Audit CPA Exam (correct answers)
Management is responsible for correct answers Financial statements - the preparation
and fair presentation
Internal controls - design, implementation and maintenance relevant to the FS
Providing auditor with access to info and persons needed to complete the audit
The preparation and fair presentation of the FS requires correct answers identification of
the applicable financial reporting framework
preparation and fair presentation in accordance with framework
inclusion of adequate description of the framework
to obtain reasonable assurance correct answers plan the work and properly supervise
the assistants
determine and apply appropriate materiality levels
identify and assess risks of material misstatement, whether due to error or fraud
and obtain sufficient appropriate audit evidence
The applicable financial reporting framework correct answers The financial reporting
framework that is acceptable in view of the nature of the entity and the objective of the
financial statements
Includes general purpose: designed to meet needs of a wide range of users (GAAP &
IFRS)
and special purpose frameworks
Fair presentation frameworks correct answers All financial reporting frameworks in the
US are fair presentation frameworks
Acknowledges explicity or implicitly that to achieve fair presentation of the FS, it may be
necessary for management to provide disclosures beyond those specifically required
Acknowledges explicitly that it may be necessary for mgmt (RARE) to depart from a
requirement to achieve fair presentation
Auditing standards correct answers (GAAS) Generally accepted auditing standards -
mandatory on all audit engagements
,(GAGAS) Generally accepted government auditing standards - audits of government
organizations, programs or activities that receive government funds
(PCAOB) - established pursuant to SOX - establish auditing standards for issuers
(ISA) International standards of auditing
The term "must" or "is required" correct answers indicates an unconditional requirement
must be followed in all cases
The term "should" correct answers presumptively mandatory requirement
must be followed in all cases where the requirement is relevant but allows for
departures in rare circumstances if there is appropriate justification
Conditions that indicate possible fraud correct answers Pressure
Opportunity
Rationalization
If there is substantial doubt about going concern, the auditor should: correct answers
consider the adequacy of the disclosure about the entity's possible inability to continue
as a going concern
include an emphasis of matter paragraph in the auditors report to reflect this conclusion
Going concern documentation correct answers Conditions or events that gave rise to
the concern
Any mitigating factors the auditor finds significant
Audit work performed to evaluate mgmt plans
Conclusion about whether it remains or is alleviated
The effect on the financial statements and disclosures
Mitigating factors correct answers when an auditors believe there is substantial doubt
about going concern, the auditor is required to consider MANAGEMENTS PLAN FOR
DEALING WITH the conditions or events that led to the auditors belief
-Plan to borrow money or restructure debt
-Plan to sell assets
-Plan to delay or reduce expenditures
-Plan to increase ownership equity
, Must have BOTH intent and ability
No audit work can be done correct answers NO AUDIT OPINION
not even a bad opinion
Subsequent discovery of facts after report release date: If client refuses to follow
procedures
"DAR" them to fix it correct answers Disassociate
Alert regulatory agencies
Relying parties
If there is a material inconsistency in documents containing audited financial statements
correct answers The auditor should determine whether the audited financial statements
or the other info needs to be revised
If the FS requires revision and management refuses then they should modify the
opinion
If the other info requires revision then they should communicate this to those charged
with governance and include this in the auditors report in an other-matter paragraph or
withhold use of the report or withdraw from engagement
Supplementary info report for nonissuers AND the opinion if one correct answers Could
be an other-matter paragraph in audit report OR
separate report - should reference the auditors report and opinion on the FS
Can have unmodified FS and qualified or adverse on supplementary if misstatements
If qualified opinion on FS then qualified for supplementary should
If adverse or disclaimer on FS, then no opinion should be expressed on supplementary
Supplementary info report for issuers AND the opinion if one correct answers Could be
an other-matter paragraph in audit report OR
separate report - should reference the auditors report and opinion on the FS
Can have unmodified FS and qualified or adverse on supplementary if misstatements
If inability to obtain enough evidence, disclaimer
If qualified opinion on FS then qualified for supplementary should
If adverse or disclaimer on FS, then should be the adverse of disclaimer
