Acct 402

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angelitics
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Acct 402
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2012-02-28 20:46:33
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Acct 402
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Acct 402 Exam #1
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  1. What is assurance service ?
    Assurance service is independent professional that improve the quality of information for decision makers.
  2. What is Attest?
    Attest is a written communication expressing a conclusion about assertion that is the responsibility of a third party.
  3. What are the different attest engagement?
    • Audit= engagement examine financial statement are fairly stated in accordance with GAAP
    • Examination= Positive Assurance= conclusion is positive
    • Review= Negative assurance= conclusion nothing has come up that might not be in accordance with GAAP.
    • Agreed-Upon Procedures = Summary of Findings.
  4. Who may perform an audit?
    A CPA who is both competent and independent.
  5. What is non-attest?
    Compilations, taxes, other services, consulting
  6. What is assurance?
    autographs, elder care
  7. What are name the different kinds of Audits.
    F/S Audit= Conclusions F/S Fair= most likely to audit is external (independent).

    Compliance= conclusions comply with standards = most likely to audit is external/government.

    Operational= conclusion efficiency= mostly like to audit is internal

    Integrated = F/S fair and Internal control Effective = most likely to comply is external.
  8. Who can be in the audit committee?
    Inside (part of management) and outside directors (not part of management)
  9. Generally Accepted Auditing Principles (10) (tippsiewaci)
    • General Procedures
    • 1) Technical Training
    • 2) Independence
    • 3) Due Financial Care

    • Field Work
    • 4) Planning and Supervision
    • 5) Internal Control- sufficient understanding
    • 6) Sufficient competent evidence

    • Reporting
    • 7) Report on whether f/s in accordance with GAAP
    • 8) Consistent application of GAAP
    • 9) Informative Disclosures accompanying F/s
    • 10) Opinion on f/s taken as a whole.
  10. Who set up audit standards for private companies?
    AICPA
  11. Who set up audit standards for public companies?
    PCAOB
  12. What is the difference between State Societies of CPA's and State Board of Accountancy?
    • State Societies of CPA is voluntary.
    • State Board of Accountancy issues CPA license and must have continual professional education (CPE).
  13. An audit report for a private client indicates that the audit was performed in accordance with?
    Generally Accepted Auditing Standards
  14. An audit report for a publicly traded client indicated that the audit was performed in accordance with
    Standards of the PCAOB
  15. An audit report for a publicly traded client indicated that the statements conforms with
    generally accepted accounting principles
  16. Restrictions imposed by the client prohibit the observation of physical inventories, which accounts for 35% of client's recorded assets. Alternative auditing procedures cannot be applied, although satisfactory evidence for all other accounts is obtained. The auditor should issue what type of audit opinion?
    Disclaimer because it is not following the generally accepted accounting standards and has a serious scope limitation because of the 35% of client's recorded assets is prohibited. Greater than 1% is considered to be serious the example has 35% of its assets prohibits the observation of physical inventories.
  17. A material departure from GAAP will result in what kind of audit opinion?
    Qualified opinion "except for" or Adverse Opinion = GAAP departure
  18. A client has decided not to account for a material transaction in accordance with provisions of a FASB Statement. Management has clearly demonstrated the due to unusual circumstances, compliance with the FASB standard would produce misleading financial statements. The auditor should issue what kind of audit opinion?
    Unqualified Opinion.
  19. Which of these organization issues CPA licenses to individual and has the authority to revoke these licenses?
    State Board of Accountancy
  20. Which of these is not an example of an attest engagement?

    a) audit
    b) review
    c) compilation
    d) agreed-upon procedures
    compilation is part of non- attest.
  21. What is the conclusion reached by a report on a review engagement?
    negative assurance.
  22. Under the SARBOX of 2002, who is responsible for promulgation of Auditing Standards for audits of publicly traded companies in the US?
    PCAOB
  23. For a statement that present financial position and result of operations, but omit the statement of cash flows, the auditor should issue what type of audit opinion?
    Qualified Opinion. Exception of cash flows is considered a qualified opinion or "except for"
  24. GAAS has not been followed because of client-imposed scope limitations. You considered this to be seriously material. Type of audit opinion.
    Disclaimer Opinion.
  25. The client has a material pending lawsuit. They have probable chance of losing the suit. Footnotes to financial statements adequately disclose the suit. Type of audit opinion.
    Standard report with explanatory paragraph.
  26. The client has failed to capitalize certain leases that should be capitalized under FASB 13 provisions. The effect is material, by not seriously so. Type of audit opinion.
    Qualified opinion.
  27. You notice that the company's beginning accumulated depreciation balance is materially misstated because of a calculation error in a prior period. The error is corrected this year and last year's statements are fixed for comparative presentation. Type of audit opinion.
    Unqualified opinion. standard report
  28. The client merged with another company this year and comparative statements are presented in the financial statements. Type of audit opinion.
    Standard report with explanatory paragraph.
  29. GAAP has not been consistently followed because of the client's change in the presumed estimated useful lives of its fixed assets. Type of audit opinion.
    Unqualified opinion or standard opinion.
  30. You are unable to satisfy yourself about the client's potential warranty liability because the client keeps no records on subsequent repairs of its products. The client's current year sales are subject to warranties for a full year beyond the date of sale. You believe this is to be potentially serious material. Type of audit opinion.
    Disclaimer opinion.
  31. The client changed accounting methods from XIFO to LIFO . XIFO is not an acceptable depreciation method under GAAP. You concur with the change to an acceptable method, LIFO. Type of audit opinion.
    Standard report with explanatory paragraph
  32. You have doubts about your client's ability to continue as a going concern. The footnotes adequately disclose this possibility. Type of audit opinion.
    Standard opinion with explanatory paragraph
  33. Your client elects to omit the statement of cash flows. Type of audit opinion.
    Qualified opinion.
  34. When do you issue an Standard or Unqualified opinion?
    issue a standard or unqualified opinion when the auditor is

    satisfied that f/s's "fairly stated in all material respects in accordance with GAAP"

