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AUD Exam With Complete Solutions!!
adverse interest threat - Answers threat that a member will not act with objectivity because the member's interests are opposed to the interests of the client or employing organization (AICPA) advocacy threat - Answers threat that a member will promote the interests of the client or employing organization to the point that their objectivity or independence is compromised (AICPA) familiarity threat - Answers threat that, due to a long or close relationship with the client or employing org, a member will become too accepting of the product/service and/or too sympathetic to the client's or employing org's itnerests (AICPA + GAGAS) management participation threat - Answers threat that a member will take on the role of client management or otherwise assume management responsibilities. Attest engagements. (AICPA + GAGAS) self-interest threat - Answers threat that a member could benefit financially or otherwise from an interest in, or relationship with, a client or employing organization, or persons associated with the client or employing org. (AICPA + GAGAS)
self-review threat - Answers threat that a member will not appropriately evaluate the results of a previous judgment made, or service performed or supervised, by the member or an individual in the member's firm or employing organization, and the member will rely on that service in forming a judgment as part of another service. (AICPA + GAGAS) undue influence threat - Answers threat that a member will subordinate his/her judgment to an individual associated with a client or employing org or any relevant third party due to that individual's rep or expertise, aggressive or dominant personality, or attempts to coerce or exercise influence over the member. (AICPA + GAGAS) bias threat - Answers threat that an auditor will, as a result of political, ideological, social, or other convictions, take a position that is not objective. (GAGAS) structural threat - Answers threat that an audit org's placement within a govt entity, in combination with the structure of the govt entity being audited, will impact the audit organization's ability to perform work and report results objectively (GAGAS) financial forecast - Answers prospective FS based on expected conditions and courses of action. Available for general use or may be limited use. Prep, comp, exam, and agreed-upon procedures. No review engagements allowed. financial projection - Answers prospective FS based on hypothetical assumptions. Restricted use only. Prep, comp, exam, agreed-upon procedures. Describe purpose, refer to assumptions, restricted use.
SSARS (statements on standards for accounting and review services) - Answers Issued by the AICPA Acctg and review services committee. Proviede guidance with respect to prep, comp, and reviews of FS of non- issuers. Require a written understanding with mgmt and, when appropriate, those charged with governance, regarding services to be performed. Single Audit Act (2 CFR 200) - Answers Applicable to entities that receive and spend total financial awards >$750k. Either a single audit covering the entire entity or program specific audits associated with an individual award. Materiality is separately considered in relation to each major program. SOX (Sarbanes-Oxley Act of 2002) - Answers Created by the PCAOB. Outlined key standards/independence rules for issuers. Records/retention (7 years), concurring partner review, prohibited services, auditor communication preappr/reporting, auditor partner rotation (on/off 5 yrs), conflicts of interest GAGAS - Answers Govt audit standards, govt accountability office (GAO) - yellow book). Ethics principles, gen standards, standards for fin audits and attest engagments. Standards: independence (mind and appearance), professional judgment, competence, quality control and assurance. Ethical stds: serving public interest, integrity, objectivity, proper use of govt info, professional behavior. Type 2 (report - service orgs) - Answers report on controls placed in operation and tests of operating effectiveness. Understand controls. Evidence supporting a decrease in assessed level of CR may be found.
Type 1 (report - service orgs) - Answers Report on controls placed in operation. Understand controls and design of controls. Noncompliance - Answers Act of omission or commission by an entity (intentional or not) which is contrary to prevailing laws and regs Auditor to obtain reasonable assurance, but not responsible for preventing. Material effect on FS (GAAP Issue) -> qualified or adverse. Insufficient evidence (GAAS issue) -> qualified or disclaimer. qualified opinion - Answers opinion that except for the effects of the matters discussed, the FS present fairly. Material but not pervasive GAAS (insufficient evidence) or GAAP (MM in FS) issue Unmodified (unqualified) opinion - Answers opinion that the FS present fairly, in all material respects, the financial position, results of operations, and cash flows of the entity, in conformity with the applicable financial reporting framework. Special purpose framework - Answers Cash basis, tax basis, reg agency, contract. Non-GAAP titles. Emphasis of matter (stating FS are prepared using dif than GAAP, + related footnote). Other matter paragraph (restrict use of report if under contractual/reg basis). Comfort letter - Answers provided to an underwriter/other party just before registration of the client's securities. CPA required to perform a review of interim fin info. Letter restricting use. Negative assurance for most financial info. Positive assurance on CPA independence and compliance with securities act (assuming FS were audited).
