Final Review

Question 1

What does using a combined approach involved?

Answer 1

Using a combined approach involves identifying specific controls relevant to specific assertions that are likely to prevent or detect material misstatements in those assertions. If those controls are found to be operating effectively, substantive testing can be reduced.

Question 2

Who sent an attorney letter?

Answer 2

An attorney letter should be prepared by the client and sent by the auditor to the client’s legal counsel (both external and internal counsel).

Question 3

An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical methods?

Answer 3

It Provide an objective basis for quantitatively evaluating sample risk.

Question 4

Risk of material noncompliance is inversely related to?

Answer 4

Detection risk of noncompliance. . As risk of material noncompliance increases, detection risk of noncompliance should decrease to reach a desired level of overall audit risk of noncompliance. This concept is identical to the relationship between risk of material misstatement and detection risk.

Question 5

What are the task we can perform on a projection and forecast financial statement?

Answer 5

1. Compilation
2. Examination or audit
3. Agreed upon procedure

Note: we cannot perform a review on forecasted or projected FS.

Question 6

The accountant may compile financial statements that omit substantially all disclosures provided that:

Answer 6

The accountant’s report clearly indicates the omission by including a fourth paragraph disclosing such omissions; and
To the accountant’s knowledge, the omission is not intended to mislead any person who might be expected to use the financial statements.

Question 7

what is the objective of a review of interim F/S?

Answer 7

The objective of a review of interim financial information is to provide the accountant, through inquiries and analytical procedures, with a basis for reporting whether material modifications should be made to such information to conform with generally accepted accounting principles.

Question 8

How often should a audit firm obtain a written confirmation letter from its employees about their compliance with independence and policies?

Answer 8

ANNUALLY.

Question 9

What would lead to unpredictability in audit planning?

Answer 9

Performing a procedure on an unannounced basis because management would not be able to anticipate the timing of the audit.

Question 10

What is the CPI (Consumer price index) is commonly used to evaluate?

Answer 10

Price stability.

Question 11

Why do an auditor perform procedures to obtain understanding of the client entity and its environment, and also internal control.

Answer 11

To assess risk of material misstatements of the financial statement.

Question 12

According to COSO, what needs to be considered prior to risk assessment?

Answer 12

Entity level objectives.

Question 13

Can an auditor make use of a service auditor report?

Answer 13

Yes, a user auditor may make use of the service auditor report as part of the financial statement audit.

Question 14

At what level should an auditor determine the tolerable risk of material misstatements?

Answer 14

At the “Account level”. to assess risk of misstatement for a particular population or sampling procedure.

Question 15

What are the component of relational database.

Answer 15

Table, primary key and attributes. Meaning it contains tables that has attributes columns and record rows, with primary keys used to uniquely identify them.

Question 16

When can an auditor ask management to review its estimate?

Answer 16

When the auditor finds a “Judgmental misstatement”

Question 17

What action is required when an accountant make use of special purpose framework to prepare an entity’s financial statements.

Answer 17

Include a description of the applicable reporting framework on the face of the financial statement.

Question 18

According to the profession’s ethical standards, which of the following events may justify a departure from GAAP?

Answer 18

1. New legislation.
2. Evolution of a new form of business transaction.

Question 19

The accountant-client privilege

Answer 19

May be waived by the client.

Question 20

What does the auditor normally use to identify an unusual year-end balance?

Answer 20

Scanning the trial balance.

Question 21

According to PCAOB standards, analytical procedures performed during the overall review stage:

Answer 21

According to PCAOB standards, analytical procedures performed during the overall review stage may be similar to procedures performed as risk assessment procedures in the planning stage

Question 22

The accounts payable department typically performs the following functions in the expenditure cycle:

Answer 22

Record the payable
Approve the invoice for payment
Record the payment after it is paid by the treasurer

Question 23

An adverse opinion and a disclaimer of opinion indicates?

Answer 23

An adverse opinion indicates a material departure from generally accepted accounting principles, whereas a disclaimer of opinion indicates a material departure from generally accepted auditing standards.

Question 24

What does factual misstatement mean?

Answer 24

A “factual misstatement” is a misstatement about which there is no doubt.

Question 26

To consider if an item is in line with scope or out of scope, what do we need to do?

Answer 26

When deciding if an account or line item is in scope for audit testing, the auditor generally starts with materiality as the primary filter: If the financial statement line item exceeds performance materiality, it is automatically in scope because its size could influence users' decisions. Then, even if an item is below materiality, it can still be in scope if there is a specific identified risk (like a risk of misstatement or fraud) that requires attention. So, the typical order is: Check materiality threshold — if above, include in scope. If below materiality, check for identified risks — if significant risk exists, include in scope. If neither applies, the item is usually out of scope.