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Wiley Testbank > First 100 > Flashcards

First 100 Flashcards

1
Q

What does the Sarbanes Oxley Act prohibit public accounting firms to do?

A

1) bookkeeping
2) appraisal
3) internal audit outsourcing activities
4) management functions
5) financial i/s design and/or implementation

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2
Q

Are there contingent fees for attest services?

A

No

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3
Q

What are some types of attest services?

A

1) automobilized loans and leases collateralize by automobile
3) loans of surrender value under insurance policy
4) borrowings collateralize by cash deposits at same financial institutions
5) aggregate outstanding balances from credit card and overdraft accounts reduced to $10,000 on a current basis

*usually attest services are related to financial services/information

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4
Q

Attestation Service

A

a consulting service in which a CPA expresses a conclusion about the reliability of a written statement that is the responsibility of someone else

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5
Q

What are the three types of impairments according to GAO standards?

A

personal, external, and organizational

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6
Q

Independence is required in auditing and attestation but NOT consulting.

A

true

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7
Q

Covered Member

A
  • an individual on the attest engagement team and who can influence the attest engagement
  • firm + firm’s employee benefit plan
  • entity whose operating, financial, or accounting policies can be controlled
  • a partner in the office who is connected with the attest engagement
  • a partner or manager who provides at least 10 hours or more of attest services to a client
  • an individual who owns firm’s audit practice

*if the individual is a covered member then the individual is not considered independent of the organization

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8
Q

No partner in the office may have a direct financial interest in the client.

A

true

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9
Q

Sufficiency

A

measure of the quantity of audit evidence

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10
Q

Appropriateness

A

measure of the quality of audit evidence

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11
Q

Relevance

A

relates to the assertion being addressed

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12
Q

What are approaches of tests of controls?

A

Inquiries of personnel
Inspection of Documents and Reports
Observation of application of controls
Reperformance of the control by the auditor

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13
Q

supplies->WIP->raw materials, direct labor, and factory overhead; variances are allocated between COGS and ending inventory

A

true

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14
Q

What are some problematic and unusual relationships between auditor and management?

A
  • denial of access to records
  • undue time pressure
  • management complaints and intimidation
  • unusual delays in providing information
  • tips or complaints about fraud
  • unwillingness to facilitate auditor access to electronic files
  • unwillingness to add siclosures or revisions in financials
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15
Q

Flow of Documents

A

sales order->shipping order->invoice-> sales journal->general ledger

check/remittance advice->cash receipts journal->general ledger

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16
Q

According to professional standards, forecasts require a caution statement as to achieve-ability

A

true

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17
Q

Representation Letters

A
  • must be addressed to the auditor and should be be dated earlier than the auditor report
  • the representation letter should be signed by the chief executive/financial officer
  • should be obtained for all periods
  • refusal to furnish written representations concludes an unmodified opinion and ordinarily results in a disclaimer
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18
Q

A decrease in the acceptable level of materiality requires the auditor to do what?

A

1) select more effective auditing procedures
2) perform auditing procedures closer to the balance sheet date
3) increase the extent of an auditing procedure

*find smaller misstatements

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19
Q

If there are unrecorded liabilities, what procedure should an auditor take?

A

inspection of reviewing and issuing procedures

20
Q

What would an auditor do after identifying related-party transactions?

A

Determine whether the transactions were approved by the board of directors or other appropriate officials.

21
Q

An engagement cannot be accepted if it does not have sufficient evidence to make an opinion.

A

true

22
Q

What is the difference between International Standards and PCAOB?

A
  • international standards do not require internal control while PCAOB does
  • international does not allow reference to another audit firm while PCAOB does
  • international standards are less detailed than PCAOB standards
  • time horizon for international standards is 12 months while PCAOB standards limit the future for a going concern upto 12 months
  • international standards are based on a risk assessment approach while PCAOB is not
  • the audit opinion may indicate that the financial statements present fairly or they give a true and fair view.
  • may modify opinion for uncertaintly on the existence as a going concern
23
Q

Assurance Function

A

Independent professional services that improve the quality of information, or its context, for decision makers

24
Q

Before applying procedures at an interim date what should the auditor consider

A
  • the incremental audit risk and if the procedures are cost-effective
25
Q

(sales invoice) source document–> recorded entry (sales journal)

A

test of completeness (understatements)

26
Q

recorded entry (sales journal) –> source document (sales invoice)

A

test of existence (overstatements)

27
Q

Amortization and the return on equity are indirectly related.

A

true

28
Q

Factors that affect Risk Assessment

A
  • changes in operating environment
  • new personnel
  • new information system
  • rapid growth
  • new technology
  • new lines, products, or activities
  • corporate restructuring
  • foreign operations
  • accounting pronouncements
29
Q

What impairs CPA independence?

A

authorizing transactions
-supervising client office personnel
being on the board
promoter, trustee, employee, officer, director

  • no partner can own more than 5 % of equity
30
Q

what is the clients primary source concerning loss contingencies or corroboration/litigation?

A

lawyer

31
Q

Engagement Letter

A
  • objective of engagement
  • management responsibilities
  • auditors responsibilities (limits the auditors responsibilities to detect errors and fraud)
  • limitations of the audit
  • others
32
Q

when control risk is assessed at the maximum level

A

ineffective, document the assessment, more substantive procedures

33
Q

Foreign Corrupt Practices Act

A

prohibit illegal foreign payments

require public companies to maintain adequate internal control

34
Q

Types of Threats

A

self review, advocacy, adverse, familiarity, undue influence, financial self-interest, management participation

35
Q

Overstatement of revenue is a presumptive that there is a fraud risk.

A

true

36
Q

Walk Through Questions

A
  1. What do you do when you find an error?
  2. What kind of errors have you found?
  3. What happened as a result of finding the errors?
  4. Have you even been asked to override the process or controls?
37
Q

During the period of the professional engagement a covered member may not have any direct or material indirect financial interest in the client.

A

true

38
Q

When is an event labeled unaudited?

A

when an event occurs between the date of the original report and the date of the reissuance of the report

39
Q

immaterial departures do not require disclosure; only material departures do

A

true

40
Q

Management can only sign payroll checks otherwise this is considered impaired independence.

A

true

41
Q

This answer is correct because under international auditing standards a lawyer’s letter is only required when the auditor assesses a related risk of material misstatement.

A

true

42
Q

What are the elements of quality control?

A
  • engagement performance
  • human resource
  • monitoring
  • whether to accept a client relationships and specific engagements
  • leadership responsibilities
  • ethic requirements
43
Q

where do loss contingencies normally occur from?

A

-litigation, tax income disputes, a/r sold, environmental issues, guarantees made by client

44
Q

What procedures should be taken to find out evidence on subsequent events?

A

1) matters on contingent liabilities existing at the date of the balance sheet
2) whether there was any significant change in capital stock, long-term debt, or working-capital
3) current status of items in financial statements
4) unusual adjustments

45
Q

What is an auditor’s primary concern about the SE section?

A

proper authorization exists for transactions affecting the capital stock account

Wiley Testbank (1 decks)

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