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98 Cards in this Set
- Front
- Back
- 3rd side (hint)
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What are the primary ways for an accountant to obtain the limited assurance required for a review engagement? |
1. Making inquiries of management
2. Obtaining representations from management
3. Performing analytical procedures |
Three things |
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Who should the auditor report deficiencies in interal controls to (including fraud)? |
Only management |
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What is the purchases/cash disbursements cycle? |
Authorization of Event Execution of Event Source Documents General Journal Subsidiary Ledger General Ledger Trial Balances Financial Statements |
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What is required in reports issued under GAS? |
1. Significant deficiencies in internal control 2. Any indications of fraud, abuse, or noncompliance 3. Any significant violations of contract or grant agreements |
Three things |
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What is check kiting? |
Covering up defalcation of funds by transferring money from one bank to another and improperly recording the transaction |
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When must a registered public accounting firm make representations to the audit committee? |
Prior to the audit AND at least annually |
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When should an auditor withdraw from an engagement? |
When the statements are misleading, deceptive, or fraudulent |
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What sections of the auditor's report should make reference to the basis behind a qualified opinion? |
Basis for Qualified Opinion Paragraph
Auditor's Responsibilities
Opinion Paragraph |
3 |
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What type of engagement requires a management representation letter? |
Audit and review |
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What is a comfort letter? |
A letter from an accountant to the underwriter of the client's securities that provides negative assurance concerning unaudited financial information in a registration statement |
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Is the auditor required to extensively document their understanding of internal control? |
Yes. How extensive depends on how complex the internal control system is. |
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What is the audit team required to document for each audit procedure performed? |
1. Who performed the audit work and on what date
2. Who reviewed the audit work and on what date
3. Specific items tested when performing tests (of operating effectiveness or details) |
Three things |
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What factors increase the risk of fraudulent financial reporting? |
1. The client has aggressive attitude towards meeting earnings goals
2. The client is less profitable than the average firm in the industry
3. The client has extensive related party transactions |
Three categories |
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What is a bond trust indenture? |
The formal written statement specifying the terms of the bond, including any restrictions or covenants |
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What are the sections in the audit report of an issuer (in order)? Of a nonissuer? |
Opinion on the FS Basis for Opinion Other Intro Management's Responsibilities Auditor's Responsibilities Basis for Modification Opinion on the FS EoM Paragraph OM Paragraph |
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How can an auditor obtain information about security agreements and contingent liabilities? |
Bank confirmations |
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When should subsequent events result in an adjustment to the financial statements? |
Never. Subsequent events are disclosed in the subsequent events footnote if they are material to the FS. |
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What does a registered public accounting firm need to communicate to the client's audit committee? |
1. All critical accounting policies/procedures 2. Any alternative accounting treatments (within GAAP) that have been discussed with management 3. All material written communications with management |
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What kind of sampling is related to asking "how much?" What about "how many?" |
Variable sampling Attribute sampling |
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What three things should an auditor consider when determining the sample size for a test of controls? |
1. The tolerable rate of deviation 2. The likely rate of deviation 3. The allowable risk of assessing control risk too low |
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What are the steps in the AICPA's conceptual framework? |
Identify threats Evaluate threats Identify safeguards Evaluate safeguards |
Four |
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What are the requirements in the auditor's report for a performance audit? |
1. Objectives, scope, and methodology of the audit 2. Audit results including findings conclusions, and recommendations 3. A reference to compliance with GAGAS 4. The views of resposible officials (and any corrective action plan) 5. The nature of any priveliged or confidential information omitted [An opinion is NOT required] |
5 things |
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According to Title II of SOX, how often must the lead audit partner rotate out when servicing the same client? |
Every 5 years |
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What additional requirements does an audit have when the client has received federal financial assistance? |
1. Adhere to both GAGAS and GAAS 2. Document an understanding of (internal control over compliance with laws) 3. Report on internal control 4. Report on whether funds were administered in accordance with laws/regulations |
Four things |
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Do the revenue accounts have a high or low risk of material misstatement? Why? |
High, because of the significant judgement required in applying revenue recognition accounting principles. |
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What topics should be covered in an audit's engagement letter? |
Objective and scope of the audit Management responsibilities Audit is not to detect fraud Internal control will be assessed and the audit committee will be made aware of significant deficiencies Any additional work Any scope limitations Any work to be performed by the client's staff Basis for the auditor's fee Audit work schedule and est date of completion |
10 things!!! |
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What is the difference between an audit and an examination? |
An audit is over the historical financial statments, while an examination is not (financial forecasts, internal control, agreed-upon procedures, etc.) |
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When an opinion is qualified because of a scope limitation, what should the opinion paragraph list as the reason for the qualification? |
The possible effects on the financial statements (NOT the scope limitation itself) |
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What is an integrated test facility? |
An audit technique that involves processing test data alongside client data in real time to assess the validity of the process |
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What three procedures need to be performed before reissuing a prior period compilation report? |
1. Read the current period FS
2. Compare the current period FS to the prior period FS
3. Obtain a letter from the successor accountant disclosing any matters that could have a material effect on the FS that the reissued report would cover |
