AUD CPA Exam Notes with Complete
Solutions
4 Main Types of Services in SSARs - ANS-Preparation, Compilation, Review, Audit.
Preparation is new, no independence assessment or requirement, no report needed.
Compilation is essentially the same accept independence assessment needed and
reported if NOT independent, and report IS required.
Review give only limited assurance.
Audits give positive assurance.
A/P Accuracy - ANS-Obtain a representation letter and compare G/L to financial
statements.
A/P Completeness Assertion - ANS-The most important assertion for A/P.
Test by reconciling ledger with general ledger.
Use analytical procedures from prior experience.
Trace subsequent payments to recorded payables. Match payments issued after year
end to related payables. Any checks that cannot be matched are probably unrecorded
liabilities.
Search suspense files for unmatched documents and unvouchered A/P.
A/P Cutoff - ANS-All goods where titles has passed to client are recorded in inventory
and a/p. Keep in mind FOB Shipping point or FOB Destination for when title passes.
Check cash disbursements and the offset to A/P.
A/P Existence - ANS-Confirmation generally NOT used for this assertion. If done,
sample small and large balances. Basis it on activity in account.
A/P Occurrence - ANS-Sample A/P with documentary support.
A/P Significance - ANS-This is generally the most significant current liability
A/P Valuation - ANS-Not a major assertion, usually satisfied by tests of existence and
completeness.
Accounting Principles Rule - ANS-Any material departure from an accounting principle
issued by an AICPA designated standards prevents a member rom expressing an
opinion in the affirmative or stating that he/she is unaware of material modifications.
Additional Professional Services - ANS-Preparation (Non-attest), Compilation (Non-
attest but must be independent), Review (Limited assurance, performed by inquiry and
,analytical procedure), agreed upon procedures (attest, must be independent),
Prospective Financial Statements, Examinations of Internal Control over Financial
Reporting
Addressing the Report - ANS-Should be address to those for whom the report is
prepared. To entity or to those charged with governance. Could be the partners or
proprietor.
If someone is retained or hired by someone NOT the client, report is addressed to them.
Adverse Opinion - ANS-Conclusion that because of the significance of matters in the
adverse opinion paragraph the f/s are NOT presented fairly. The auditor has obtained
sufficient appropriate evidence but the f/s are NOT presented fairly and it is material and
pervasive.
Adverse Opinions - ANS-Express when the auditor has sufficient appropriate evidence
that misstatements are both material and pervasive. Describe and quantify if possible.
State that it is NOT presented fairly in accordance with applicable framework.
Adverse/Disclaim - ANS-Two worst opinions. Adverse is when you DO have enough
evidence. Disclaim is when you DON'T.
An auditor most likely would review an entity's periodic accounting for the numerical
sequence of shipping documents and invoices to support management's financial
statement assertion of _________________. - ANS-Completeness.
An objective of a performance audit is to determine whether an entity's - ANS-Specific
operating units are functioning economically and efficiently.
Analytical Procedures - ANS-Studies plausible relationships among financial and
nonfinancial data. Develop an expectation and compare to management balance. Can
be used as risk assessment (planning) or as a substantive procedure to eliminate the
need for substantive tests of details in a low risk account.
Assertions about Account Balances (B/S) - ANS-Existence, Rights and Obligations,
Completeness, Valuation and Allocation
Assertions about Presentation and Disclosure (Mainly notes to financial statements) -
ANS-Occurrence and Rights and Obligations, Completeness, Classification and
Understandability, Accuracy and Valuation
Assertions about Transactions and Events (P&L and Cash Flows) - ANS-Occurrence,
Completeness, Accuracy, Cutoff, Classification
Assessing Accounting Estimates - ANS-Should be reasonable and adequate. Should
also review prior period estimates.
, Assessing Risk in a Computer Environment - ANS-Objectives are the same.
Assuming Responsibility for Group Audit - ANS-Might need to perform risk assessment
procedures, perform more procedures, and review component auditor work.
Assurance Services - ANS-Assurance > Attest > Audit
Does not include consulting services
Designed to enhance decision making
Attestation Standards - ANS-General Standards (training, proficiency, knowledge).
Should be measurable. CPA must maintain independence.
Field Work Standards (planning and supervision & sufficient appropriate evidence)
Reporting Standards (Character of Engagement, conclusion, reservations, restrictions)
Acronym: TIPSC PE CCRR
Audit Documentation - ANS-Should include what was tested, who did it, and who
reviewed it and the date all of the above was completed.
Should be assembled in an audit file.
Audit Efficiency and Effectiveness Errors - ANS-Efficiency errors might assume controls
are less effective than they actually are or that there is a misstatement when there isn't
one. This leads to more work.
Effectiveness Errors might assume controls are more effective than they are or that a
misstatement doesn't exist when in fact it does.
Audit Planning - ANS-Continues throughout audit. Size, complexity, experience, and
change in circumstances affect planning. Audit plan should be in accordance with
GAAS.
Audit Risk - ANS-The risk that an audit will not detect a material misstatement. There
will always be audit risk, but the goal is to get that risk as close to zero as possible.
Audit Risk Formula - ANS-AR = (IR x CR) x DR
IR x CR = RMM
DR = Detection Risk
Bring DR lower to lower AR by increasing substantive audit procedures. Can also lower
AR by lowering CR by testing a clients internal controls.
Auditor Responsibilities for Related Party Transactions - ANS-Auditor should perform
audit to identify, assess, and respond to RMMs due to the entity's failure to account for
or disclose related party transactions.
Risk of fraud increases when dominant party has influence over the entity.
