AUD CPA Exam Final Review || with errorless answers.
what auditor should consider for firm's client acceptance & continuance policies correct answers
ability to meet reporting deadlines, ability to staff engagements, independence, & integrity of
client mgmt (do we want to be associated with them)
before accepting audit engagement correct answers determine if financial reporting framework is
acceptable & obtain agreement of mgmt that it acknowledges and understands responsibilities
management responsibilities correct answers preparation & fair presentation of financial
statements; design, implementation, & maintenance of internal controls; provide auditor with
access to all relevant info, addtl info auditor may request, & unrestricted access to people
necessary to obtain evidence
inquiries should be made of predecessor auditor regarding correct answers integrity of mgmt,
mgmt disagreements with predecessor auditor, reason for change in auditors, any
fraud/noncompliance/internal control matters & commmunication of those to mgmt/audit
committee/those charged with governance
during audit of new client, auditor should obtain sufficient appropriate evidence about correct
answers if opening balances contain misstatements & if all accounting policies are consistently
applied
new auditor should review predecessor's documentation of correct answers planning, risk
assessment procedures, further audit procedures, results, matters of continuing accounting &
audit significance
engagement letter correct answers contract between client & auditor to reduce risk of
misinterpretation
for recurring audits, auditor should assess correct answers if circumstances requires terms of
engagement to be revised
,written engagement letter should include correct answers objective of audit, mgmt
responsibilities, auditor responsibilities (gather sufficient appropriate audit evidence, express an
opinion), limitations of engagement (not providing total assurance, not guarantee f/s free of
misstatements), identification of applicable financial reporting framework, reference to expected
form & content of report to be issued
audit documentation correct answers written record of work performed, evidence obtained, &
conclusion reached
qualities of audit documentation correct answers divided into permanent & current files, supports
auditor's report/opinion, aids in training & conduct/supervision of audit, provides record of
accumulated evidence, indicates that accounting records reconcile to financial statement,
contains enough info that an experienced auditor with no prior knowledge of client could
understand the work performed
audit documentation assembly & retention requirements correct answers issuers: documentation
must be assembled within 45 days of audit report release & must be kept for 7 years
non-issuers: documentation must be assembled within 60 days of audit report release & must be
kept for 5 years
audit documentation is confidential & can only be disclosed without client permission if correct
answers part of quality review program, subpoenaed for it, or part of investigation by
AICPA/state CPA society/state statute
those charged with governance correct answers people who bear responsibility to oversee
obligations & direction of entity (includes board of directors & audit committee)
audit committee correct answers members of the board of directors (usually independent/outside
directors) who aren't employees or part of mgmt & don't have material financial interests in the
company
, audit committee functions correct answers establish control environment, select & appoint
independent auditor, review quality of auditor's work, respond to auditor recommendations, help
resolve disagreements in accounting treatment of material items, & serve as bridge between
board of directors & auditor
communication responsibilities of auditor in financial statement audit correct answers not
required to (but may) search for deficiencies less sever than material weaknesses or express
opinion on internal control; , in writing, both significant deficiencies & material weaknesses to
mgmt/governance within 60 days of report release date; in writing, previously communicated
significant deficiencies/material weaknesses that haven't been corrected; other deficiencies
identified (in writing or orally); can't report absence of significant deficiencies but can report
absence of material weaknesses
independence is required for correct answers audits & attest services (including reviews); NOT
required for compilations, consulting, tax work
cases where independence is impaired correct answers 1. CPA has direct financial interest or
indirect material interest in client
2. audit fees remain unpaid for more than a year
3. CPA has mgmt position with client or is employee; spouse can be employee as long as its not
in mgmt or financial reporting role
4. CPA makes hiring decisions for client
5. litigation, unless it is for immaterial amount unrelated to the audit
cases where independence is NOT impaired correct answers 1. with bank client by full insured
checking account (under $250K FDIC limit amount)
2. fully collateralized car loan
all engagements must be performed with correct answers objectivity, integrity, & free of conflict