Management is responsible for correct answers Financial statements - the preparation
and fair presentation
Internal controls - design, implementation and maintenance relevant to the FS
Providing auditor with access to info and persons needed to complete the audit
The preparation and fair presentation of the FS requires correct answers identification of
the applicable financial reporting framework
preparation and fair presentation in accordance with framework
inclusion of adequate description of the framework
to obtain reasonable assurance correct answers plan the work and properly supervise
the assistants
determine and apply appropriate materiality levels
identify and assess risks of material misstatement, whether due to error or fraud
and obtain sufficient appropriate audit evidence
The applicable financial reporting framework correct answers The financial reporting
framework that is acceptable in view of the nature of the entity and the objective of the
financial statements
Includes general purpose: designed to meet needs of a wide range of users (GAAP &
IFRS)
and special purpose frameworks
Fair presentation frameworks correct answers All financial reporting frameworks in the
US are fair presentation frameworks
Acknowledges explicity or implicitly that to achieve fair presentation of the FS, it may be
necessary for management to provide disclosures beyond those specifically required
Acknowledges explicitly that it may be necessary for mgmt (RARE) to depart from a
requirement to achieve fair presentation
Auditing standards correct answers (GAAS) Generally accepted auditing standards -
mandatory on all audit engagements
,(GAGAS) Generally accepted government auditing standards - audits of government
organizations, programs or activities that receive government funds
(PCAOB) - established pursuant to SOX - establish auditing standards for issuers
(ISA) International standards of auditing
The term "must" or "is required" correct answers indicates an unconditional requirement
must be followed in all cases
The term "should" correct answers presumptively mandatory requirement
must be followed in all cases where the requirement is relevant but allows for
departures in rare circumstances if there is appropriate justification
Conditions that indicate possible fraud correct answers Pressure
Opportunity
Rationalization
If there is substantial doubt about going concern, the auditor should: correct answers
consider the adequacy of the disclosure about the entity's possible inability to continue
as a going concern
include an emphasis of matter paragraph in the auditors report to reflect this conclusion
Going concern documentation correct answers Conditions or events that gave rise to
the concern
Any mitigating factors the auditor finds significant
Audit work performed to evaluate mgmt plans
Conclusion about whether it remains or is alleviated
The effect on the financial statements and disclosures
Mitigating factors correct answers when an auditors believe there is substantial doubt
about going concern, the auditor is required to consider MANAGEMENTS PLAN FOR
DEALING WITH the conditions or events that led to the auditors belief
-Plan to borrow money or restructure debt
-Plan to sell assets
-Plan to delay or reduce expenditures
-Plan to increase ownership equity
, Must have BOTH intent and ability
No audit work can be done correct answers NO AUDIT OPINION
not even a bad opinion
Subsequent discovery of facts after report release date: If client refuses to follow
procedures
"DAR" them to fix it correct answers Disassociate
Alert regulatory agencies
Relying parties
If there is a material inconsistency in documents containing audited financial statements
correct answers The auditor should determine whether the audited financial statements
or the other info needs to be revised
If the FS requires revision and management refuses then they should modify the
opinion
If the other info requires revision then they should communicate this to those charged
with governance and include this in the auditors report in an other-matter paragraph or
withhold use of the report or withdraw from engagement
Supplementary info report for nonissuers AND the opinion if one correct answers Could
be an other-matter paragraph in audit report OR
separate report - should reference the auditors report and opinion on the FS
Can have unmodified FS and qualified or adverse on supplementary if misstatements
If qualified opinion on FS then qualified for supplementary should
If adverse or disclaimer on FS, then no opinion should be expressed on supplementary
Supplementary info report for issuers AND the opinion if one correct answers Could be
an other-matter paragraph in audit report OR
separate report - should reference the auditors report and opinion on the FS
Can have unmodified FS and qualified or adverse on supplementary if misstatements
If inability to obtain enough evidence, disclaimer
If qualified opinion on FS then qualified for supplementary should
If adverse or disclaimer on FS, then should be the adverse of disclaimer
