First 100

Question 1

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

Answer 1

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

Question 2

Are there contingent fees for attest services?

Answer 2

No

Question 3

What are some types of attest services?

Answer 3

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

Question 4

Attestation Service

Answer 4

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

Question 5

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

Answer 5

personal, external, and organizational

Question 6

Independence is required in auditing and attestation but NOT consulting.

Answer 6

true

Question 7

Covered Member

Answer 7

• 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

Question 8

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

Answer 8

true

Question 9

Sufficiency

Answer 9

measure of the quantity of audit evidence

Question 10

Appropriateness

Answer 10

measure of the quality of audit evidence

Question 11

Relevance

Answer 11

relates to the assertion being addressed

Question 12

What are approaches of tests of controls?

Answer 12

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

Question 13

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

Answer 13

true

Question 14

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

Answer 14

• 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

Question 15

Flow of Documents

Answer 15

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

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

Question 16

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

Answer 16

true

Question 17

Representation Letters

Answer 17

• 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

Question 18

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

Answer 18

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

Question 19

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

Answer 19

inspection of reviewing and issuing procedures

Question 20

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

Answer 20

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

Question 21

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

Answer 21

true

Question 22

What is the difference between International Standards and PCAOB?

Answer 22

• 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

Question 23

Assurance Function

Answer 23

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

Question 24

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

Answer 24

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

Question 25

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

Answer 25

test of completeness (understatements)

Question 26

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

Answer 26

test of existence (overstatements)

Question 27

Amortization and the return on equity are indirectly related.

Answer 27

true

Question 28

Factors that affect Risk Assessment

Answer 28

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

Question 29

What impairs CPA independence?

Answer 29

authorizing transactions -supervising client office personnel being on the board promoter, trustee, employee, officer, director * no partner can own more than 5 % of equity

Question 30

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

Answer 30

lawyer

Question 31

Engagement Letter

Answer 31

- objective of engagement - management responsibilities - auditors responsibilities (limits the auditors responsibilities to detect errors and fraud) - limitations of the audit - others

Question 32

when control risk is assessed at the maximum level

Answer 32

ineffective, document the assessment, more substantive procedures

Question 33

Foreign Corrupt Practices Act

Answer 33

prohibit illegal foreign payments | require public companies to maintain adequate internal control

Question 34

Types of Threats

Answer 34

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

Question 35

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

Answer 35

true

Question 36

Walk Through Questions

Answer 36

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?

Question 37

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

Answer 37

true

Question 38

When is an event labeled unaudited?

Answer 38

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

Question 39

immaterial departures do not require disclosure; only material departures do

Answer 39

true

Question 40

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

Answer 40

true

Question 41

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.

Answer 41

true

Question 42

What are the elements of quality control?

Answer 42

- engagement performance - human resource - monitoring - whether to accept a client relationships and specific engagements - leadership responsibilities - ethic requirements

Question 43

where do loss contingencies normally occur from?

Answer 43

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

Question 44

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

Answer 44

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

Question 45

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

Answer 45

proper authorization exists for transactions affecting the capital stock account