cpa audit review ch9 review 1

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cpa audit review ch9 review 1
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2014-09-06 19:31:57
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cpa audit review ch9 review 1
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  1. It would not be appropriate for the auditor to initiate discussion with the audit committee concerning

    A.Details of the procedures that the auditor intends to apply.

    B.The extent to which the work of internal auditors will influence the scope of the audit.

    C.Details of potential problems that the auditor believes might cause a qualified opinion.

    D.The extent to which change in the company’s organization will influence the scope of the audit.
    A.Details of the procedures that the auditor intends to apply.

    The auditor should communicate an overview of the scope and timing of the audit to those charged with governance. But the auditor should not communicate the nature and timing of detailed audit procedures. The auditor exercises professional judgment in determining the appropriate procedures. To remain independent, (s)he must not subordinate this judgment to others. Also, audit testing is done on a sample basis, and management should not have knowledge of how samples are selected. With such knowledge, the audit process may be circumvented.
  2. A service auditor’s report on internal control may be issued on management’s description of a service organization system and the suitability of the design of controls or management’s description of a service organization system and the suitability and operating effectiveness of controls. Which of the following is true about a type 1 report?


    A.It should include an opinion about the design of internal control as well as conclusions about tests of controls.

    B.It need not be restricted in its use and may be made available to any third party.

    C.It will include a list of all fraud and error discovered.

    D.It should state that the auditor did not test the effectiveness of the controls.
    D.It should state that the auditor did not test the effectiveness of the controls. 

    A service auditor’s type 1 report should contain a statement that the auditor did not test the effectiveness of the controls.
  3. Which of the following statements is true about significant deficiencies identified in an audit?

    A.Significant deficiencies need not be recommunicated each year if management has acknowledged its understanding of such deficiencies.

    B.The auditor should identify those significant deficiencies considered to be material weaknesses.

    C.All significant deficiencies are material weaknesses in the design or operation of specific internal control components.

    D.The auditor is obligated to search for significant deficiencies that could adversely affect the entity’s ability to record and report financial data.
    B.The auditor should identify those significant deficiencies considered to be material weaknesses.

    In a financial statement audit, the auditor is not required to perform procedures specifically to identify deficiencies in internal control or to express an opinion on internal control. But the auditor should report significant deficiencies or material weaknesses in internal control of which (s)he becomes aware. In such cases, they must be communicated in writing to management and those charged with governance (AU-C 265).
  4. When communicating significant deficiencies in internal control noted in a financial statement audit of a nonissuer, the communication should indicate that
    The purpose of the audit was to report on the financial statements, not to provide assurance on internal control.

    According to an illustrative written communication in AU-C 265, the auditors state, “we considered the Company’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Company’s internal control.”
  5. The auditor of an issuer must express an opinion on the effectiveness of internal control. The opinion should be expressed
    As of a Specified Date

    According to PCAOB’s AS No. 5, the report states the auditor’s opinion on whether the entity maintained, in all material respects, effective internal control over financial reporting as of the specified date based on the control criteria. The date typically is the end of the fiscal period. For a nonissuer, the practitioner may examine the effectiveness of internal control during a period of time (AT 501).
  6. The Sarbanes-Oxley Act of 2002 (SOX) requires management of issuers to do all of the following except

    A.Provide a statement that the board approves changes in internal control procedures.

    B.Provide an identification of the framework used to evaluate the effectiveness of internal control.

    C.Establish and document internal control procedures and to include in their annual reports a report on the company’s internal control over financial reporting.

    D.Provide a report to include a statement of management’s responsibility for and assessment of internal control.
    A.Provide a statement that the board approves changes in internal control procedures.

    SOX imposes many requirements on management, boards of directors, and auditors. Section 404 applies to internal controls and reports on them. Section 404 requires management to establish and document internal control procedures and to include in their annual reports a report on the entity’s internal control over financial reporting. The report is to include (1) a statement of management’s responsibility for internal control, (2) management’s assessment of the effectiveness of internal control as of the end of the most recent fiscal year, and (3) identification of the framework used to evaluate the effectiveness of internal control (such as the COSO report). Because of this requirement, PCAOB AS No. 5 states that audit opinions are to be expressed on the effectiveness of those controls and on the financial statements. Section 301 addresses activities of the board but does not require the board to approve changes in controls.

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