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Flashcards in Audit 16 Deck (25)
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1

If you intend to assess CR below the maximum what must you do

must perform TOC

2

What are control activities

policies and procedures that management uses to provide reasonable assurance that the entity's objectives will be achieved

3

When evaluating the reasonableness of accounting estimates the auditor will concentrate on those that represent the highest risk of misstatement. The audior will therefore concentrate on key factors and assumptions that are

Deviation from historical patterns

4

Since it is generally impractical of rte auditor to determine if a related party transaction occurred on terms equivalent to an arms length transactionIt the footnotes indicate this then the auditor would do what

They would modify an unmodified report

5

Relationships involving income statement accounts such as the relationship between cost of sales tend to be more predictable that

the relationships involving only balance sheet accounts

6

The negative form of confirmation request most likely would be used when

The combined assessed level of inherent risk and control risk relative to accounts receivable is low

7

What are some of the way which an auditor can determine whether to not to rely on management's estimate

1) test the process they use, see if it is appropriate, assumption are reasonable, and data is reliable

2) auditor can independently develop an estimate and compare to clients

3)Can also use subsequent events to determine if they provide evidence as to the reliability of estimates

4) test the internal controls related to the development of estimates

8

Inventory Turnover increase substantially from prior year - 3 explanations

1) year end purchases of inventory were understated by incorrectly excluding items received before year end

2)Items shipped on consignment during the last month of the year were recorded as sales

3)Sales increases at a lower percentage than COGS increased as compared to the prior year

9

A/R turnover decreased substantially from prior year- 3 explanations

1) B A significant number of credit memos for returned merchandise that were issued during the last month of the year were not recorded.

2)Items shipped on consignment during the last month of the year were recorded as sales

3Sales increased at the same percentage as cost of goods sold, as compared to the prior year.

10

Allowance for Doubtful accounts increased from the prior year, but allowance for doubtful accounts as a percentage of A/R decreased from prior year

1. Items shipped on consignment during the last month of the year were recorded as sales.)

2A significant number of credit memos for returned merchandise that were issued during the last month of the year were not recorded.

3Sales increased at a lower percentage than cost of goods sold increased, as compared to the prior year.

11

Long term debt increased from prior year but interest expense increased a larger than proportionate amount than long term debt - 1

Short-term borrowing was refinanced on a long-term basis at higher interest rates

12

Operating income increase from prior year although the entity was less profitable than in prior years - 2 explanations

1 - Sales increased at a greater percentage than cost of goods sold increased, as compared to the prior year.

2 - The effective income tax rate increased, as compared to the prior year.

13

Gross margin percentage was unchanged from prior years although gross margin increased from prior year - 1

Sales increased at the same percentage as cost of goods sold, as compared to the prior year.

14

When an auditor assesses control risk below the max level - the auditor is required to document what

Both the basis for concluding the CR is below the max and
the understanding of the entity's internal control structure elements

15

An auditor would express an unmodified opinion with an explanatory paragraph added to the auditor's report for
1 - an unjustified account change
2 - a material weakness in internal control

Nether - unjustified accounting changes gets an adverse opinion or qualified depending on materiality

no mention of material weakness in the report

16

Which of the following is a substantive test that an auditor most likely would perform to verify the existence and valuation of recored A/P

Vouching selected entries in the A/P subsidiary ledger to purchase order and receiving reports

17

when evaluating the internal controls of an entity - the auditor may rely on the report of a service auditor, but since this report is for the purpose of assessing control risk -

do NOT refer to the service center reporting when missing his or her opinion on the F/S

18

an accountant has been asked to issue a review report on the balance sheet of a nonpublic company, but not report on the other basic F/S - an accountant may not do so if

The scope of the inquiry and A/P has been restricted

19

An auditor's responsibilities are confined to expressing

an opinion on the F/S

20

A consulting engagement can include
1 - analysis o client's accounting system
2- review of clients prepared business plan
3 - prep of information for obtaining financing

1, 2 and 3 - all can be consulting

21

When providing limited assurance that the F/S of a nonpublic entity require no material modification to be in accordance with GAAP what will the accountant should

Understand the accounting principles of the industry in which the entity operate - this is a review

22

When compiling financial statement whether using computer software or not - you are subject to the requirements of

SSARS

23

When F/S prep is the highest level of service an accountant will be performing - it is non attest and is subject to SSARS

- Will this be the case if you are prepping F/S that will not be compiled reviewed or audited

-You prepare finacial statements that will be compiled by someone else

You prepare F/S as a step to late compile, review or audit the F/S - NO because you will have to check independence

24

When a CPA os associated with eth F/S of a public entity without auditing or reviewing the information what does the PCAOB require you to issue

a disclaimer of an opinion

25

What is the primary reason auditors send letters to attorneys

to corroborate the info furnished by management concerning litigation, claims and assessments