cpa audit review ch9 review 3

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Joens1313
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cpa audit review ch9 review 3
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2014-09-06 19:42:26
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cpa audit review ch9 review 3
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  1. Computer Services Company (CSC) processes payroll transactions for schools. Drake, CPA, is engaged to report on CSC’s controls implemented as of a specific date. These controls are relevant to the schools’ internal control, so Drake’s report will be useful in providing the schools’ independent auditors with information necessary to plan their audits. Drake’s report expressing an opinion on CSC’s controls implemented as of a specific date should contain a(n)
    Description of the scope and nature of Drake’s procedures.

    The report expressing an opinion on the description of controls implemented and their design (type 1 report) includes (1) a title that includes the word independent; (2) an addressee; (3) identification of management’s description of the system; (4) a reference to management’s assertion and a statement of management’s responsibility for the controls; (5) a statement that the service auditor’s responsibility is to express an opinion on the fairness of management’s description of the system and the suitability of the design of the controls in meeting the objectives; (6) a statement that the report was conducted in accordance with the AICPA attestation standards; (7) a statement that the service auditor did not test the effectiveness of the controls; (8) statements about the scope of the service auditor’s procedures; (9) a statement about the inherent limitations of controls; (10) an opinion on whether, in all material respects, management’s description of the system is fairly stated and whether the controls are suitably designed; (11) a statement restricting the use of the report to management of the service organization and user entities; (12) the date of the report; and (13) the name, city, and state of the service auditor.
  2. In identifying matters for communication with an entity’s audit committee, an auditor most likely would ask management whether

    A.It consulted with another CPA firm about accounting matters.

    B.The turnover in the accounting department was unusually high.

    C.There were any subsequent events of which the auditor was unaware.

    D.It agreed with the auditor’s assessment of the risks of material misstatement.
    A.It consulted with another CPA firm about accounting matters.

    Unless all those charged with governance are managers, the auditor should communicate his/her views on significant accounting and auditing matters about which management consulted with other accountants (AU-C 260).
  3. An auditor is required to establish an understanding with a client regarding the services to be performed for each engagement. For an auditor of a nonissuer, this understanding generally includes
    The auditor’s responsibility for ensuring that management and those charged with governance are aware of any significant deficiencies or material weaknesses in control that come to the auditor’s attention.

    An auditor should accept an engagement only when the basis for audit performance is agreed through (1) establishing whether the preconditions for an audit exist and (2) confirming that the auditor and management (and, possibly, those charged with governance) have a common understanding of the terms of engagement. The agreement typically is documented in an engagement letter (AU-C 210). An engagement letter for a nonissuer should indicate that a financial statement audit is not designed to provide assurance on internal control. However, the auditor is responsible for ensuring that management and those charged with governance are aware of any significant deficiencies or material weaknesses in control that come to his/her attention.
  4. Which of the following statements is true about an auditor’s communication to those charged with governance?

    A.Issues previously reported to those charged with governance are required to be communicated to the audit committee after each subsequent audit.

    B.Any matters communicated to those charged with governance also should be communicated to the entity’s management.

    C.Disagreements with management about the application of accounting principles are required to be communicated in writing to those charged with governance.

    D.The auditor is required to inform those charged with governance about misstatements discovered by the auditor and not subsequently corrected by management.
    D.The auditor is required to inform those charged with governance about misstatements discovered by the auditor and not subsequently corrected by management.

    The matters to be communicated to those charged with governance include uncorrected misstatements, other than those not accumulated by the auditor because they are clearly trivial. The auditor communicates uncorrected misstatements and the effect they may have, individually or aggregated, on the opinion. Furthermore, material uncorrected misstatements should be identified individually. Also, the auditor should communicate to those charged with governance the effect of uncorrected misstatements related to prior periods (AU-C 260).
  5. Dunn, CPA, is auditing the financial statements of Taft Co. Taft uses Quick Service Center (QSC) to process its payroll. Price, CPA, is expressing an opinion on management’s description of the controls implemented and their suitability of design at QSC regarding the processing of its customers’ payroll transactions. Dunn expects to consider the effects of Price’s report on the Taft engagement. Price’s report should contain a(n)
    Description of the scope and nature of Price’s procedures.

    A service auditor’s report (type 1 report) includes (1) a title that includes the word independent; (2) an addressee; (3) identification of management’s description of the system; (4) a reference to management’s assertion and a statement of the management’s responsibility for the controls; (5) a statement that the service auditor’s responsibility is to express an opinion on the fairness of management’s description of the system and the suitability of the design of the controls in meeting the objectives; (6) a statement that the report was conducted in accordance with the AICPA attestation standards; (7) a statement that the service auditor did not test the effectiveness of the controls; (8) statements about the scope of the service auditor’s procedures; (9) a statement about the inherent limitations of controls; (10) an opinion on whether, in all material respects, management’s description of the system is fairly stated and whether the controls are suitably designed; (11) a statement restricting the use of the report to management of the service organization and user entities; (12) the date of the report; and (13) the name, city, and state of the service auditor (AT 801).

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