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Flashcards in Audit 21 Deck (20)
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1

Does a change in useful life of a depreciable asset affect consistency and need to be referred to in the auditors report

No

A change in the useful life of a depreciable asset is a change in accounting estimate, which does not affect consistency as estimates change on a regular basis.

2

what do you do if Ly you compiled info with omitted disclosures and the is year there are disclosure and the entity wants you to do them in comparative form

You can't report them in comparative form because they are not comparable - excluding disclosures in one year makes them comparable

3

Compilation projections:
- these are based on the judgment of management and the accountant would not be qualified to evaluate them

- the accountant provide NO assurance and applied NO procedures,

A change in the useful life of a depreciable asset is a change in accounting estimate, which does not affect consistency as estimates change on a regular basis.

4

In a report on internal controls and compliance with laws and regulations associated with a yellow book audit - what is required to be included

A description of the scope of testing of internal controls

5

When reporting on comparative financial statements, an auditor ordinarily should change the previously issued opinion on the prior-year’s financial statements if the:

Prior year’s financial statements are restated to conform with the applicable reporting framework.

When financial statements are presented on a comparative basis and the opinion expressed on the prior period's financial statements was qualified due to nonconformity with the applicable reporting framework, which has since been corrected, the auditor will update the report.

6

When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to the situation in the



I. Auditor's responsibilty paragraph

II. Notes to the financial statements

Neither

the audit report will include the standard introductory paragraph, a paragraph indicating management’s responsibilities, a paragraph indicating the auditor’s responsibilities, and a paragraph providing the basis for the qualification.

7

Contingent liability rules

remote - no mention or accuse

reasonable possible - disclose only

Probable and estimable - disclose and accrue

If probable and not estimable

disclose - and say why the loss is Not estimable

8

In compilation report what statement is said in the report

-Mgmt is responsible for F/S

-name the F/S

- performed it in accordance with SSARA - by ARsc, of AICPA

- we did NOT audit or review the F/S

- Therefore there is NO opinion or conclusion,

There is No assurance

9

Which of the following procedures would be most effective in reducing attestation risk?

Examination of evidence.

10

An auditor expressed a qualified opinion on the prior year's financial statements because of a lack of adequate disclosure. These financial statements are properly restated in the current year and presented in comparative form with the current year's financial statements. The auditor's updated report on the prior year's financial statements should

Express an unmodified opinion on the restated financial statements of the prior year.


When an entity restates a prior period’s financial statements to eliminate a misstatement so that the statements can be presented in comparative form, the auditor will revise the report on the prior period financial statements to an unmodified opinion and include an other-matter paragraph referring to the earlier report with its date, the original opinion expressed, the reasons for changing that opinion, and the fact that the current opinion on the prior statements is unmodified. The auditor would not reissue the prior year's report or continue to express a qualified opinion, because that opinion has changed.

11

An auditor is concerned that costs that should be recognized as repairs and maintenance expense have been inappropriately capitalized and are reported as assets. Which of the following procedures would not be effective in determining whether or not this is the case?

Tracing amounts recorded as repairs and maintenance expense to supporting documentation.


Physically inspecting property, plant, and acquisitions for the period.

Comparing repairs and maintenance expense to budgeted amounts.

Comparing asset acquisitions to budgets of capital expenditures.

Tracing amounts recorded as repairs and maintenance expense to supporting documentation.

To determine if amounts that should have been recognized as repairs and maintenance expense were incorrectly capitalized and reported as assets, the auditor will test from a population of items that were capitalized and reported as assets to determine if any should have been recognized as expense.

This can be accomplished by physically inspecting acquisitions for the period, which draws from a population of amounts capitalized and determines if they are legitimate.

Comparing repairs and maintenance expense to budgeted amounts will alert the auditor that amounts may have been inappropriately capitalized if there is a favorable variance caused by underspending.

Likewise, comparing asset acquisitions to budgets for capital expenditures will alert the auditor that amounts may have been inappropriately capitalized if actual acquisitions exceed budgeted amounts.

Tracing amounts recorded as expense to supporting documents provides the auditor with evidence that recorded transactions did occur and were reported properly but would not provide evidence about items that were not recorded in repairs and maintenance expense that should have been.

12

When testing investments in equity securities of publicly held entities, the auditor prepares a schedule of dividends received and compares it to dividend information available to the public. Which assertion is the auditor testing

Completeness

Since dividends declared and paid by publicly held entities are reported to the public, comparing dividends received to publicly available information will allow the auditor to determine if the dividends recognized by the entity reconciles to the dividends that had been declared and paid to investors during the period.

A discrepancy may indicate that dividends received were not recognized, which is related to completeness and may indicate a possible embezzlement scheme.

A discrepancy in which recorded amounts exceed amounts based on publicly available information may indicate that recorded dividends were not actually received, which relates to the occurrence assertion, or that they relate to investments that are not recognized on the entity’s financial statements, indicating that the records may be incomplete.

