Questions and Answers of Auditing International Approach

What are the two types of control activities that make up controls over financial reporting at the accounting process level?
Why are the controls over financial reporting the most important part of the internal control framework from the auditor’s perspective?
How do auditors use their understanding of the auditee’s internal control framework?
What is the impact on audit work when auditors find management’s controls are very deficient overall?
Why are the financial statement closing process and final adjusting entries always high risk, even if controls over the information system and general ledger accounts were found to be strong?
Give two reasons controls would be tested.
What are the three phases of an internal control evaluation? What do auditors do in each of these phases?
What is the impact of the auditor’s knowledge of control effectiveness on substantive audit work?
Why do control procedures affect management’s financial statement assertions?
Explain the importance of general controls over an accounting process.
List the control objectives and the misstatement risk that each objective relates to.
List four duties that should be segregated within an information system. Why does this improve internal control?
Match the six control objectives to the five principal assertions.
What internal control documentation needs to be included in the audit files?
What is an internal control system narrative, and what is it used for in an audit?
Why do many organizations document their internal control system?
What role can internal auditors play in internal control system documentation?
What is a substantive audit approach, and how does it differ from a combined audit approach? Give examples of situations when each type would be used in an audit engagement.
Identify the three main components in the flow of transactions.
What are the main purposes of control activities in an information system?
How can management meet its responsibility to reduce internal control risks? How can this also assist auditors?
Explain how overstatements in the revenues and cash receipts transactions affect the assertions of the accounts receivable balance.
What is a dual-purpose test?
What findings are auditors required to communicate to management? to those charged with governance (audit committee or board of directors)?
What action should an auditor take if he or she suspects the financial statements are materially misstated?
Accounting risk is not relevant to which of the following?a. Gathering evidence.b. Dealing with the application of an appropriate financial reporting framework.c. Dealing with the estimation of the
What options does the CRA have for disciplining PAs?
Do auditors need to report suspicious activities to the police? Explain.
Which of these events is an auditor not required to communicate to a company’s audit committee or board of directors?a. Management’s significant accounting policies.b. Management’s judgments
For which of the following reports is an expression of negative assurance not permitted?a. A review report on unaudited financial statements.b. An audit report on financial statements prepared on a
When a company’s financial statements in a review or compilation engagement contain a known material departure from GAAP, what should the accountant’s report do?a. Make no mention of the
When an accountant is not independent, which report can nevertheless be given?a. Compilation report.b. Standard unqualified audit report.c. Examination report on a forecast.d. Review report on
To which statements are the official CPA Recommendations for Compilation and Review Services applicable?a. Audited financial statements of public companies.b. Unaudited financial statements of some
Which effective auditee internal control procedure prevents discrepancies between the cost accounting for labour cost and the payroll paid?a. Reconciliation of totals on production job time tickets
Analytical procedures applied to management’s production cost reports provide evidence for which assertion(s)?a. Existence, completeness, and valuation.b. Ownership.c. Physical inspection of
In testing an automated payroll system, an auditor would be least likely to use test data to test controls related to which of the following?a. Missing employee numbers.b. Proper signature approval
To minimize the opportunities for fraud, unclaimed payroll payments should be handled by which of the following procedures?a. Deposited in a safe deposit box.b. Held by the payroll custodian.c.
Which of the following is the best way for an auditor to obtain evidence about whether every name on a company’s payroll is that of a legitimate employee currently on the job?a. Examine personnel
Effective internal control over the payroll function should include procedures that segregate the duties of making salary payments to employees and which of the following procedures?a. Controlling
Practice in connection with unaudited historical cost financial statements is conducted by which firms?a. International accounting firms only.b. Regional- and local-size public accounting firms.c.
Does the standard public report on internal control give the opinion known as “positive assurance”?
List the major differences between financial statements and internal control statements.
Identify the major features of compilation engagements.
List the major features of review engagements.
The auditor is required to communicate with those charged with governance, usually an audit committee, regarding the significant audit findings and the planned form of audit report prior to their
An EOM paragraph is useda. To provide additional information that is not presented or disclosed in management’s financial statements.b. So that public companies can always receive unmodified audit
The “subsequent discovery of facts that existed at the balance sheet date” refers to knowledge obtained after which date?a. The date the audit report was delivered to the auditee.b. The audit
Unmodified audit opinions are most common becausea. Auditors want to retain the client’s business in future.b. Public companies are required to get qualified audit reports with unmodified
Two aspects that affect the form of opinion in an auditor’s report area. The need to issue a modified report or an adverse report.b. The scope of the auditor’s work and the fairness of
Managers of private companies are more likely than managers of public companies to correct misstatements the auditors discover becausea. Accuracy is more important in private companies than public
Auditor objectivity and skepticism are critical to concluding whether financial statements are fairly presented becausea. Accidental errors can occur in preparing financial statements and can
What does a person use when they apply professional judgment in an audit engagement?a. Loyalty to the client managementb. Their education and professional training in financec. The knowledge and
Give an example of a situation that would be reported in an EOM paragraph in an audit report containing an unmodified opinion.
