPA Code of Professional Conduct covers ALL professional engagement and is the minimum standard of conduct.
|
-TRUE
-Members should additionally follow specific standards for a specific engagement. |
|
|
An Accountant must have:
A. Integrity B, Objectivity C. No Conflicts of Interest D. No known misrepresentation of facts E. No outsourcing judgment F. Both A and B G. Both C, D, and E H. All of the Above |
-H. All of the Above
|
|
|
When Safeguards > Threats, there is __________.
A. Independence B. No Independence |
-A. Independence
|
|
|
When Safeguards < Threats, there is __________.
A. Independence B. No Independence |
-B. No Independence
|
|
|
Match each criteria to its respective affect on Independence.
-Advocate of the Client A. Threat to Independence B. Safeguard to Indepence |
-A. Threat to Independence
|
|
|
Match each criteria to its respective affect on Independence.
-Adverse Interest A. Threat to Independence B. Safeguard to Indepence |
-A. Threat to Independence
|
|
|
Match each criteria to its respective affect on Independence.
-Too familiar with the client A. Threat to Independence B. Safeguard to Indepence |
-A. Threat to Independence
|
|
|
Match each criteria to its respective affect on Independence.
-Undue Influence on the Client A. Threat to Independence B. Safeguard to Indepence |
-A. Threat to Independence
|
|
|
Match each criteria to its respective affect on Independence.
-Self Review A. Threat to Independence B. Safeguard to Indepence |
-A. Threat to Independence
|
|
|
TRUE or FALSE: If an auditor is on a client's board of directors, but he/she holds the Honorary Board Position, this is a threat to Independence.
|
-FALSE, all positions except for the Honorary Board Position would be a threat to Independence - this is the only exception.
|
|
|
TRUE or FALSE: Safeguards to Independence OFFSET the threats.
|
-TRUE
|
|
|
Safeguards to Independence are created by __________.
A. Legislation (i.e. SOX) B. Client (i.e. Audit Committee) C. Accounting Firm (i.e. Policies) D. All of the Above |
-D. All of the Above
|
|
|
A Covered Member is a member who __________.
A. Is on the engagement team B. Has significant influence on audit (i.e. Reviewing Partner) C. A Managing Partner in CPA Firm D. Firm Personnel who does more than 10 HOURS of non-attest work (i.e. Income Taxes) E. A Partner sharing office with another partner who oversees an engagement. F. All except for C, D, and E G. All of the Above |
-G. All of the Above
|
|
|
TRUE or FALSE: If a covered member owns a direct, financial interest in their client but it is below materiality, this is acceptable.
|
-FALSE, there must be NO direct financial interest, and materiality does not matter.
|
|
|
TRUE or FALSE: If a covered member owns an indirect, financial interest (i.e. Mutual Fund) in their client but it is below materiality, this is acceptable.
|
-TRUE
|
|
|
TRUE or FALSE: If a covered member owns an indirect, financial interest (i.e. Mutual Fund) in their client but it is above materiality, this is acceptable.
|
-FALSE, it can exist but it cannot be above materiality.
|
|
|
Firm personnel who are not Covered Members cannot own more than __________% of stock or Independence is impaired.
A. 5% B. 10% C. 15% D. 20% |
-A. 5%
|
|
|
A Covered Member's immediate family (spouse, dependents) cannot own more than __________% of stock.
A. 5% B. 10% C. 15% D. 20% |
-A. 5%
|
|
|
TRUE or FALSE: A Covered Member's family cannot be employed by client in KEY positions and still remain independent.
|
-TRUE
(non-key positions are ok!) |
|
|
TRUE or FALSE: A Covered Member's family cannot be employed by client in NON-KEY positions and still remain independent.
|
-FALSE, non-key positions are ok!
|
|
|
TRUE or FALSE: If close relatives of a Covered Member (Siblings, Parents, Non-Dependent Children) hold key positions at client or have material investments in client, this impairs independence, regardless of if the Covered Member is aware or not.
|
-FALSE, it impairs independence ONLY if the Covered Member is aware!
|
|
|
TRUE or FALSE: Covered Member may not participate in management decisions at a client.
|
-TRUE
|
|
|
TRUE or FALSE: Contingent Fees for a Covered Member are NOT ALLOWED if that member also performs services where independence is required.
