cpa audit review final review

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Joens1313
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cpa audit review final review
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2014-11-15 00:58:12
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cpa audit review final review
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  1. If the size of the sample to be used in a particular test of attributes has not been determined by using statistical concepts, but the sample has been chosen in accordance with random selection procedures,

    A.The auditor may or may not achieve desired precision at the desired level of confidence.

    B.The auditor has caused nonsampling risk to increase.

    C.The auditor will have to evaluate the results by reference to the principles of discovery sampling.

    D.No inferences can be drawn from the sample.
    The auditor may or may not achieve desired precision at the desired level of confidence.

    The determination of sample size for a test of attributes is a function of (1) the allowable risk of overreliance, (2) the tolerable deviation rate, (3) the expected population deviation rate, and (4) the size of the population. When the auditor does not use these criteria to determine sample size, (s)he risks not meeting the audit objectives.
  2. A separate paragraph of an auditor’s report describes an uncertainty as follows: As discussed in Note X to the financial statements, the Company is a defendant in a lawsuit alleging infringement of certain patent rights and claiming damages. Discovery proceedings are in progress. What type of opinion should the auditor express under these circumstances?

    A.“Subject to” qualified.

    B.Disclaimer.

    C.“Except for” qualified.

    D.Unmodified.
    D.Unmodified.

    Audit standards do not require the addition of an uncertainties paragraph. However, standards provide the auditor with the option of emphasizing a matter regarding the financial statements by adding an emphasis-of-matter paragraph. This paragraph does not affect the opinion expressed on the financial statements.
  3. Which of the following procedures most likely could assist an auditor in identifying related party transactions?

    A.Performing tests of controls concerning the segregation of duties.

    B.Evaluating the reasonableness of management’s accounting estimates.

    C.Reviewing confirmations of compensating balance arrangements.

    D.Scanning the accounting records for recurring transactions.
    C.Reviewing confirmations of compensating balance arrangements. 

    The auditor performs procedures to identify material transactions that may be indicative of previously undetermined relationships. These procedures include reviewing confirmations of compensating balance arrangements for indications that balances are or were maintained for or by related parties (AU-C 550).
  4. In determining the effectiveness of an entity’s policies and procedures relating to the existence or occurrence assertion for payroll transactions, an auditor most likely would inquire about and

    A.Recompute the payroll deductions for employee fringe benefits.

    B.Observe the segregation of duties concerning human resources responsibilities and payroll disbursement.

    C.Verify the preparation of the monthly payroll account bank reconciliation.

    D.Inspect evidence of accounting for prenumbered payroll checks.
    Observe the segregation of duties concerning human resources responsibilities and payroll disbursement.

    In considering whether transactions actually occurred, the auditor is most concerned about the proper segregation of duties between the human resources department (authorization) and the payroll disbursement (custody function).
  5. Financial audits of certain governmental entities are required to be performed in accordance with generally accepted government auditing standards (GAGAS) as issued in Government Auditing Standards. These standards do not require, as part of an auditor’s report, the inclusion of

    A.A statement as to whether the tests performed provide sufficient appropriate evidence to support an opinion on internal control over financial reporting.

    B.A description of the scope of testing of internal control over financial reporting.

    C.Sampling methods used to test the controls designed to detect fraud whether or not material fraud is found.

    D.The significant deficiencies, with identification of material weaknesses.
    C.Sampling methods used to test the controls designed to detect fraud whether or not material fraud is found.

    The Government Accountability Office (GAO) issues Government Auditing Standards (the Yellow Book). GAGAS apply to financial audits, attestation engagements, and performance audits. GAGAS for financial audits incorporate by reference the AICPA’s Statements on Auditing Standards (SAS) and also state requirements. However, they do not require that the report identify specific sampling techniques used to test the controls. Nevertheless, when presenting material fraud, auditors might consider the report contents standards for performance audits that pertain to, among other things, methodology. Thus, if sampling significantly supports the findings, the auditor might describe the sample design and state why it was chosen.

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