Explain the difference between EOM and OM paragraphs. Distinguish these two from a KAM (in ISA 701).
Describe the three requirements that need to be met for a financial reporting framework to be considered a fair presentation framework.
Under what circumstances is an auditor required to give a modified audit opinion? List four types of modified audit opinions that would be given and the circumstances that would give rise to each.
What judgments are made by the auditee’s management in preparing its financial statements?
What do audit team members do to celebrate the successful completion of the audit?
What are two main areas of audit findings that auditors communicate to those charged with governance at the conclusion of the audit?
If auditors discover matters after the audit report date that would have changed the financial statements, and/or their audit report on those statements, what do they need to do?
What determines the date that auditors put on their report? What is the significance of this date to the auditors? to the financial statement users?
Why are clean unmodified opinions by far the most common form of audit report?
When would KAMs be included in an audit report? How might these matters affect users of audited financial statements?
What is an OM paragraph? When and why would it be used?
What is an EOM paragraph? When and why would it be used?
If an auditor decides an unmodified opinion is appropriate, why would there be a need to add additional information to the auditor’s report?
What other aspects of financial reporting are relevant to forming an audit opinion on financial statements, besides the monetary misstatements uncovered in the audit work?
What kind of audit opinion is appropriate if the intangible asset balance has not been prepared in accordance with GAAP because the value of the assets is very unlikely to be realized, and this is
What conditions would result in an auditor issuing an adverse opinion? What is the message being communicated to readers by an adverse audit opinion?
Why might management of a public company be reluctant to adjust misstatements that auditors discovered? How might this situation be different in a private company? Why?
What are KAMs in an audit report?
How is professional skepticism related to objectivity?
What is the role of objectivity in conducting an audit that complies with GAAS?
If the auditor believes that management has reported revenues and assets too aggressively (i.e., overstated them), does this mean management is dishonest? Explain your response.
Is it possible that a misstatement cannot be clearly categorized as being due to error or to fraud? Explain your position.
What are two causes of misstatements?
What is implied by stating an opinion that the financial statements fairly present a company’s financial position at period-end and its performance and cash flows for the period then ended?
What would cause the auditor to need to issue a disclaimer of opinion?
What impact does a scope limitation on obtaining evidence about the ending inventory have on the auditor’s opinion?
What does it mean if the auditor gives a qualified opinion because of a scope limitation? Give an example of when this situation might arise.
Why does the engagement partner review all the audit documentation as a starting point in forming an opinion on whether the financial statements are fairly presented?
What two aspects of the audit engagement are expressed in the auditor’s report?
How does an auditor identify facts that are relevant to determining whether there are misstatements in the financial statements being audited?
What is involved in exercising professional judgment?
What is a person using when they apply professional judgment in an audit engagement?
Which of the following is not required by CASs?a. Management representation letter.b. Lawyer’s letter.c. Management letter.d. Engagement letter.
Which of the following procedures is part of the audit completion work?a. Risk assessment.b. Control testing.c. Overall evaluation of the financial statements.d. Preparation of the cash flow
Until when do auditors have a responsibility to perform procedures to find subsequent events?a. The year-end balance sheet date.b. The audit report date.c. The date the audited financial statements
What is the main purpose of a written management representation letter?a. Shift responsibility for financial statements from the management to the auditor.b. Provide a substitute source of evidence
When auditing the year-end balance of interest-bearing notes payable, which account are the auditors most likely to audit at the same time?a. Interest income.b. Interest expense.c. Amortization of
How can related party transactions affect the financial statements?
What is contained in a set of completed audit files?
What kind of evidence is provided by written representations by management? Explain how this evidence is necessary, but not sufficient, according to GAAS.
What are written representations? Why do auditors require them from management?
What kinds of procedures do auditors use to get evidence related to contingencies, commitments, and subsequent events? When during the audit engagement process do auditors perform these procedures?
Which type of subsequent event is not adjusted for in the period-end financial statements under GAAP but requires disclosure in the notes? Give an example, and explain why this presentation is
Which type of subsequent event requires adjustment to the period-end financial statements under GAAP? Give an example, and explain why this presentation is required by GAAP.
What are subsequent events? Distinguish two main types.
What are commitments? How are they presented in financial statements to comply with GAAP? Why?
What are contingencies? How are they presented in financial statements to comply with GAAP? Why?

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