Disclaimer of opinion - Answers Opinion that the auditor does not express an opinion on the FS. Material and pervasive GAAS issue: inability to obtain sufficient and appropriate evidence. Explanatory paragraph - Answers required by PCAOB or at ar's discretion. Immediately after opinion paragraph and describe the matter. fraudulent financial reporting - Answers intentional misstatement/omission of amounts/disclosures in FS. Committed by mgmt with intent to deceive. Category of fraud: lying. Scope limitation - Answers Auditor is unable to obtain sufficient appropriate evidence to conclude that the FS are free of MM. GAAS issue. ITF (integrated test facility) - Answers test data is commingled with live data (Client's system, Ar's data, online). Client's system under CPA's control. TDR (tolerable deviation rate) - Answers max amt of deviation the auditor will tolerate w/o modifying planned reliance on the controls (professional judgment) tickmarks - Answers symbols indicating the work that has been performed
(Risk of) incorrect rejection - Answers risk that a properly drawn sample supports a balance as MM when in fact it is not. Substantive/variables sampling. Problem with efficiency. Vouching - Answers substantive procedure testing occurrence and existence assertions. Revenue and assets. Down from FS to Events MAP (Manual audit procedures) - Answers auditor tests input data, processes independently, and then compares the indpt results to program results. Simple batch systems w/ good audit trails. Risk = insufficient paper- based evidence and insufficient audit procedures. (Risk of) underreliance - Answers Assessing CR too high. Properly drawn sample won't support the auditor's planned degree of reliance when the true compliance rate does justify such reliance. Tests of controls/attribute sampling. Problem with efficiency. (Risk of) incorrect acceptance - Answers Risk that a properly drawn sample supports a balance not being MM when in fact it is. Substantive/variables testing. Problem with effectiveness. (Risk of) overreliance - Answers Risk of assessing control risk too low. Properly drawn sample will support the ar's degree of reliance when the true compliance rate doesn't justify such reliance. Tests of controls/attribute sampling. Problem with efficiency.
Analytical procedures - Answers evaluation of financial info made by a study of plausible relationships btwn financial/nonfinancial data. Comparisons of recorded amts to indpt expectations. Financial data, ratio analysis. Required in planning (understanding entity/environ) and final review (overall reasonableness of acct bal). May be used in substantail procedures. Dual purpose samples - Answers Use of the same sample to perform tests of controls and substantive testing. Only done when auditor believes there's an acceptably low risk that the deviation rate in the population > TR. Deviation from control procedures and monetary misstatements should be evaluated separately parallel simulation (reperformance test) - Answers Auditor reprocesses some or all of the client's live data and compares the results with client files (ar's system, client's data) Tracing - Answers Looking for completeness and coverage. Liabilities and expenses. Look up from events to FS. Attribute sampling - Answers Estimate a rate of occurrence (whether or not an attribute is present); primarily to test IC. Type of statistical sampling. Discovery sampling, stop and go sampling, acceptance sampling. Variables sampling - Answers Estimate numerical value; typically used in substantive testing. Estimate a population's true value by computing a point estimate of the population and a precision interval
around the estimate. Type of statistical sampling. Mean-per-unit estimation, ratio estimation, difference estimation. PPS (probability proportional to size sampling) - Answers Sampling unit = individual dollar in a population. Once a $ is selected, the entire acct is selected. Hybrid var sampling/attribute theory. Advantage: emphasis on larger items -> if no errors are expected -> smaller sampling size. Disadvantage: zero, negative, and understated balances generally require special design considerations. GASP (generalized audit software packages) - Answers Allow the auditor to perform tests of controls and substantive tests directly on the client's system. Embedded audit modules - Answers Program collects transaction data for the auditor. Auditor must be involved in the program design. Positive confirmations - Answers Customers are requested to return a statement indicating that they agree with the amt. Large receivables, expected errors, items in dispute, weak IC, old balances. Transaction tagging - Answers electronically marks a transaction and allows the auditor to follow it through the client system. (Existing) Control Activities (5 Components of IC) - Answers Mgmt objectives are carried out. Prenumbering of docs, authorization of transactions, indpt checks to maintain asset accounts, documentation,
Kiting - Answers a check drawn on one bank is deposited in another bank and no record is made of the first disbursement. Examine dates/info for cash deposits at end of period and paid checks returned with bank statements of the next period. Fraudulent cash scheme. Governance - Answers those who bear responsibility to oversee the obligations of strategic direction of an entity, include the BoD and audit committee tolerable misstatement - Answers misstatement in the related acct bal/class of transaction that may exist without causing the FS to be MM. Misappropriation of assets - Answers Theft of an entity's assets committed by mgmt, -ees, or 3rd parties. Category of fraud - stealing. Audit risk - Answers risk the auditor may unknowingly fail to modify appropriately the opinion on MM FS. Plan audit so overall AR = low. Risk ar gives unmodified op on fraud/error FS. AR = IR x CR x DR Risk Assessment (5 Components of IC) - Answers mgmt identifies, analyzes, and manages risks. Considers significance of risks, likelihood of occurrence, how to manage. New products, rapid growth, other changes. Audit committee - Answers Members of the BoD, ~3-5 "outside" directors, who are neither employees nor part of mgmt and who don't ahve a material financial interest in the company functions. Est control environment, select and appoint indpt auditor, review scope of auditor and
quality of wk, respond to ar recommendations, resolve disagreements, bridge btwn BoD and auditor. Form AP - Answers Public co/issuer requirement. W/PCAOB for each audit, report issued. File by the 35th day after the audit report is first filed in a doc w/ the SEC or within 10 days if the audit report is included in a registration statement Info and Comm (5 Components of IC) - Answers methods and records to identify, capture, and exchange info. Transactions are recorded and complete. Detailed enough for financial reporting. Communication among mgmt, -ees, governance, external parties control deficiency - Answers design/op of a ctrl doesn't allow mgmt/- ees to prevent/detect and correct misstatements on a timely basis. fraud - Answers intentional misstatement or omission in the FS. Mgmt is in a position to manipulate acctg records and/or override estimated controls. Presumed: improper re recognition, mgmt override of controls. Pressure, opportunity, rationalisation. Control risk - Answers risk that MM could occur in an assertion and not be prevented or detected on a timely basis by an entity's IC. Exists indpt of the audit, ar cannot change it, but can change their assessment of the risk based on evidence gathered. Stronger ctrl system = greater reliance on it, decrease substantive tests required.