3 things |
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What additional tasks does an auditor have for an audit under GAGAS? |
1. Describe the scope of the auditor's work in assessing control risk 2. Assess risk that material noncompliance occurred 3. Provide reasonable assurance that no fraud or abuse occurred |
Three things |
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How often should the PCAOB inspect a CPA firm that issues reports to issuers? |
< 100: every three years > 100: annually |
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What do "at the assertion level" and "at the financial statement level" refer to when discussing the RMM? |
Assertion: inherent risk and control risk FS: relates to the FS as a whole |
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What are the two primary objectives of auditor involvement when viewing exempt offerring documents? |
Determine whether the information could undermine the credibility of the FS and audit report
Determine any facts that became known after the audit repot that could have revised the report |
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What are the three main sections of an issuer's audit report? |
Opinion on the Financial Statements Basis for Opinion Critical Audit Matters |
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What does it mean when an auditor refers to another auditor in their report in reference to a section they audited? |
Division of responsibility |
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In what situations is an auditor required to disclose possible fraud to an outside party? To whom? |
1. If the client changes auditors, report to the SEC
2. If the client receives government funding, report to the agency that funds it
2. If the successor auditor asks about possible fraud, report to the successor auditor |
Three situations |
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Regarding risk, when should the auditor focus on performing tests of controls instead of substantive procedures? |
When control risk is assessed at a low level |
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How can an auditor reduce the risk of incorrect rejection? |
Test additional samples |
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What does a payroll clerk do? |
They prepare the payroll checks based on timesheets and other data |
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What should the auditor do when those charged with governance take no action when confronted with immaterial management fraud? |
Consider withdrawing from the audit engagement |
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What type of engagement is not permitted regarding compliance with laws and regulations? |
Review engagement on compliance |
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In a non-compliance audit, when should an auditor apply procedures to determine whether noncompliance occurred? |
When specific information indicating possible noncompliance comes to the auditor's attention |
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What is the auditor's responsibility regarding required supplementary information? |
Apply certain limited procedures Report any deficiencies in the information Report any omissions of the information |
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What standard does an auditor use when conducting an integrated audit of ICFR? |
PCAOB Auditing Standard No. 5 (GAAS is used for the FS part of the audit) |
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What option(s) does an auditor have when a matter involving risk or uncertainty is not disclosed in conformity with the AFRF? |
Qualified or adverse opinion |
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What kind of audit requires a report on internal controls? |
Government Audit under GAS |
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What three things should comprise an audit plan? |
The nature/extent/timing of planned risk assessment procedures The nature/extent/timing of planned substantive procedures The nature/timing/extent of other procedures necessary under GAAS |
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What procedures should an auditor perform to assess the level of control risk? |
Inquire of management Inspect and observe the controls Reperform the controls (Analytical procedures are substantive tests) |
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What adjustments need to be made when there is no independence in a compilation engagement? |
Add disclosure that the accountant was not independent in the final paragraph |
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What four things should an auditor consider when planning a substantive test of details? |
1. Relationship of sample to audit objective
2. Preliminary estimates of materiality levels
3. Characteristics of the population
4. Allowable risk of incorrect acceptance |
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What are the 4 audit procedures that can be used to assess controls? What are the 3 that can be used as substantive tests? |
Inquiry of knowledgeable parties Inspection of records, documents, and tangible assets Observation of procedures Reperformance of procedures Confirmation of balances Analytical procedures Recalculation of balances/transactions |
IIOR CAR |
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What are HIPAA and COBRA? What do they do? |
Health Insurance Portability and Accountability Act
Protects privacy of health information
Consolidated Omnibus Budget Reconciliation Act
Employees are able to keep their health insurance benefits for a short time after leaving a position |
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If a population tested in PY had differences that were not misstatements and were resolved, what should the auditor do in CY? |
Test a different population for that assertion |
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Is a compliance report related to audited financial statements considered a "special report"? |
Yes |
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What does a registrar do? |
Keeps records of outstanding stock certificates. DOES NOT have knowledge on dividends paid. |
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What is meant by the "financial statement level" and the "relevant assertion level"? |
Both are about the risk of material misstatement. FS level means understanding whether management would want to over/understate, how likely that is, how they could do that (Think tests of controls). Assertion level means testing different assertions (completeness, existence, presentation and disclosure) on account balances, transactions, etc. (Think substantive procedures) |
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What are possible events that would increase the risk of fraud? |
Change in loan covenants Lowered security of physical assets New regulations that threaten profitability |
3 things |
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What assertions can be tested using confirmations? |
CPVER |
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Recorded Amount: $1,000 ($600) Audited Amount: $300 ($300) Sampling Interval: $500 What is the projected error of each? |
$700 ($250) |
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In a report on internal controls, what sort of engagement is referred to? |
Audit |
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What is the result of employees being able to approve credit AND perform write-offs? |
Uncollectable accounts not written off Collectible accounts written off |
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What is a debit memo? What is a credit memo? |
DM is how the buyer informs the seller that it wants a refund or discount on its purchase CM is issued by the seller and reduces the amount the buyer owes under a previous invoice |
