Audit 2 FINAL Exam questions with complete solutions

Audit 2 FINAL Exam questions with
complete solutions

Management Assertions (5) - answer-- Existence c c c c c


- Completeness
c


- Valuation
c


- Rights/Obligations
c


- Presentation/Disclosures
c




Audit Objectives (5) - answer-- Accuracy
c c c c c


- Validity
c


- Completeness
c


- Ownership
c


- Valuation/Cut-off
c




Audit Risk Modelc c


- Equation
c


- Definition of each component
c c c c


- RMM
c


- Inverse Relationship
c c


- Assessed versus Set
c c c


- Does Management Assertions have to do with anything? - answer-AR = IR * CR * DR
c c c c c c c c c c c c c c c c


- IR = likelihood that account is to be misstated before impact of internal controls (in
c c c c c c c c c c c c c c c


cconnection to management assertions) c c c


- CR = risk company hasn't designed proper controls to catch error
c c c c c c c c c c c


- DR = auditor performs procedures that do not find material error
c c c c c c c c c c c


- AR = risk of giving the wrong opinion
c c c c c c c c


- RMM = IR * CR = risk material misstatement has occurred
c c c c c c c c c c c


- Auditor assesses RMM and determines AR (DR is a result of it)
c c c c c c c c c c c c


- DR varies inversely with IR and CR
c c c c c c c




ARM - Audits c c


- Equation
c


- DRc


- What type of assurance is provided?
c c c c c c


- What procedures are involved? - answer-IR * CR * AP(evidence) * TD = AR
c c c c c c c c c c c c c c


- PLANNED DR = f(RMM and AR*) = AR*/RMM
c c c c c c c c


- POSITIVE ASSURANCE
c c


- Procedures: Analytical Procedures and Test of Details
c c c c c c c




ARM - Reviews c c

,- Equation
c


- DRc


- What type of assurance?
c c c c


- What procedures are involved? - answer-IR * CR * Analytical Procedures Risk = AR
c c c c c c c c c c c c c c


- Planned DR = FIXED because based on AP which is only 2 procedures
c c c c c c c c c c c c c


- Negative Assurance
c c


- Procedures: Analytical Procedures (Inquiry and Analytics)
c c c c c c




ARM - Compilations c c


- Equation
c


- DRc


- What type of assurance?
c c c c


- What procedures are involved? - answer-IR * CR * Passive Observer Risk = AR
c c c c c c c c c c c c c c


- Planned DR = Fixed based on skimming/compiling
c c c c c c c


- No Assurance
c c


- Planned DR = fixed based on skimming/compiling (almost 1.0)
c c c c c c c c c


- Procedures: Passive Observer (read the financials and trying to determine if there are
c c c c c c c c c c c c c


cerrors)

3 Components of Standard Audit Report - answer-1. Responsibility Paragraph
c c c c c c c c c


2. Scope Paragraph
c c


3. Opinion Paragraph
c c




3 "Buckets" of defects that cause change in audit report - answer-1. Audit Defects
c c c c c c c c c c c c c


c(problem applying audit standards) c c c


2. Accounting Defect (accounting errors)
c c c c


3. Something unusual (GAAP and accounting standards ok - but want to point out
c c c c c c c c c c c c c


csomething else) c


--- SEC won't accept audit or accounting defects
c c c c c c c


- REVIEW CHARTS
c c




Audit Reports For Unusual Circumstances - Material (9) - answer-1. Emphasis of Matter
c c c c c c c c c c c c


2. Division of Responsibilities
c c c


3. Justified Departure from GAPP
c c c c


4. Substantial Doubt for entity's ability as a going concern (SEE YES/NO CHART
c c c c c c c c c c c c


ABOUT WHETHER FOOTNOTE/MODIFIED AUDIT REPORT IS REQUIRED)
c c c c c c c


5. Change in accounting principles or method of their application
c c c c c c c c c


6. Non-Comparative Financial Statements
c c c


7. Interim financial info omitted/not reviewed
c c c c c


8. Required un-audited supplemental information
c c c c


9. Other information inconsistent
c c c




PCAOB/AICPA/IAASB Standards for Services - answer-1. Audits of Historical Financial c c c c c c c c c


Information (AS/AU-C/ISAs)
c c


2. Reviews of Historical Financial Information (SSARS[AR]/ISREs)
c c c c c c

, 3. Assurance Engagements for Other than Audits and Reviews of Historical Financial
c c c c c c c c c c c


Information (SSAE [AT]/ISRSs)
c c c


4.Related Services - AUP/Compilation (SSARS [AR]/ISRSs)
c c c c c




Assurance (Attestation) Engagement - answer-Engagement in which a practitioner
c c c c c c c c


obtains sufficient, appropriate evidence in order to express a conclusion designed to
c c c c c c c c c c c c


enhance the degree of confidence of the intended users other than the responsible
c c c c c c c c c c c c c


party about the outcome of the evaluation or measurement of a subject matter against
c c c c c c c c c c c c c c


criteria
c




5 Elements of Assurance Engagement - answer-1. 3-party relationship
c c c c c c c c


2. Underlying subject matter
c c c


3. Suitable criteria
c c


4. Appropriate sufficient evidence
c c c


5. Written report
c c




Information Value Determinants - answer-- Measurement Method Relevance (Relevant?
c c c c c c c c


c- ex. GAAP)
c c


- Care in Measurement Process (Quality? - Auditing Standards)
c c c c c c c c


- Trustworthiness of Measurement Display and Process (Reliable? - Auditor Reputation
c c c c c c c c c c


cor Independence Standards)
c c




Professional Accountants Have... (3) - answer-1. Accounting Expertise (Processing,
c c c c c c c c


Controls, Financial Reporting Framework - GAAP, IFRS, other)
c c c c c c c c


2. Auditing Expertise (Business Knowledge, Risk Assessment, Analysis, Auditing
c c c c c c c c


Procedures)
c


3. Ethical Behaviors/Regulations Expertise - Perceived Less Risk than an Audit
c c c c c c c c c c




Audits/Reviews - Management and Practitioner Responsiblities - answer-Management: c c c c c c c


Responsible for Management and Measurement
c c c c c


Practitioner: Responsible for Verification (according to the assurance contract)
c c c c c c c c




- Review is the same thing as audit with different levels of assurance
c c c c c c c c c c c c




Attest vs. Direct Engagement - answer-Attest Engagement - someone else does testing
c c c c c c c c c c c


and practitioner verifies
c c c


Direct Engagement - practitioner does testing and the conclusion
c c c c c c c c




Reasonable vs. Limited Assurance - answer-Reasonable/Positive Assurance - did
c c c c c c c c


procedures and the financial statements are presented fairly in all material respects
c c c c c c c c c c c c


Limited/Negative Assurance - based on procedures, not aware of any material errors c c c c c c c c c c c




Engagement Risk - answer-Reputation/Brand risk - if auditor is associated with fraud
c c c c c c c c c c c


and issues a clean opinion
c c c c c