|
-TRUE
|
|
|
TRUE or FALSE: Commissions or referral fees/income for Covered Members are not allowed.
|
-TRUE
(i.e. Audit firm gets a commission for recommending to Client that they implement a new A/P System...NOT Allowed) |
|
|
TRUE or FALSE: If a firm performing non-attest work and performs no Covered Member services (Independence not
required), then Firm commission is ok. |
-TRUE
Must disclose this to the Client however! |
|
|
TRUE or FALSE: If the Audit Firm provides recommendations/suggestions to the client, the client MUST carry them out and CANNOT perform management functions.
|
-TRUE
|
|
|
TRUE or FALSE: If the Audit Firm provides recommendations/suggestions to the client, the client must assign someone of competence to oversee the non-attest engagement and CPA must be satisfied that this has occurred.
|
-TRUE
|
|
|
Personal Financial Planning Objectives for a client MUST have __________.
A. definite objectives B. specific procedures planned C. a basis for recommendations D. recommendations communicated E. action steps to implement F. All of the Above |
-F. All of the Above
|
|
|
TRUE or FALSE: Departures from GAAP are OK if GAAP would cause Financial Statements to be misleading, then it must be explained/disclosed.
|
-TRUE
|
|
|
TRUE or FALSE: A Covered Member may disclose confidential client information when the client isn't following GAAP.
|
-TRUE
|
|
|
TRUE or FALSE: A Covered Member may disclose confidential client information when the CPA firm is Subpoenaed. (CPAs are not Attorneys, so there is no CPA-Client privilege)
|
-TRUE
|
|
|
If a partner dies, the remaining partner has __________ years to change the name if the partnership is dissolved.
A. 1 B. 2 C. 3 D. 4 E. 5 |
-B. 2
|
|
|
TRUE or FALSE: All Partners/Shareholders must be members of the AICPA in order to hold themselves out as
members of the AICPA. |
-TRUE
|
|
|
TRUE or FALSE: Only CPAs can be owners of a CPA firm.
|
-FALSE, non-cpas can be owners
-Non-CPA must not be involved with Accounting -Non-CPA still bound by AICPA Code of Conduct, maintain CPE requirements and have a Bachelor's Degree. |
|
|
Which percentage of a CPA firm must be CPA's?
A. 1/4 B. 1/3 C. 2/3 D. Everybody must be |
-C. 2/3
|
|
|
CPA Licenses are granted at the __________ level.
A. Local B. State C. Federal D. International |
-B. State
|
|
|
Disciplines for a CPA include:
A. If State revokes certificate, AICPA Ban B. Felony Conviction, AICPA Ban C. Prepares Fraudulent Tax Return, AICPA Ban D. Intentionally failing to file return, AICPA Ban E. All of the Above |
-E. All of the Above
|
|
|
TRUE or FALSE: The PCAOB monitors CPA Firms who audit SEC Clients.
|
-TRUE
|
|
|
TRUE or FALSE: ALL SEC Auditing Firms must register to the PCAOB.
|
-TRUE
|
|
|
TRUE or FALSE: PCAOB Standards are usually more lenient than AICPA standards.
|
-FALSE, they are usually stricter.
|
|
|
TRUE or FALSE: The Client's Audit Committee must approve non-audit work performed by the Firm.
|
-TRUE
-Firm must disclose any potential independence issues to Audit Committee |
|
|
TRUE or FALSE: IAASB standards are for countries that don’t have their own standards and help set the tone for the rest of the members who do have their own standards (AICPA)
|
-TRUE
|
|
|
TRUE or FALSE: IAASB standards are based on a risk assessment approach.
|
-TRUE
|
|
|
Differences in IAASB vs. US Auditing Standards include all of the following EXCEPT:
A. No Internal Control audits B. No Referencing another Audit Firm C. Less detailed documentation D. Required: obtain written fraud assessment E. Required: location of auditor’s home office F. It includes all of these - there are none missing! |
-F. It includes all of these - there are none missing!
|
|
|
Standards set by the Internal Ethics Standards Board for Accountants (IESBA) are the __________.
A. Code of Ethics for Professional Accountants B. Code of Professional Conduct C. Either A or B; they both mean the same thing. D. None of the Above |
-A. Code of Ethics for Professional Accountants (fewer restrictions specified than in the AICPA Code of Professional Conduct)
|