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What is in the permanent workpaper file of an audit? |
Items that remain relatively unchanged year to year (common stock and equity accounts) |
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What are the two main objectives in a Single Audit engagement? |
Report on IC over compliance to major programs (no assurance) Report on compliance for each major program (reasonable assurance) |
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What three criteria can make a risk significant? |
When it involves unusual, infrequent, and/or sizable transactions When it involves management estimates/interpretation When the amount in question is difficult/impossible to confirm |
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What is the equity ratio? |
Total Equity / Total Assets |
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What are the indicators for material weakness in internal controls? |
Management fraud, even immaterial Restatement of FS to correct a material misstatement Indentification of a material misstatement in the FS under audit that IC would not have detected Ineffective oversight by those charged with governance |
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What is the relationship between the Allowance for Sampling Risk, Upper Precision Limit, and Sample Deviation Rate? |
ASR + SDR = UPL |
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What is rate of return on assets? What is rate of return on equity? |
(Net Income + Interest Expense) / Total Assets
(Net Income - Preferred Dividends) / Total Equity |
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How do you calculate the sample size for a PPS sample? What about sampling interval? |
(Population's Book Value * Reliability Factor) / (Tolerable Misstatement - Expected Misstatement) Population's Book Value / Sample Size |
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What is the difference between the audit strategy and the audit plan? |
Audit strategy defines scope and considers preliminary factors such as materiality (needs to be completed before starting the audit plan) Audit plan includes the nature, timing, and extent of procedures |
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What type of opinion should be reported if the client refuses to include a basic financial statement? |
Qualified |
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Who is the audit report of an issuer addressed to? |
Shareholders and the board of directors of ABC, Inc. |
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For an issuer's audit report, which date should be used regarding when the auditor started servicing the client? |
The year the engagement letter was signed |
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What is the adjusting entry required when it is found that inventory is under/overstated |
Debit/Credit Inventory Credit/Debit COGS |
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In an integrated audit, what should the auditor do when they identify a material weakness? |
Issue a modified opinion of internal controls |
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When must legal representation letters be dated? What should be done if the date is not valid? |
Within the two weeks prior to the date of the audit report.
If more than two weeks before, request an updated representation.
If the letter's date is after the audit report date, the audit report date should be updated. |
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When is an auditor precluded from downgrading to a review or compilation? |
When the client has refused to comply with a requirement of the audit (regardless of whether the requirement is also for a review/compilation). |
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In a review or compilation engagement, what should be done when there are going concern issues or inconsistencies in the application of accounting principles? |
Make a note in other matter paragraph. DO NOT modify opinion |
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What are the three things that comprise the audit strategy? |
Defining the Scope of the Audit Setting Key Dates/Personnel Defining the Objectives of the Audit |
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What are the three things that comprise the audit plan? |
Nature of procedures to be performed Timing of procedures to be performed Extent of procedures to be performed |
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Reports are considered special reports when issued in conjunction with: |
Compliance with aspects of regulatory requirements related to audited financial statements |
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What is the different between a forecast and a projection? |
Forecast predicts where the company will be if they continue with their current course of action Projection predicts what could happen IF the company takes a certain action |
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What comes first in the revenue cycle? Shipping the merchandise Matching the sales order, invoice, and shipping docs |
Matching the docs |
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Which comes first in the revenue cycle? Purchasing inventory needed to cover the order Completing the sales order |
Purchasing inventory needed to cover the order |
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When should an auditor hire a specialist? |
When expertise in a field other than accounting or auditing is necessary to obtain sufficient appropriate evidence |
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What inquiries should the successor auditor make of the predecessor auditor... ...before accepting an engagement? ...after accepting an engagement? |
Inquiries on the integrity of management (reason for auditor change, disagreements on accounting principles, etc.)
Inquiries that will affect how the audit is performed (working papers, contingencies, matters that facilitate the evaluation financial reporting consistency, etc.) |
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Guarantees on loans are a possible indicator of what? |
Related party transactions |
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When applying for a governmental audit contract, what additional document must the auditor provide to the client? |
Their most recent external quality control review |
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In a single audit engagement, how much of the client's major programs must an auditor test? |
Non-low-risk auditee: programs that encompass 40% of total federal expenditures
Low-risk auditee: programs that encompass 20% of total federal expenditures |
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What is the requirement for CPE credits for auditors performing work under GAGAS? |
24 hours of CPE relating to government auditing every 2 years If auditor spends more than 20% of their total work hours on GAGAS audits, this increases to 80 hours every two years |
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What are the three main things that make a risk significant? |
Complexity Infrequency Estimation |
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What is the main goal of touring the client's plant? |
Checking for obsolete inventory |
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How often are external peer reviews required for auditors/firms accepting engagements under GAGAS? |
Once every three years |
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What three things should be reported in a performance audit? |
Noted significant deficiencies/material weaknesses Noted material fraud/noncompliance with laws and regulations Noted material noncompliance with contracts/grant agreements |
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