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Multiple Choice Questions
Terms in this set (34)
an auditor of a nonissue exercising professional skepticism with respect to the risks of material misstatement due to fraud will most appropriately
consider the reliability of information to be used as audit evidence
under US GAAS, in which of the following situations would a group engagement partner least likely make reference to component auditor who audited a subsidiary of the entity?
the component auditor was retained by the group engagement partner and the work was performed under the group engagement partner's guidance and control
when the group engagement partner assumes responsibility for the component auditor's work, the group engagement partner would NOT mention the component auditor in the report.
when an auditor expresses an adverse opinion, the opinion paragraph should include
a direct reference to a separate paragraph disclosing the basis for the opinion
the opinion paragraph in an adverse opinion should state that, in the auditor's opinion, because of the significance of the matters described in the basis for adverse opinion, the financial statements are...
Which of the following is true regarding the audit report for an issuer?
the report should include references to PCAOB standards and generally accepted ACCOUNTING PRINCIPLES
which of the following statements is a basic element of the auditors report under US auditing standards
an audit includes evaluating significant estimates made by management
the client asked the auditor to audit financial statements covering the current year. the auditor did not observe the prior year's physical inventory count. which of the following actions would the auditor most likely take?
audit the prior year inventory using alternative substantive procedures
NOT an example of the application of professional skepticism
inquiring of prior year engagement personnel regarding their assessment of management's honesty and integrity `
financial information is presented in a printed form that prescribes the wording of the independent auditor's report. the form is NOT acceptable to the auditor because the form calls for statements that are inconsistent with the auditors responsibility. under these circumstances the auditor most likely would
reword the form or attach a separate report.
an auditor should not sign a preprinted report form that includes statements that. are inconsistent with the auditors responsibility. instead, the form should be revised or a separate more accurate report should be attached
if management of a governmental body declines to present supplementary info required by the governmental accounting standards board (GASB), the auditor should issue a
unmodified opinion with an other-matter paragraph.
an auditor who is unable to form an opinion on a new client's opening inventory balances may issue an unmodified opinion on the current year's
balance sheet only
disclaimer of opinion on statements of income, retained earnings and cash flows
examples of special purpose framework and example of one that isnt
examples: cash basis and modified cash basis, tax basis, regulatory basis, contractual basis, other basis
IFRS (standards by international accounting standards board) and GAAP (standards from FASB) are GENERAL PURPOSE FRAMEWORKS
an auditor most likely would express an unmodified opinion and would NOT add an emphasis of matter or other paragraph to the report if the auditor
believes that there is a probable likelihood of a material loss resulting from an uncertainty that is sufficiently supported and disclosed.
Statement describing the concept of materiality
according to U.S. Supreme Court, information is material if there is a substantial likelihood that the information would be viewed by a reasonable investor as having significantly altered the total mix of available information
before applying principal substantive tests to an entity's accounts receivable at an interim date, an auditor should
assess the difficulty in controlling the incremental audit risk. when audit procedures are performed before year-end, the auditor must assess the incremental risk involved and determine whether sufficient alternative procedures exist to extend the intirim conclusions to year-end.
in order to reduce the risk that the aggregate of undetected misstatements in the group financial statements of a nonissue exceeds the materiality of the group financial statements as a whole, the auditor should establish a
component materiality that is lower than the materiality for the group financial statements.
which of the following would an auditor most likely use in determining the auditor's preliminary judgement about materiality
the entity's financial statements of the prior year
these would be a good starting point in estimating the current year's expected results, especially for a continuing client
an auditor's flowchart of a client's info system relevant to financial reporting is a diagrammatic representation that depicts the auditor's
understanding of the system (NOT assessment of control risk)
in order to obtain an initial understanding of internal control sufficient to asses the risk of MM of the financial statements, an auditor most likely would perform the following procedure
risk assessment procedures to evaluate the design of relevant controls
not test of controls, that is done when the auditors risk assessment is based on the assumption that controls are operating effectively or when substantive procedures alone are insufficient
in which of the following circumstances is an auditor most likely to rely on work done by internal auditors
for financial statement amounts judged by the auditor to require little or no subjectively evaluated audit evidence
the purpose of applying analytical procedures in the overall review stage of an audit includes assisting the auditor with all of the following
assessing conclusions reached, evaluating the overall financial statement presentation, evaluating the going concern assessment
to determine whether transactions have been recorded, the auditor should trace from the _____
source documents to the accounting records (completeness assertion)
what type of risk increases when an auditor performs substantive analytical procedures for financial statement accounts at an interim date
when an auditor tests a computerized accounting system, what is true about test data approach?
test data are processed by the client's computer programs under the auditor's control. consists of "dummy" data
what is an auditor's most important factor concerning errors and fraud?
the risk that mistakes, falsifications, and omissions may cause the financial statements to contain material misstatements.
What types of journal entires would an auditor likely examine to address the risk of management override of controls?
JE made by individual who does not typically make JE's, JE recorded as a post-closing entry that has not explanation or description, and a JE made to a seldom-used account
inappropriate or unauthorized JE's are often used to override controls and manipulate the financial reporting process. periodic, recurring estimates are least likely since they are expected and occur regularly
what are the two components of professional skepticism?
questioning mindset and critical assessment of audit evidence
the authority to accept incoming goods in receiving should be based on a
approved purchase order
an auditors purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about
valuation and allocation
assertions about valuation and allocation deal with whether asset, liability, revenue, and expense components have been included in the FS's at appropriate amounts' nd any resulting valuation adjustments are appropriately recorded
two assertions for which confirmation of accounts receivable balances provide primary evidence for are:
rights and obligations (does the client have. aright to the receivable)
existence (does the receivable really exist)
sound internal control dictates that, immediately upon receiving checks from customers by mail, a responsible employee should
prepare a duplicate listing of checks received
aka, a remittance listing should be prepared
example of a non-inappropriate segregation of duties
preparing invoices and reordering the related receivables are both record keeping functions that would not be inconsistent with each other
the primary evidence regarding year-end cash balances in the financial statements is documented in the
these reconcile the balance per the bank to the financial statements
an auditor withdrew from further association with a nonissue entity after issuing an audit report on it. subsequently, the auditor discovered facts that, if known to the auditor, could have caused the auditor to revise the report. what now?
the auditor should discuss the matter with management and, if determined that the financial statements need revision, ask how management intends to address the matter in the financial statements
which of the following statements is true regarding the risk assessment component of internal control?
an auditor evaluates an entity's risk assessment to understand how management addresses risk relevant to financial reporting
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