cpa audit review ch10 review 3

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Joens1313
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cpa audit review ch10 review 3
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2014-09-13 23:33:08
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cpa audit review ch10 review 3
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  1. Although the quantity and content of audit documentation vary with each engagement, an auditor’s permanent files most likely include

    A.Prior years’ accounts receivable confirmations that were classified as exceptions.

    B.Schedules that support the current year’s adjusting entries.

    C.Analyses of capital stock and other owners’ equity accounts.

    D.Documentation indicating that the audit work was adequately planned and supervised.
    C.Analyses of capital stock and other owners’ equity accounts.

    The permanent section of audit documentation usually contains copies of important client documents. They may include (1) the articles of incorporation, stock options, contracts, and bylaws; (2) the engagement letter, the contract between the auditor and the client; (3) analyses from previous audits of accounts of special importance to the auditor, such as noncurrent debt, PP&E, and equity; and (4) information concerning internal control, e.g., flowcharts, organization charts, and questionnaires.
  2. During the confirmation of accounts receivable, an auditor receives a confirmation via the client’s fax machine. Which of the following actions should an auditor take?

    A.Not accept the confirmation and select another customer’s balance to confirm.

    B.Accept the confirmation but verify the source and content through a telephone call to the respondent.

    C.Accept the confirmation and file it in the working papers.

    D.Not accept the confirmation and treat it as an exception.
    B.Accept the confirmation but verify the source and content through a telephone call to the respondent.

    When responses other than mailed written communications (e.g., responses received electronically, such as by fax or email) are received, additional evidence may be required to support their validity. The auditor may wish to verify the sources by calling the purported senders or by having the sender mail the original confirmation directly to the auditor. But an electronic confirmation system may be sufficiently secure and well controlled to mitigate the risks of interception or alteration. For example, encryption, electronic signatures, or procedures to verify website authenticity may be used.
  3. Audit documentation that records the procedures used by the auditor to gather evidence should be

    A.Viewed as the connecting link between the books of account and the financial statements.

    B.Designed to meet the circumstances of the particular engagement.

    C.Destroyed when the audited entity ceases to be a client.

    D.Considered the primary support for the financial statements being audited.
    B.Designed to meet the circumstances of the particular engagement.

    Audit documentation should be designed to meet the circumstances of a particular engagement. Audit documentation should provide (1) a sufficient and appropriate record of the basis for the auditor's report and (2) evidence that the audit was planned and performed in accordance with GAAS (AU-C 230).
  4. Which of the following in a predecessor’s audit documentation is the auditor least likely to be interested in reviewing?

    A.Analysis of current balance sheet accounts.

    B.Analysis of income statement accounts.

    C.Analysis of contingencies.

    D.Analysis of noncurrent balance sheet accounts.
    B.Analysis of income statement accounts.

    The predecessor auditor ordinarily should allow the auditor to review audit documentation of matters of continuing accounting and auditing significance, such as the schedule of uncorrected misstatements and analyses of balance sheet accounts and contingencies. The auditor should obtain sufficient appropriate evidence about whether (1) the opening balances of the current-year statements are materially misstated and (2) accounting policies are consistently applied (or changes are appropriate) (AU-C 510). However, analyses of income statement accounts have less significance for an initial audit because they have no beginning balances.
  5. An auditor using audit software probably would be least interested in which of the following fields in a computerized perpetual inventory file?

    A.Quantity sold.

    B.Economic order quantity.

    C.Date of last purchase.

    D.Warehouse location.
    B.Economic order quantity.

    The economic order quantity, which is based on the most cost effective combination of ordering and carrying costs, is a management decision with little effect on the fairness of the inventory balance on the financial statements.
  6. Under which of the following circumstances would using the blank form of confirmation of accounts receivable most likely be preferable to other types of positive confirmations?

    A. The auditor’s combined assessed level of control risk and inherent risk is low.

    B.Accounts receivable are immaterial to the entity’s financial statements.


    C.Prior years’ audits indicate a pattern of overstatement of account balances.

    D.Recipients are likely to sign other types of positive confirmations without careful investigation.
    D.Recipients are likely to sign other types of positive confirmations without careful investigation.

    . A positive confirmation request asks for a reply in all cases. It may ask the confirming parties to state whether they agree with the information given or to provide information. Positive confirmation requests obtain evidence only when responses are received. Blank confirmation requests are used to reduce the risk that recipients will respond without verifying the information. They omit the amount or other information to be confirmed and ask the confirming parties to fill in the information. The disadvantage is a lower response rate because of the additional effort required.

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