cpa audit review ch4 review 1

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Joens1313
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cpa audit review ch4 review 1
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2014-08-01 00:09:14
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cpa audit review ch4
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cpa audit review ch4 review 1
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  1. Which of the following auditing procedures most likely would assist an auditor in identifying related party transactions?

    A. Sending second requests for unanswered positive confirmations of accounts receivable.

    B.Inspecting communications with law firms for evidence of unreported contingent liabilities.

    C.Reviewing accounting records for nonrecurring transactions recognized near the balance sheet date.

    D.Retesting ineffective internal control procedures previously reported to the audit committee.
    C.Reviewing accounting records for nonrecurring transactions recognized near the balance sheet date.

    Related party transactions may involve window dressing at the end of the period. For example, a shareholder may repay a loan just before the balance sheet date, and the entity may then lend the same amount to the same party after the beginning of the next period (AU-C 550).
  2. During an audit, an internal auditor may provide direct assistance to an independent CPA in what?
    Obtaining an Understanding of Internal control

    Performing Test of Controls

    Performing Substantive Test
  3. Which of the following auditing procedures most likely would assist an auditor in identifying related party transactions?

    A.Inspecting correspondence with lawyers for evidence of unreported contingent liabilities.

    B.Vouching accounting records for recurring transactions recorded just after the balance sheet date.

    C.Reviewing confirmations of loans receivable and payable.

    D.Performing analytical procedures for indications of possible financial difficulties.
    C.Reviewing confirmations of loans receivable and payable.

    An auditor should be alert during the audit for related party information. Thus, the auditor should inspect records and documents, especially (1) bank and legal confirmations, (2) minutes of meetings of shareholders and directors, and (3) any other records or documents considered necessary. Other records and documents may include third-party confirmations.
  4. A management’s specialist most likely is useful to

    A.Assist the auditor in collecting sufficient appropriate audit evidence.

    B.Assist the client in preparing the financial statements.

    C.Provide the auditor advice on technical accounting issues.

    D.Add credibility to the financial statements.
    B.Assist the client in preparing the financial statements.

    A management’s specialist is an individual or organization possessing expertise in a field other than accounting or auditing. The work in that field is used by the entity to assist in preparing the financial statements.
  5. In evaluating the reasonableness of an entity’s accounting estimates, an auditor considers whether assumptions are significant. These are most likely to be

    A.Similar to industry guidelines.

    B.Deviations from past experience.

    C.Objective and not susceptible to bias.

    D.Stable and not sensitive to variation.
    B.Deviations from past experience. 

    An assumption is significant if a reasonable variation materially affects the measurement of the estimate. The auditor’s considerations in evaluating assumptions include whether they are consistent with (1) economic conditions, (2) management’s selection of the assumptions of market participants and resulting modifications of its own assumptions, (3) the entity’s plans, (4) past experience, (5) prior-period assumptions, and (6) many other factors.

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