cpa audit review ch 3 review 6

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cpa audit review ch 3 review 6
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2014-07-27 17:28:56
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cpa audit review ch 3 review 6
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  1. Moor, CPA, discovers a likely fraud during an audit but concludes that its effects, if any, could not be so material as to affect the opinion. Moor most likely should
    Report the finding to the appropriate representatives of the client with the recommendation that it be pursued to a conclusion.

    The auditor should refer the matter of an immaterial fraud to an appropriate level of management. The appropriate level of management ordinary is at least one level above the highest level involved. However, any fraud involving (1) management, (2) employees significantly involved in internal control, or (3) others when fraud materially misstates the financial statements, is reported to those charged with governance.
  2. During the consideration of fraud in a financial statement audit, the auditor should identify and assess risks that may result in material misstatements due to fraud. This assessment is based on what?
    Is based on evaluating whether the entity’s related controls have been suitably designed and implemented.

    Identified and assessed fraud risks are treated as significant risks. Thus, the auditor obtains an understanding of the related controls relevant to the risks. This process includes evaluating whether the controls have been suitably designed and implemented to mitigate the fraud risks.
  3. Which of the following procedures would a CPA most likely perform in the planning stage of a financial statement audit?

    A.Compare recorded financial information with anticipated results from budgets and forecasts.

    B.Make inquiries of the client’s attorney regarding pending and threatened litigation and assessments.

    C.Communicate with those charged with governance about the prior year’s audit adjustments.

    D.Obtain representations from management regarding the availability of all financial records.
    A.Compare recorded financial information with anticipated results from budgets and forecasts.

    Analytical procedures are required to be used as risk assessment procedures (analytical procedures used to plan the audit) in all financial statement audits. Analytical procedures are evaluations of financial statement information made by a study of plausible relationships among financial and nonfinancial data using models that range from simple to complex. The basic premise is that plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary. Analytical procedures also include investigating fluctuations or relationships that are (1) inconsistent with other information or (2) differ significantly from expectations.
  4. Which of the following statements is correct concerning analytical procedures used in planning an audit engagement?

    A.They often replace the tests of controls that are performed to assess control risk.

    B.They usually use financial and nonfinancial data aggregated at a high level.

    C.They are often used to develop an auditor’s preliminary judgment about materiality.

    D.They usually involve the comparison of assertions developed by management to ratios calculated by an auditor.
    B.They usually use financial and nonfinancial data aggregated at a high level.

    Analytical procedures are required to be used as risk assessment procedures (analytical procedures used to plan the audit) in all financial statement audits. Analytical procedures are evaluations of financial statement information made by a study of plausible relationships among financial and nonfinancial data using models that range from simple to complex. The basic premise is that plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary. Analytical procedures also include investigating fluctuations or relationships that are (1) inconsistent with other information or (2) differ significantly from expectations (AU-C 315). Moreover, they ordinarily use highly aggregated data.
  5. Which of the following factors most likely would lead a CPA to conclude that a potential audit engagement should be rejected?

    A.Management has a reputation for consulting with several accounting firms about significant accounting issues.

    B.It is unlikely that sufficient appropriate audit evidence is available to support an opinion on the financial statements.

    C.Internal control activities requiring the segregation of duties are subject to management override.

    D.The details of most recorded transactions are not available after a specified period of time.
    B.It is unlikely that sufficient appropriate audit evidence is available to support an opinion on the financial statements.

    The auditor should obtain sufficient appropriate audit evidence to draw reasonable conclusions on which to base the opinion. If the CPA is unable to obtain this evidence, the engagement most likely should be rejected.

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