The assertions of existence and rights and obligations relate to account balances, not classes of transactions, such as dividends.

Comparing the nature of the receipt to how it is recorded will provide evidence as to classification, not comparing publicly available knowledge to recorded amounts.

13

The report resulting from a
n engagement to apply agreed-upon procedures related to the financial statements will generally include:



1. A disclaimer indicating the procedures applied may not be sufficient for the purpose intended.

2. A statement that the public is entitled to view the report.

3. Limited assurance in the form of a statement that the accountant is not aware of any modifications necessary to bring the statements in compliance with GAAP.

1 only

The report resulting from an engagement to apply agreed-upon procedures related to the financial statements will include the accountant’s findings, a disclaimer indicating the procedures applied may not be sufficient for the purpose intended, and a statement restricting the distribution of the report only to parties knowledgeable about the agreed-upon procedures. No assurance is provided.

14

For effective internal control, the accounts payable department generally should

- Stamp, perforate, or otherwise cancel supporting documentation after payment is mailed.

- Ascertain that each requisition is approved as to price, quantity, and quality by an authorized employee.

- Obliterate the quantity ordered on the receiving department copy of the purchase order.

- Establish the agreement of the vendor’s invoice with the receiving report and purchase order.

Establish the agreement of the vendor’s invoice with the receiving report and purchase order.


The accounts payable department compares the vendor’s invoice to a receiving report to make certain all goods being paid for were received, and to the purchase order to make certain all goods were ordered. The supporting documentation is cancelled as soon as a check is signed, not after the check is mailed. The purchasing department makes certain that requisitions are approved before placing an order. The purchasing department, not accounts payable, provides the receiving department with a copy of the purchase order omitting quantities.

15

To determine whether internal control relative to the revenue cycle of a wholesaling entity is operating effectively in minimizing the failure to prepare sales invoices, an auditor most likely would select a sample of transactions from the population represented by the

The shipping document file

16

An auditor’s objective in the performance of audit procedures is to obtain evidence that either supports or refutes management assertions. Which of the following is a procedure designed to achieve that objective?

Analytical procedures.

Analytical procedures consist of comparing client data to the auditor’s expectations and can be used to test management’s assertions. In comparing recorded sales to the auditor’s expectations as to the client’s sales volume, for example, the closer the amounts are, the more comfortable the accountant will be with the completeness of sales and that all recorded sales actually occurred.

17

Which of the following computer-assisted auditing techniques allows fictitious and real transactions to be processed together without client operating personnel being aware of the testing process

Integrated test facility.

Using the integrated test facility approach, the auditor will run fictitious transactions through the client’s system along with the client’s data, to make certain that it is receiving the same treatment and enabling the auditor to compare results to expected results.

Parallel simulation involves running the client’s data through an auditor-developed software package. The auditor can compare the results to the client’s results to see if the client’s system processed the data similarly.

An input controls matrix and monitoring of data entry are both input controls and do not provide evidence about the processing of data.

18

Regarding pension obligations and their associated auditing issues, which of the following statements is true?

The independent actuarial firm relied upon by an entity’s management provides certain assumptions, such as workforce life expectancy, which are trusted implicitly by the auditor.

If all other factors remain the same, a decrease in the discount rate assumption will reduce an entity’s pension liability.

Defined contribution plans require more accounting estimates than defined benefit plans.

The findings of a specialist, such as an actuary, constitute audit evidence to be evaluated by the auditor

The findings of a specialist, such as an actuary, constitute audit evidence to be evaluated by the auditor.


Determining the amount of a pension obligation often requires a level of expertise that an auditor is not expected to possess and, as a result, the auditor will frequently be required to rely on the work of a specialist. Since the specialist’s findings affect items on the financial statements upon which the auditor is expressing an opinion, the auditor will evaluate the qualifications and the work of the specialist to determine whether or not reliance is appropriate.

19

An auditor's tests of controls for completeness for the revenue cycle usually include determining whether
Each receivable is collected subsequent to the year end.


An invoice is prepared for each shipping document.

Each invoice is supported by a customer purchase order.


Each credit memo is properly approved.

An invoice is prepared for each shipping document.

By determining if an invoice is prepared for each shipping document, the auditor could determine if all goods shipped were invoiced, testing the assertion of completeness.

Determining if receivables are subsequently collected tests the existence and valuation assertions.

Determining if each invoice is supported by a customer purchase order tests the occurrence assertion. Determining that each credit memo is properly approved also tests occurrence.

20

An auditor reviews the reconciliation of payroll tax forms that a client is responsible for filing in order to:

Verify that payroll taxes are deducted from employees’ gross pay.

Identify potential liabilities for unpaid payroll taxes.

Uncover fictitious employees who are receiving payroll checks.

Determine whether internal control activities are operating effectively.

Identify potential liabilities for unpaid payroll taxes.

Reviewing a reconciliation of payroll tax forms will provide the auditor with evidence of the payroll taxes owed by the entity and whether or not they were paid.