    Adequate scope (no limitations on what can audit)

    Disclosures adequate

    GAAP consistently applied
  35. What are the requirements when issuing a standard report or unqualified report?
    Intro, Scope, opinion.
  36. When do auditor issue disclaimer of opinion?
    Serious scope limitations on what you can audit (usually client-imposed)

    • ex. no physical inventory
    • can't confirm A/R
    • subsidiary not audited

    Cannot gather sufficient, competent evidence to form opinion.
  37. What are the requirements when issuing a disclaimer opinion?
    intro, middle para, opinion
  38. When do auditors issue an adverse opinion?
    Serious (very material) GAAP departure

    Statements "so lacking in fairness" that even a qualified opinion would be misleading

    sometimes regulatory requirements can cause
  39. What are the requirements when issuing an adverse opinion?
    Intro, score, middle, opinion.
  40. When do auditors issue a qualified opinion?
    scope limitation that is material, but not seriously material that a disclaimer is deemed necessary

    Gaap departure that is material, but not seriously material that an adverse opinion is deemed necessary (might be a true departure from the rules or disclosure inadequacy (e.g. refusal to footnote-disclose a lawsuit)

    May include consistency exception if auditory doesn't concur with reason for change.
  41. Standard Report with an explanatory paragraph. When do you use the 4th paragraph. Explain contingencies.
    • Contingencies: uncertainty expected to be resolved in future through availability of more information (e.g unfavorable lawsuit).
    • Assumes that client footnote disclosure is proper- if not, GAAP departure (adverse or qualified)
    • The decision to add a para. parallels FASB #5 rules for disclosing the contingency.
    • 1) Remote : disclosure rule : None - Opinion modification: none
    • 2) Reasonably possible: disclosure rule: footnote disclosure - opinion modification : maybe add para. if( materiality or closer to probably than remote)
    • 3) Probable: disclosure rule: accrue if estimable and footnote if not estimable - opinion modification rule: add 4th paragraph.
  42. Standard Report with an explanatory paragraph. When do you use the 4th paragraph. Explain consistency exceptions.
    Consistency Exceptions: Change in accounting principle, estimate, or reporting entity.

    Assumes that client footnote disclosure of the change is adequate

    assumes that auditor "concurs" with the change- otherwise, a GAAP departure (adverse or qualified)
  43. Instances that requires a 4th paragraph.
    a) Changes in principle (assuming effect is material)

    • -GAAP ----> GAAP and auditor concurs with change
    • - Non GAAP ----> GAAP (correction of an error involving application of principle) e.g FIFo to LIFO or depreciations

    b) Change in Entity (i.e year of merger where comparative statements shown)
  44. Instances that does not require a 4th paragraph.
    a) change in accounting estimates (i.e useful life, yrs of equipment)

    b) correction of an error not involving application of a principle

    c) changes in classifications within statements

    d) changes not material to current year, but may be material in future
  45. Standard Report with an explanatory paragraph. When do you use the 4th paragraph. Explain going concern. What to look for.
    Going concern: when the auditor has substantial doubts about the entity's ability to continue in existence for a reasonable time period after year end ( one year after end shown on financial statements not end field work).

    • Look for:
    • negative trends
    • defaults, restructuring of debt, dividend arrearages
    • internal matters ( strikes, dependence on a project)
    • external matters ( lawsuit, catastrophe, loss of license)

    Consider management's mitigating plans
  46. An auditor confronts an exception sufficient to warrant some deviation from the standard report. If the exception deals with a GAAP departure, the auditor should issue. What kind of opinion.
    Qualified or adverse opinion.
  47. Which of the following will not result in a modification of the auditor's report due to a scope limitation?

    A) inability to obtain sufficient competent evidence.
    B) restrictions imposed by client
    C) reliance placed upon the other auditor
    D) inadequacy of accounting records
    C) reliance placed upon the other auditor = doesnt change the opinion. this is the joint responsibility.
    (this multiple choice question has been scrambled)
  48. Great Company's statements adequately disclose future uncertainties whose outcomes are not susceptible to reasonable estimation. The auditor should issue what type of opinion.
    Standard with explanatory paragraph
  49. Which of the following requires recognition in the audit opinion as to consistency?
    A) change in depreciation methods that has no effect on this year's financial statements by is expected to affect future years.
    B) change in estimated warranty cost
    C) correction of a prior years' financial statements resulting from a mathematical mistake
    D) change from the cost method to the equity method of accounting for investments
    D) change from the cost method to the equity method of accounting for investments.
    (this multiple choice question has been scrambled)
  50. If the auditor has doubts about the client's ability to continue as a going concern, the auditor should assess negative indicators, assess management's mitigating plans and issue what type of opinion?
    Standard (unqualified) report with explanatory paragraph
  51. A change in accounting principle that the auditor believes is not justified will result in which report?
    qualified "except for"

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