cpa audit review ch 3 review 8

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  1. An auditor’s response to the assessment of the risks of material misstatement due to fraud takes various forms. A response with an overall effect on the conduct of the audit is to
    Consider whether management’s applications of accounting principles indicates a bias.

    The responses to the assessment of fraud risks should reflect a critical evaluation of the audit evidence. These responses may take three forms: (1) those having an overall effect on the audit; (2) those involving changes in the nature, timing, and extent of audit procedures performed in response to specific fraud risks; and (3) those that further address management override. One overall effect of a judgment about heightened fraud risk is to assign more experienced personnel or individuals with specialized skills or to increase supervision. A second overall effect is to consider the selection and application of accounting principles, especially those involving subjective measurements and complex transactions, and whether they indicate a collective bias. Another overall effect is to make unpredictable choices of audit procedures.
  2. Which of the following ultimately determines the specific audit procedures necessary to provide an independent auditor with a reasonable basis for the expression of an opinion?

    A.Auditing standards.

    B.The audit documentation.

    C.The audit plan.

    D.The auditor’s judgment.
    D.The auditor’s judgment.

    The auditor’s professional judgment must determine the necessary audit plans and the specific audit procedures that will gather sufficient appropriate evidence to reduce audit risk to an acceptably low level and enable the auditor to draw reasonable conclusions on which to base the opinion.
  3. Prior to beginning the field work on a new audit engagement in which a CPA does not possess expertise in the industry in which the client operates, the CPA should
    Perform risk assessment procedures.

    The auditor should obtain an understanding of the entity and its environment, including its internal control. For this purpose, the auditor performs the following risk assessment procedures: (1) inquiries of management and others within the entity, (2) analytical procedures, and (3) observation and inspection.
  4. Which of the following is a false statement about materiality?

    A.Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments.

    B.The concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with GAAP, while other matters are not important.

    C.An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements.

    D.An auditor’s consideration of materiality is influenced by the auditor’s perception of the needs of a reasonable person who will rely on the financial statements.
    C.An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements.

    Materiality is defined for planning purposes at three levels. Materiality for the financial statements as a whole is determined when designing the overall audit strategy. Materiality is also set for specific account balances, transaction classes, or disclosures. In certain cases, these amounts could influence users. Performance materiality is less than that for the statements as a whole or for specific balances, etc. Performance materiality is an adjustment for (1) individually immaterial misstatements and (2) possible uncorrected misstatements. But materiality for planning purposes ordinarily is not set for one financial statement. When designing audit procedures to be applied at the balance, transaction class, or disclosure level, the auditor plans to obtain reasonable assurance of detecting misstatements that, when aggregated with misstatements in other balances, etc., could be material to the statements as a whole.
  5. Audit plans should be designed so that
    The audit evidence gathered supports the auditor’s conclusions.

    The auditor is responsible for collecting sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the opinion. Audit plans describe the steps involved in that process. Thus, the evidence should support the auditor’s conclusions.

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cpa audit review ch 3 review 8
2014-07-27 21:38:14
cpa audit review

cpa audit review ch 3 review 8
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