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 #2 : The Audit Process Risk Assessment
Inherent risk is defined as:
Due to factors other than internal control
Risk that was not detected by appropriate internal controls
Risk that material misstatement would not be detected by internal controls in place
None of the above
Due to factors other than internal control
Inherent risk is defined as risk that exists outside the audit process. It is sometimes termed industry risk.
Example Question #21 : Quality Control, Engagement Acceptance, Planning, & Internal Control
The objective of performing analytical procedures in planning an audit is to identify the existence of:
Unusual transactions and events
Related party transactions
Acts of noncompliance with laws and regulations that went undetected because of internal control weaknesses.
Recorded transactions that were not properly authorized
Unusual transactions and events
The objective of performing analytical procedures during planning is to discover unusual transactions or events that may have an impact on the planning of the financial statement audit.
Example Question #22 : Quality Control, Engagement Acceptance, Planning, & Internal Control
An auditor compared the current year gross margin with the prior year gross margin to determine if the cost of sales is reasonable. What type of audit procedure was performed?
Analytical procedures
Test of transactions
Test of details
Test of controls
Analytical procedures
Analytical procedures are evaluations of financial information made by a study of plausible relationships among data and they include comparisons between the current year and prior year's financial information.
Example Question #3 : The Audit Process Risk Assessment
If the management of a company with recently audited financial statements refuses to make a revision to the statements as a result of a material inconsistency, the auditor should __________.
Modify the audit opinion
Neither
Either
Withdraw from the engagement
Either
An auditor may modify the opinion of his or her audit if management refuses to correct a material issue, or withdraw from the engagement altogether.
Example Question #1 : The Audit Process Quality Control
Sufficient evidence refers to:
Amount of evidence
Type of evidence
Quality of evidence
Approved evidence
Amount of evidence
Sufficient evidence refers to the amount of evidence. It is sufficient in quantity to enable the auditor to express a reasonable judgment.
Example Question #23 : Quality Control, Engagement Acceptance, Planning, & Internal Control
John Anderson CPA is in the process of auditing a client. In terms of “reliability of evidence”, evidence pertaining to cash records should be obtained through:
The cashier
The controller
The bank statements
The general ledger
The bank statements
In the hierarch of evidence, evidence from independent sources is deemed most appropriate. In this scenario, the independent source of evidence is the bank statements as this document comes from an outside source (the bank).
Example Question #24 : Quality Control, Engagement Acceptance, Planning, & Internal Control
An “assertion” in terms of the financial statement includes:
Completeness
Agreeableness
Reasonableness
Cost effectiveness
Completeness
An “assertion” in terms of the financial statement includes the completeness, existence, valuation, rights and obligations, and presentation and disclosure.
Example Question #24 : Quality Control, Engagement Acceptance, Planning, & Internal Control
After fieldwork audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap up review of the audit documentation. This second review usually focuses on:
The materiality of the adjusting entries proposed by the audit staff
Evaluation of the significant judgements made by the engagement team and the related conclusions reached in forming the overall conclusion
The communication of internal control weaknesses to those charged with governance
Fraud involving the client's management and its employees
Evaluation of the significant judgements made by the engagement team and the related conclusions reached in forming the overall conclusion
The primary purpose of a second partner review is to evaluate the significant judgments made by the engagement team and the related conclusions reached in forming the overall conclusion.
Example Question #25 : Quality Control, Engagement Acceptance, Planning, & Internal Control
The purpose of establishing quality control policies and procedures for deciding whether to accept or continue a client relationship is to:
Minimize the likelihood of associating with clients whose management lacks integrity
Document the matters that are required to be communicated to the audit committee
Enhance the auditor's understanding of the client's business and its industry
Provide reassurance that personnel are adequately trained to fulfill their responsibilities
Minimize the likelihood of associating with clients whose management lacks integrity
The purpose of establishing quality control policies and procedures for deciding whether to accept or continue a client relationship is to minimize the likelihood of associating with clients whose management lacks integrity.
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