CPA Auditing and Attestation (AUD) : Quality Control, Engagement Acceptance, Planning, & Internal Control
Study concepts, example questions & explanations for CPA Auditing and Attestation (AUD)
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Example Questions
Example Question #11 : Quality Control, Engagement Acceptance, Planning, & Internal Control
An auditor's engagement letter would most likely include a statement regarding:
Management's responsibility to provide certain written representations to the auditor
Internal control activities that would reduce the auditor's assessment of risk
Materialty matters that could modify the auditor's preliminary assessment of fraud risk
Conditions under which the auditor may modify the preliminary judgement about materiality
Management's responsibility to provide certain written representations to the auditor
The auditor is required to establish an understanding with the client, and this understanding should be documented in the form of an engagement letter. The understanding should encompass management's responsibilities which include providing the auditor with a representation letter at the conclusion of the engagement.
Example Question #12 : Quality Control, Engagement Acceptance, Planning, & Internal Control
Of the following examples, which would dictate the need for an Other-Matter paragraph?
Reference to required supplementary information
Material justified change in an accounting principle
Special purpose framework
Going concern issue
Reference to required supplementary information
If there is a piece of information critically important to the understanding of financial statements, the auditor will point it out through an Other-Matter paragraph.
Example Question #1 : The Audit Process Planning
In addressing materiality, the auditor should:
decide whether any omission may change the judgement of any person relying on the information
Discuss with partners any liability issues regarding materiality
Determine how much error they should let management get away with
Discuss with management the required materiality levels
decide whether any omission may change the judgement of any person relying on the information
In addressing materiality, the auditor should decide whether the omission or misstatement would change the judgment of the reader.
Example Question #2 : The Audit Process Planning
“Performance Materiality” is defined as
The amount set below the overall materiality level
The amount necessary to get management to perform the audit appropriately
The amount set above the overall materiality level
A level required to evaluate staff performance
The amount set below the overall materiality level
Performance Materiality is defined as the amount that is less than the overall materiality level. Performance materiality is set to respond to smaller misstatements or omissions that in aggregate may affect the materiality level.
Example Question #11 : Quality Control, Engagement Acceptance, Planning, & Internal Control
Materiality levels are set by:
AICPA
Professional Judgement
FASB
SEC
Professional Judgement
Materiality levels are set by the judgment of the auditor. The auditor may use industry standards to help in determining the materiality level, however, experience and judgment are the final determinants.
Example Question #3 : The Audit Process Planning
In developing an overall audit strategy, the auditor should consider:
Preliminary evaluations of materiality, audit risk, and internal control
Whether the inquiry of the client's attorney identifies any litigation, claims, or assessments not disclosed in the financial statements
Findings from substantive tests performed at interim dates
Whether the allowance for sampling risk exceeds the achieved upper precision limit
Preliminary evaluations of materiality, audit risk, and internal control
In developing an overall audit strategy, an auditor should consider preliminary evaluations of materiality, audit risk, and internal control.
Example Question #4 : The Audit Process Planning
During the initial planning phase of an audit, the auditor would most likely:
Inquire of the client's attorney as to whether any unrecorded claims are probable of assertion
Evaluate the reasonableness of the client's accounting estimates
Discuss the timing of the audit procedures with the client's management
Identify specific internal control activities that are likely to prevent fraud
Discuss the timing of the audit procedures with the client's management
Procedures that an auditor may consider in planning the audit include discussing the type, scope, and timing of the audit with the client's management.
Example Question #5 : The Audit Process Planning
The users of a company's set of financial statements would be:
Neither
Creditors
Both
Shareholders
Both
Both creditors and shareholders would need access to reliable financial statements in order to decide if the company is worth investing in or lending money to.
Example Question #15 : Quality Control, Engagement Acceptance, Planning, & Internal Control
Risk is communicated in the audit report as:
absolute assurance
adequate assurance
reasonable assurance
minimal assurance
reasonable assurance
The concept of reasonable assurance is used to guide the auditor when assigning and assessing risk in the audit process.
Example Question #16 : Quality Control, Engagement Acceptance, Planning, & Internal Control
Risk of material misstatement exists at:
Both A and B
In each transaction
The overall financial statement level
Neither A and B
Both A and B
The risk of misstatement appears at the transactional level as well as the financial statement level. The statements can be materially misstated in the aggregate based on a series of misstated transactions or on the whole.
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