AUD Memorization

Question 1

Steps to report illegal acts for a nonissuer (4)

Answer 1

1) Illegal act discovered
2) Report to governance
3) Client’s response appropriate?
4) If yes, then determine if FS are materially misstated. If no, then consider withdrawing

Question 2

Engagements under Statements of Standards for Accounting and Review Services (SSARS) (3 of them)

Answer 2

Preparations, Compilations, Reviews of historical financial information, including FS

Question 3

Engagements under Statements on Standards for Attestation Engagements (SSAE) (3 of them)

Answer 3

Agreed-upon procedures, Examinations, Reviews of anything other than historical financial information

Question 4

For each engagement below, list what procedures the CPA peforms, the type of assurance, if independence is required, and if a report is issued or not.

Review
Compilation
Preparation

Answer 4

Review - inquiries and analytical procedures, Limited assurance, independent, yes

Compilation - assemble and read FS, no assurance, independence not required but must be disclosed, yes

Preparation - prepares FS or specified FS elements (BS only), no assurance, no independence, no

Question 5

What are the nine elements in an engagement letter (FACSIMILE)

Answer 5

Fees
Auditor’s responsibilities
Confirmation of engagement
Scope and objective
Internal controls
Management’s responsibilities
Irregularities (fraud)
Illegal acts
Errors

Question 6

What are the five reasons a successor auditor wants to discuss with the predecessor auditor?

Answer 6

Reasons for change
Integrity of management
disagreements during audit
communication with management or those charged with governance
Understand related party transactions and significant unusual transactions

Question 7

List the number of days the final audit file must be assembled within and the amount of years it should be retained for in regards to the following:

Issuers
Nonissuers

Answer 7

Issuers - 14 days after report release date, 7 years
Nonissuers - 60 days after report release date, 5 years

Question 8

What is the audit process outline? (8 steps)

Answer 8

Client acceptance/continuance
Plan the audit (initial strategy and plan)
Obtain understanding of client, its environment, and IC
Assess risk of material misstatement and design further procedures
Perform tests of controls
Perform substantive procedurs
form an opinion
Issue a report

Question 9

When is something considered inelastic and elastic?

Answer 9

If elasticity of demand (Ed) is greater than 1 it is elastic and revenue will decrease with a price increase; if it is less than 1, it is inelastic and revenue will increase if price is increased, if it equals 1, then it is Unit elastic and isn’t effected by price changes.

Question 10

What are the 5 components of internal controls (CRIME)

Answer 10

Control Activities
Risk Assessment
Information and communication
Monitoring of controls
Control Environment

Question 11

What is the formula for Income elasticity of demand?

Answer 11

% change in quantity demanded / % change in income

Question 12

What is the formula for cross-elasticity of demand?

Answer 12

% change in quantity demanded for product X / % change in the price of product Y

Question 13

What is the formula for price elasticity of supply?

Answer 13

% change in quantity demanded of X / % change in price

Question 14

Briefly explain the following types of unenmployment
Frictional unemployment
Structural unemployment
Cyclical unemployment
Institutional unemployment

Answer 14

FU - Normal turnover
SU - technological changes
CU - Fluctuation in business cycle
IU - Government restrictions

Question 15

Name 9 common leading indicators

Answer 15

consumer expectations
initial claims for unemployment
weekly manufacturing hours
stock prices
building permints
new orders for consumer goods
new orders for manufactured capital goods
real money supply
yield curves

Question 16

Name 6 common lagging indicators

Answer 16

changes in labor cost per unit of output
relationship between inventories and sales
duration of unemployment
commercial loans outstanding
relationship between consumer installment credit and personal income
CPI

Question 17

What are the five forces of Porter’s five forces model?

Answer 17

Threat of new entrants
Bargaining power of suppliers
Bargaining power of consumers
Threat of substitutes
Rivalry among existing competitors

Question 18

What does PEST stand for?

Answer 18

Political, economic, social, technological

Question 19

What are SOC 1 and SOC 2 reports as well as type 1 and type 2 reports within each SOC report?

Answer 19

SOC 1 reports are used by auditors and explain the internal controls relating to financial statements. A type 1 report shows the design of the controls, and a type 2 report shows the design and operating effectiveness of the controls.

SOC 2 reports are used by management and focus more on the controls regarding operations. type 1 and type 2 are the same as a SOC 1 report, but they relate to operations instead of the financial statements and reporting

Question 20

What is the audit risk model?

Answer 20

Audit risk = Inherent risk * Control risk * Detection risk

Question 21

What are the 5 steps to data analytics?

Answer 21

Plan the audit data analytic (ADA)
Access and prepare the date for purposes of ADA
Consider the relevance and reliability of the data used
Perform the ADA
Evaluate the results

Question 22

What is stratification?

Answer 22

Stratified sampling is a technique of breaking the population down into subpopulations and applying different sample selection methods to the subpopulations. Stratified sampling is used to minimize the variance within the overall population.

Question 23

What are the four main parts of the body of an audit report and what do they include?

Answer 23

1) Opinion section - Identifies FS being audited and states whether they are presented fairly in all material respects in accordance with GAAP
2) Basis for opinion - Provides the reasons for the opinion expressed in the report. Does not mention GAAP, but does mention that audit was done according to GAAS
3) Management responsibilities - Lists mgmt responsibilities including fairly presenting the FS in accordance with GAAP, oversee IC, and evaluate going concern assumptions
4) Auditor’s responsibilities - Lists the responsibility of the auditor to form and express an opinion in accordance with GAAS (not GAAP) and evaluate going concern assumption. It is not the auditor’s responsibility to prepare FS in accordance with GAAP.

Question 24

What is the entire structure of an audit report for a nonissuer (same for most issuers as well)?

Answer 24

Title is Independent auditor’s report
Address it to the board of directors
Opinion
Basis for Opinion
Responsbilities of Mgmt
Auditor’s responsibilities
Signature
City and state
Date of report

Question 25

List the additional/explanatory sections of the audit report for a nonissuer

Answer 25

Additional sections Going concern Key audit matters other information Supplementary information Required supplemental information (RSI) Report on other legal and regulatory requirements Explanatory paragraphs Emphasis of Matter Other matter