AUD CPA Exam Notes Questions and
Answers.
SU 1 - Answer Engagement Responsibilities
Nature of an Attest Engagement - Answer gives an assertion or opinion on the material of the
responsible party. They only apply to a CPA operating in public practice. Some services require a CPA
to disclaim assurance.
Attestation Standards - Answer 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
Generally Accepted Auditing Standards and the International Auditing Standards - Answer the
General Standards were codified between GAAS and the AICPA's ASB. They basically converge with
international standards but still differ in some areas.
Who regulates issuers versus non-issuer audits? - Answer Issuers Audit = PCAOB, Non-issuer = ASB
Standards
Who issues Government Audit Standards? - Answer The yellow book is the government standards
and is issued by the Governmental Accountability Office. It is ASB unless modified. Federal Awards
may require a single audit which falls under the OMB Single Audit Act.
Purpose of an Audit - Answer to provide financial statement users with an opinion on whether the
financial statements are presented fairly in accordance with the applicable financial reporting
framework and free from material misstatement whether due to fraud or error.
Professional Scepticism - Answer required by auditors when performing an audit.
Audit Risk - Answer 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.
,Managements Assertions - Answer CAVE CROC
Completeness
Accuracy
Valuation and Allocation
Existence
Cutoff
Rights and Obligations
Occurrence
Classification and Understand ability
Assertions about Transactions and Events (P&L and Cash Flows) - Answer Occurrence, Completeness,
Accuracy, Cutoff, Classification
Assertions about Account Balances (B/S) - Answer Existence, Rights and Obligations, Completeness,
Valuation and Allocation
Assertions about Presentation and Disclosure (Mainly notes to financial statements) - Answer
Occurrence and Rights and Obligations, Completeness, Classification and Understand ability,
Accuracy and Valuation
PCAOB Assertions - Answer same as above but they do not explicitly address accuracy.
Professional Responsibilities of Auditors - Answer must comply with unconditional requirements (i.e.
independence).
Additional Professional Services - Answer 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
Assurance Services - Answer Assurance > Attest > Audit
Does not include consulting services
Designed to enhance decision making
, Quality Control - Answer Starts with Tone of the Top, ethical requirements, and other procedures.
SOX requires a second auditor to sign off on audits. CEO and CFO must sign off on financial
statements.
SU 2 - Answer Professional Responsibilities
Code of Professional Conduct - Principles - Answer Responsibilities, Protect public interest, act with
integrity, be objective and independent, act with due professional care, and follow the scope and
nature of services
Code of Professional Conduct - Rules - Answer Fall under the principles, more specific.
Independence - Answer must be independence in mind and in appearance.
Independence is impaired if a COVERED members has certain interests or relationships: Covered =
attest member, partner or manager who provides non-attest services, partner in office where lead
engagement partner practices.
Conceptual Framework for Independence - Answer Identify threats to independence, use safeguards
to minimize them to acceptable level.
How is independence impaired? - Answer if a covered member has a direct financial interest in an
attest client during engagement.
Covered member has loans to or from an attest client during engagement.
Covered member has indirect material financial interest.
Covered member is an executor of trust.
Covered member owns 5% or more of an attest client during period or engagement.
Immediate family of a covered member is subject to independence rules.
Close relatives can result in impairment but are less strict than immediate.
May be impaired by actual or threatened litigation.
What services impair independence? - Answer Covered member should not assume management
responsibilities.
Answers.
SU 1 - Answer Engagement Responsibilities
Nature of an Attest Engagement - Answer gives an assertion or opinion on the material of the
responsible party. They only apply to a CPA operating in public practice. Some services require a CPA
to disclaim assurance.
Attestation Standards - Answer 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
Generally Accepted Auditing Standards and the International Auditing Standards - Answer the
General Standards were codified between GAAS and the AICPA's ASB. They basically converge with
international standards but still differ in some areas.
Who regulates issuers versus non-issuer audits? - Answer Issuers Audit = PCAOB, Non-issuer = ASB
Standards
Who issues Government Audit Standards? - Answer The yellow book is the government standards
and is issued by the Governmental Accountability Office. It is ASB unless modified. Federal Awards
may require a single audit which falls under the OMB Single Audit Act.
Purpose of an Audit - Answer to provide financial statement users with an opinion on whether the
financial statements are presented fairly in accordance with the applicable financial reporting
framework and free from material misstatement whether due to fraud or error.
Professional Scepticism - Answer required by auditors when performing an audit.
Audit Risk - Answer 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.
,Managements Assertions - Answer CAVE CROC
Completeness
Accuracy
Valuation and Allocation
Existence
Cutoff
Rights and Obligations
Occurrence
Classification and Understand ability
Assertions about Transactions and Events (P&L and Cash Flows) - Answer Occurrence, Completeness,
Accuracy, Cutoff, Classification
Assertions about Account Balances (B/S) - Answer Existence, Rights and Obligations, Completeness,
Valuation and Allocation
Assertions about Presentation and Disclosure (Mainly notes to financial statements) - Answer
Occurrence and Rights and Obligations, Completeness, Classification and Understand ability,
Accuracy and Valuation
PCAOB Assertions - Answer same as above but they do not explicitly address accuracy.
Professional Responsibilities of Auditors - Answer must comply with unconditional requirements (i.e.
independence).
Additional Professional Services - Answer 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
Assurance Services - Answer Assurance > Attest > Audit
Does not include consulting services
Designed to enhance decision making
, Quality Control - Answer Starts with Tone of the Top, ethical requirements, and other procedures.
SOX requires a second auditor to sign off on audits. CEO and CFO must sign off on financial
statements.
SU 2 - Answer Professional Responsibilities
Code of Professional Conduct - Principles - Answer Responsibilities, Protect public interest, act with
integrity, be objective and independent, act with due professional care, and follow the scope and
nature of services
Code of Professional Conduct - Rules - Answer Fall under the principles, more specific.
Independence - Answer must be independence in mind and in appearance.
Independence is impaired if a COVERED members has certain interests or relationships: Covered =
attest member, partner or manager who provides non-attest services, partner in office where lead
engagement partner practices.
Conceptual Framework for Independence - Answer Identify threats to independence, use safeguards
to minimize them to acceptable level.
How is independence impaired? - Answer if a covered member has a direct financial interest in an
attest client during engagement.
Covered member has loans to or from an attest client during engagement.
Covered member has indirect material financial interest.
Covered member is an executor of trust.
Covered member owns 5% or more of an attest client during period or engagement.
Immediate family of a covered member is subject to independence rules.
Close relatives can result in impairment but are less strict than immediate.
May be impaired by actual or threatened litigation.
What services impair independence? - Answer Covered member should not assume management
responsibilities.