Solutions
4 Main Types of Services in SSARs - ANS-Preparation, Compilation, Review, Audit.
Preparation is new, no independence assessment or requirement, no report needed.
Compilation is essentially the same accept independence assessment needed and
reported if NOT independent, and report IS required.
Review give only limited assurance.
Audits give positive assurance.
A/P Accuracy - ANS-Obtain a representation letter and compare G/L to financial
statements.
A/P Completeness Assertion - ANS-The most important assertion for A/P.
Test by reconciling ledger with general ledger.
Use analytical procedures from prior experience.
Trace subsequent payments to recorded payables. Match payments issued after year
end to related payables. Any checks that cannot be matched are probably unrecorded
liabilities.
Search suspense files for unmatched documents and unvouchered A/P.
A/P Cutoff - ANS-All goods where titles has passed to client are recorded in inventory
and a/p. Keep in mind FOB Shipping point or FOB Destination for when title passes.
Check cash disbursements and the offset to A/P.
A/P Existence - ANS-Confirmation generally NOT used for this assertion. If done,
sample small and large balances. Basis it on activity in account.
A/P Occurrence - ANS-Sample A/P with documentary support.
A/P Significance - ANS-This is generally the most significant current liability
A/P Valuation - ANS-Not a major assertion, usually satisfied by tests of existence and
completeness.
Accounting Principles Rule - ANS-Any material departure from an accounting principle
issued by an AICPA designated standards prevents a member rom expressing an
opinion in the affirmative or stating that he/she is unaware of material modifications.
Additional Professional Services - ANS-Preparation (Non-attest), Compilation (Non-
attest but must be independent), Review (Limited assurance, performed by inquiry and
,analytical procedure), agreed upon procedures (attest, must be independent),
Prospective Financial Statements, Examinations of Internal Control over Financial
Reporting
Addressing the Report - ANS-Should be address to those for whom the report is
prepared. To entity or to those charged with governance. Could be the partners or
proprietor.
If someone is retained or hired by someone NOT the client, report is addressed to them.
Adverse Opinion - ANS-Conclusion that because of the significance of matters in the
adverse opinion paragraph the f/s are NOT presented fairly. The auditor has obtained
sufficient appropriate evidence but the f/s are NOT presented fairly and it is material and
pervasive.
Adverse Opinions - ANS-Express when the auditor has sufficient appropriate evidence
that misstatements are both material and pervasive. Describe and quantify if possible.
State that it is NOT presented fairly in accordance with applicable framework.
Adverse/Disclaim - ANS-Two worst opinions. Adverse is when you DO have enough
evidence. Disclaim is when you DON'T.
An auditor most likely would review an entity's periodic accounting for the numerical
sequence of shipping documents and invoices to support management's financial
statement assertion of _________________. - ANS-Completeness.
An objective of a performance audit is to determine whether an entity's - ANS-Specific
operating units are functioning economically and efficiently.
Analytical Procedures - ANS-Studies plausible relationships among financial and
nonfinancial data. Develop an expectation and compare to management balance. Can
be used as risk assessment (planning) or as a substantive procedure to eliminate the
need for substantive tests of details in a low risk account.
Assertions about Account Balances (B/S) - ANS-Existence, Rights and Obligations,
Completeness, Valuation and Allocation
Assertions about Presentation and Disclosure (Mainly notes to financial statements) -
ANS-Occurrence and Rights and Obligations, Completeness, Classification and
Understandability, Accuracy and Valuation
Assertions about Transactions and Events (P&L and Cash Flows) - ANS-Occurrence,
Completeness, Accuracy, Cutoff, Classification
Assessing Accounting Estimates - ANS-Should be reasonable and adequate. Should
also review prior period estimates.
, Assessing Risk in a Computer Environment - ANS-Objectives are the same.
Assuming Responsibility for Group Audit - ANS-Might need to perform risk assessment
procedures, perform more procedures, and review component auditor work.
Assurance Services - ANS-Assurance > Attest > Audit
Does not include consulting services
Designed to enhance decision making
Attestation Standards - ANS-General Standards (training, proficiency, knowledge).
Should be measurable. CPA must maintain independence.
Field Work Standards (planning and supervision & sufficient appropriate evidence)
Reporting Standards (Character of Engagement, conclusion, reservations, restrictions)
Acronym: TIPSC PE CCRR
Audit Documentation - ANS-Should include what was tested, who did it, and who
reviewed it and the date all of the above was completed.
Should be assembled in an audit file.
Audit Efficiency and Effectiveness Errors - ANS-Efficiency errors might assume controls
are less effective than they actually are or that there is a misstatement when there isn't
one. This leads to more work.
Effectiveness Errors might assume controls are more effective than they are or that a
misstatement doesn't exist when in fact it does.
Audit Planning - ANS-Continues throughout audit. Size, complexity, experience, and
change in circumstances affect planning. Audit plan should be in accordance with
GAAS.
Audit Risk - ANS-The risk that an audit will not detect a material misstatement. There
will always be audit risk, but the goal is to get that risk as close to zero as possible.
Audit Risk Formula - ANS-AR = (IR x CR) x DR
IR x CR = RMM
DR = Detection Risk
Bring DR lower to lower AR by increasing substantive audit procedures. Can also lower
AR by lowering CR by testing a clients internal controls.
Auditor Responsibilities for Related Party Transactions - ANS-Auditor should perform
audit to identify, assess, and respond to RMMs due to the entity's failure to account for
or disclose related party transactions.
Risk of fraud increases when dominant party has influence over the entity.
