cpa audit review ch4 review 2

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Joens1313
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cpa audit review ch4 review 2
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2014-08-01 00:14:10
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cpa audit review ch4
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cpa audit review ch4 review 2
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  1. In auditing related party transactions, an auditor ordinarily places primary emphasis on

    A.The adequacy of the disclosure of the related party transactions.

    B.Verifying the valuation of the related party transactions.

    C.Confirming the existence of the related parties.

    D.The probability that related party transactions will recur.
    A.The adequacy of the disclosure of the related party transactions.

    Accounting principles ordinarily do not require transactions with related parties to be accounted for differently from those with unrelated parties. Primary emphasis should be on the adequacy of disclosure.
  2. Which of the following audit procedures is an auditor most likely not to perform related to newly identified related party transactions outside the normal course of business?

    A.Analyze accounting records for transactions.

    B.Evaluate the business purpose of the transactions.

    C.Verify the terms and conditions of the transactions.

    D.Understand the controls over authorization and approval of such transactions.
    D.Understand the controls over authorization and approval of such transactions.

    Significant transactions outside the normal course of business most likely have a high assessed risk of material misstatement because normal controls do not typically apply. Thus, the focus should be on substantive testing of the transactions.
  3. Which of the following factors should an external auditor obtain updated information about when assessing an internal auditor’s competence?

    A.Whether the board of directors, audit committee, or owner-manager oversees employment decisions related to the internal auditor

    .B.The reporting status of the internal auditor within the organization.

    C.Whether policies prohibit the internal auditor from auditing areas where relatives are employed.

    D.The educational level and professional experiences of the internal auditor.
    D.The educational level and professional experiences of the internal auditor

    In assessing the competence of an internal auditor, the auditor should consider such factors as (1) educational level and professional experience; (2) professional certification and continuing education; (3) audit policies, programs, and procedures; (4) supervision and review of the internal auditor’s activities; (5) practices regarding assignment of internal auditors; (6) quality of documentation, reports, and recommendations; and (7) evaluation of the internal auditor’s performance (AU-C 610).
  4. Which of the following most likely would indicate the existence of related parties?

    A.Depending on a single product for the success of the entity.

    B.Borrowing money at an interest rate significantly below the market rate.

    C.Failing to correct previously identified internal control deficiencies.

    D.Writing down obsolete inventory just before year end.
    B.Borrowing money at an interest rate significantly below the market rate.

    The following suggest possible related party transactions: (1) exchanging property for similar property in a nonmonetary transaction, (2) borrowing or lending at rates significantly above or below market rates, (3) selling realty at a price materially different from its appraised value, and (4) making loans with no scheduled repayment terms.
  5. Which of the following steps should an auditor perform first to determine the existence of related parties?

    A.Examine invoices, contracts, and purchasing orders.

    B.Inquire about the existence of related parties from management.

    C.Review the company’s business structure.

    D.Review proxy and other materials filed with the SEC.
    B.Inquire about the existence of related parties from management.

    When obtaining an understanding of the entity’s related party relationships and transactions, the auditor should inquire of management regarding (1) the identity of the entity’s related parties, including changes from the prior period; (2) the relationships of the entity with those parties; and (3) the types and purposes of transactions with them.

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