of interests
what auditor should consider for firm's client acceptance & continuance policies correct answers
ability to meet reporting deadlines, ability to staff engagements, independence, & integrity of
client mgmt (do we want to be associated with them)
before accepting audit engagement correct answers determine if financial reporting framework is
acceptable & obtain agreement of mgmt that it acknowledges and understands responsibilities
management responsibilities correct answers preparation & fair presentation of financial
statements; design, implementation, & maintenance of internal controls; provide auditor with
access to all relevant info, addtl info auditor may request, & unrestricted access to people
necessary to obtain evidence
inquiries should be made of predecessor auditor regarding correct answers integrity of mgmt,
mgmt disagreements with predecessor auditor, reason for change in auditors, any
fraud/noncompliance/internal control matters & commmunication of those to mgmt/audit
committee/those charged with governance
during audit of new client, auditor should obtain sufficient appropriate evidence about correct
answers if opening balances contain misstatements & if all accounting policies are consistently
applied
new auditor should review predecessor's documentation of correct answers planning, risk
assessment procedures, further audit procedures, results, matters of continuing accounting &
audit significance
engagement letter correct answers contract between client & auditor to reduce risk of
misinterpretation
for recurring audits, auditor should assess correct answers if circumstances requires terms of
engagement to be revised
,written engagement letter should include correct answers objective of audit, mgmt
responsibilities, auditor responsibilities (gather sufficient appropriate audit evidence, express an
opinion), limitations of engagement (not providing total assurance, not guarantee f/s free of
misstatements), identification of applicable financial reporting framework, reference to expected
form & content of report to be issued
audit documentation correct answers written record of work performed, evidence obtained, &
conclusion reached
qualities of audit documentation correct answers divided into permanent & current files, supports
auditor's report/opinion, aids in training & conduct/supervision of audit, provides record of
accumulated evidence, indicates that accounting records reconcile to financial statement,
contains enough info that an experienced auditor with no prior knowledge of client could
understand the work performed
audit documentation assembly & retention requirements correct answers issuers: documentation
must be assembled within 45 days of audit report release & must be kept for 7 years
non-issuers: documentation must be assembled within 60 days of audit report release & must be
kept for 5 years
audit documentation is confidential & can only be disclosed without client permission if correct
answers part of quality review program, subpoenaed for it, or part of investigation by
AICPA/state CPA society/state statute
those charged with governance correct answers people who bear responsibility to oversee
obligations & direction of entity (includes board of directors & audit committee)
audit committee correct answers members of the board of directors (usually independent/outside
directors) who aren't employees or part of mgmt & don't have material financial interests in the
company
, audit committee functions correct answers establish control environment, select & appoint
independent auditor, review quality of auditor's work, respond to auditor recommendations, help
resolve disagreements in accounting treatment of material items, & serve as bridge between
board of directors & auditor
communication responsibilities of auditor in financial statement audit correct answers not
required to (but may) search for deficiencies less sever than material weaknesses or express
opinion on internal control; , in writing, both significant deficiencies & material weaknesses to
mgmt/governance within 60 days of report release date; in writing, previously communicated
significant deficiencies/material weaknesses that haven't been corrected; other deficiencies
identified (in writing or orally); can't report absence of significant deficiencies but can report
absence of material weaknesses
independence is required for correct answers audits & attest services (including reviews); NOT
required for compilations, consulting, tax work
cases where independence is impaired correct answers 1. CPA has direct financial interest or
indirect material interest in client
2. audit fees remain unpaid for more than a year
3. CPA has mgmt position with client or is employee; spouse can be employee as long as its not
in mgmt or financial reporting role
4. CPA makes hiring decisions for client
5. litigation, unless it is for immaterial amount unrelated to the audit
cases where independence is NOT impaired correct answers 1. with bank client by full insured
checking account (under $250K FDIC limit amount)
2. fully collateralized car loan
all engagements must be performed with correct answers objectivity, integrity, & free of conflict
of interests
