2023 AARP ASSESSMENT WITH 100% CORRECT ANSWERS ALREADY GRADED A+

Performance materiality What is the materiality level that an auditor uses for determining significant accounts, significant locations, and audit procedures for those accounts and locations? The auditor should perform additional substantive audit procedures An auditor has determined performance materiality has been set too high at the beginning of the audit. Which procedures should this auditor consider to detect misstatements? Risk of material misstatement Which risk exists at the overall financial statement level and at the assertion level and can be categorized as involving inherent risk and control risk? Significant risk What represents an identified and assessed risk of material misstatement that requires special audit consideration? The acceptable audit risk is reduced. What is the impact on the amount of acceptable audit risk if an auditor believes the chance of financial failure of a client is high? The account balance consists of a large number of complex transactions. Which factor should lead an auditor to assess inherent risk as high? The client's use of information technology is incompatible across systems and processes. Which factor would lead an auditor to assess client business risk at a higher level? 75% of $500,000 An auditor determines overall materiality of $500,000 would be material to the income statement and $1,000,000 would be material to the balance sheet. Which amount would an auditor typically assess performance materiality to be for this client? 5% of planning materiality At which percentage do auditors commonly set posting materiality? Determining whether the upper limit of the possible deviation rate exceeds the tolerable deviation rate What is quantitative evaluation? When the total estimated misstatement exceeds the tolerable misstatement In which circumstance would an auditor change an audit objective to estimating the correct value? The percentage of misstatement present in a logical unit What describes tainting percentage? 95% confidence level that the actual rate of deviation will not exceed the tolerable deviation Which statement reflects a 5% risk of overreliance? To determine whether controls are operating effectively What is the objective of sampling when testing controls? To identify overstatement errors What is the primary objective of monetary unit sampling? By using multiple random starts How can an auditor increase the chances that systematically selected samples are representative of the population? Statistical Which sampling method allows an auditor to measure the risk of making an incorrect inference about the population from which the sample is taken? Alert management and the audit committee, even if the act is immaterial Which action must an auditor take after discovering an illegal act during an audit of a publicly traded company? Projected misstatements Which type of misstatement results from an auditor's best estimate of the total misstatements in a given population based on the misstatements detected in an audit sample of that population? When the loss contingency is reasonably possible When do generally accepted accounting principles (GAAP) require a client to only disclose a contingent loss that might occur, and either an accrual has not been made or an exposure exists that is greater than the amount accrued? Disclose the information in the notes to the financial statements A client made a decision to discontinue a major line of business after the balance sheet date.How should an auditor treat this type of subsequent event? Management Who is responsible for designing and maintaining policies and procedures to identify, evaluate, and account for loss contingencies in accordance with generally accepted accounting principles (GAAP)? Review analytical procedures Which procedures help an auditor form an overall conclusion about whether financial statements are consistent with the auditor's understanding of an entity? Engagement quality review What is a risk-based review in which a reviewer evaluates the significant judgments and conclusions made by an audit team? Noncompliance Which circumstance involves acts of omission or commission by an entity, either intentional or unintentional, which are contrary to the prevailing laws or regulations? The auditor should gather sufficient evidence related to the estimate. How should an auditor respond to a client's claim that a financial statement estimate is at least as good as the auditor's estimate? The financial statements should be adjusted to reflect Type I subsequent events. What is the major difference between a Type I subsequent event and a Type II subsequent event? Type I subsequent events provide evidence about conditions that existed on or before the balance sheet date. These events are recognized in the financial statements. Type II subsequent events provide evidence about conditions that did not exist on or before the balance sheet date. What is the difference between Type 1 and Type 2 subsequent Events? Written evidence that management has the required financial support What is a support letter when an auditor is gathering audit evidence in a going concern evaluation? Issue an adverse opinion An auditor concludes that an illegal act has been committed, the act has a material effect on the financial statements, and the act has not been properly disclosed. What should the auditor do? When there is one material weakness When should an auditor issue an adverse opinion when reporting on internal controls over financial reporting of a U.S. public company? A company's accounting records were destroyed during a flood at the company's headquarters. Which scenario could cause a scope limitation? The financial statement disclosures are adequate. Which condition must be present for an auditor to issue an unqualified/unmodified report? Qualified Which opinion should an auditor use for a situation where there is a scope limitation that is material but not pervasive? The purpose of an audit is to enhance the degree of confidence that users can place in the financial statements. What is the basic principle of audit reporting according to the AICPA? Opinion paragraph In which audit report paragraph should an auditor disclose all of the substantive reasons for issuing a qualified report? Unqualified with emphasis-of-matter paragraph Which opinion should an auditor use for a situation where the auditor concludes that there is a going concern issue? Securities and Exchange Commission (SEC) During an engagement, an auditor may be unable to gather sufficient supporting evidence in order to issue an unqualified opinion. Which agency or organization, with limited exceptions, will only accept an unqualified opinion? Adverse Which opinion should an auditor use for a situation where there is a departure from financial reporting framework that is material and pervasive? The auditor's report for public companies includes a paragraph referencing the audit of internal controls. What is the difference between an auditor's report on nonpublic companies and public companies? The amount of the client's inventory stored at the retailer's location An auditor is reviewing the shipping policy of a large supply company. The title to goods shipped is not changed until the retailer sells the goods to their customers. Which primary concern should the auditor have about this practice? Completeness During an annual audit of a client with a fiscal year-end of December 31, an auditor reviews disbursement records for January 1 of the following fiscal year. The auditor examines the disbursement records to determine if the client recorded a related liability in the fiscal year ending December 31. Which management assertion should be a primary concern while the auditor is performing this procedure?