CPA Audit (correct answers)
What does TID stand for in the GAAS general standards? correct answers Training,
Independence, and Due professional care
What does PIE stand for in the standards of field work? correct answers Planning and
supervision, Internal Control, and Evidence
What does GCDO stand for in the standards of reporting? correct answers GAAP,
Consistency, Disclosure, and Opinion
When is an adverse opinion rendered? correct answers When a severe GAAP
departure is present in the financial statements.
What are the two main differences between the standards of attestation and the auditing
standards? correct answers The attestation standards and generally accepted auditing
standards differ conceptually in two main areas: 1) the attestation standards provide a
framework for the attest function beyond historical financial statements; and 2) the
attestation standards provide for the growing number of attest services in which the
practitioner expresses assurances in forms other than the positive opinion.
Formula for days sales in acc receivable? correct answers Acc rec / credit sales per
day.Credit sales per day = Total credit sales / 365.
Adj entry for wages at end of year that weren't recorded: correct answers DR: Operating
expensesCR: Accrued wages payable(accrued liab)
Why would an auditor modify the auditor's report based on the work of a specialist?
correct answers If there is a difference between the specialist's valuation of an asset
and the client's.
who should make up the audit committee? correct answers members of the board or
directors who are not officers or employees
what are the 3 general standards? correct answers adequete training, independence of
mental attitude, and due professional care
3 fieldwork standards? correct answers adequete planning, understanding the entity
and its internal control, sufficient and appropriate audit evidence
the auditors judgment of the overall fairness of the financial statements is applied within
the framework of? correct answers generally accepted audit principles
what does the auditor primarily use to come up with materiality? correct answers the
prior year financial statements
, basics of independence concerning a close relative? correct answers CR can have a
financial interest in the audit client as long as the amount is immaterial to them. CR can
work for the audit client as long as its not in accounting or financial reporting. CR can
work for audit firm, and is not a covered member unless the person works on the
engagement team or can influence the members of the engagement team or the audit
itself
when planning a new audit, why would the auditor consider the methods used to
process accounting information? correct answers Because the methods influence the
design of internal control
who appoints the PCAOB? correct answers SOX created the PCAOB and it is overseen
by the SEC
under securities act of 1934 what organizations are required to submit audited financial
statements? correct answers every company traded on national and over the counter
exchanges
primary purpose of establishing quality control procedures for deciding whether to
accept a new client? correct answers minimize likelihood of association with clients
whose management lack integrity
to succeed in legal action against the auditor, the client must be able to show that?
correct answers the CPA had duty to perform, the CPA breached the contract, the client
suffered losses, and that there is a close causal connection between the auditor's
behavior and the damages suffered by the client
detection risk? correct answers risk that auditor concludes no material misstatement
exists when there actually is one
3 components of audit risk? correct answers inherent risk, control risk, detection risk.
They are multiplied together: .8 x .75 x .25 = .15 audit risk
if inherent risk is .8 and control risk is .2, what does the auditor do to lower audit risk?
correct answers increase and perform substantive testing to reduce detection risk to the
point that it equals the acceptable level of audit risk
why are inherent risk and control risk different than detection risk? correct answers
inherent risk is the possibility of a material mistatement due to lack of human and
system technology. Control risk is risk of material error that is not prevented or detected
on a timely basis by the client's internal controls. Detection risk is risk that the auditor
misses a material error. Thus, inherent risk and control risk are functions of the client
and its environment while detection risk is not
the risk of material misstatement refers to: correct answers the combination of inherent
& control risk. Multiplying IR by CR results in the 'risk of material misstatement'
What does TID stand for in the GAAS general standards? correct answers Training,
Independence, and Due professional care
What does PIE stand for in the standards of field work? correct answers Planning and
supervision, Internal Control, and Evidence
What does GCDO stand for in the standards of reporting? correct answers GAAP,
Consistency, Disclosure, and Opinion
When is an adverse opinion rendered? correct answers When a severe GAAP
departure is present in the financial statements.
What are the two main differences between the standards of attestation and the auditing
standards? correct answers The attestation standards and generally accepted auditing
standards differ conceptually in two main areas: 1) the attestation standards provide a
framework for the attest function beyond historical financial statements; and 2) the
attestation standards provide for the growing number of attest services in which the
practitioner expresses assurances in forms other than the positive opinion.
Formula for days sales in acc receivable? correct answers Acc rec / credit sales per
day.Credit sales per day = Total credit sales / 365.
Adj entry for wages at end of year that weren't recorded: correct answers DR: Operating
expensesCR: Accrued wages payable(accrued liab)
Why would an auditor modify the auditor's report based on the work of a specialist?
correct answers If there is a difference between the specialist's valuation of an asset
and the client's.
who should make up the audit committee? correct answers members of the board or
directors who are not officers or employees
what are the 3 general standards? correct answers adequete training, independence of
mental attitude, and due professional care
3 fieldwork standards? correct answers adequete planning, understanding the entity
and its internal control, sufficient and appropriate audit evidence
the auditors judgment of the overall fairness of the financial statements is applied within
the framework of? correct answers generally accepted audit principles
what does the auditor primarily use to come up with materiality? correct answers the
prior year financial statements
, basics of independence concerning a close relative? correct answers CR can have a
financial interest in the audit client as long as the amount is immaterial to them. CR can
work for the audit client as long as its not in accounting or financial reporting. CR can
work for audit firm, and is not a covered member unless the person works on the
engagement team or can influence the members of the engagement team or the audit
itself
when planning a new audit, why would the auditor consider the methods used to
process accounting information? correct answers Because the methods influence the
design of internal control
who appoints the PCAOB? correct answers SOX created the PCAOB and it is overseen
by the SEC
under securities act of 1934 what organizations are required to submit audited financial
statements? correct answers every company traded on national and over the counter
exchanges
primary purpose of establishing quality control procedures for deciding whether to
accept a new client? correct answers minimize likelihood of association with clients
whose management lack integrity
to succeed in legal action against the auditor, the client must be able to show that?
correct answers the CPA had duty to perform, the CPA breached the contract, the client
suffered losses, and that there is a close causal connection between the auditor's
behavior and the damages suffered by the client
detection risk? correct answers risk that auditor concludes no material misstatement
exists when there actually is one
3 components of audit risk? correct answers inherent risk, control risk, detection risk.
They are multiplied together: .8 x .75 x .25 = .15 audit risk
if inherent risk is .8 and control risk is .2, what does the auditor do to lower audit risk?
correct answers increase and perform substantive testing to reduce detection risk to the
point that it equals the acceptable level of audit risk
why are inherent risk and control risk different than detection risk? correct answers
inherent risk is the possibility of a material mistatement due to lack of human and
system technology. Control risk is risk of material error that is not prevented or detected
on a timely basis by the client's internal controls. Detection risk is risk that the auditor
misses a material error. Thus, inherent risk and control risk are functions of the client
and its environment while detection risk is not
the risk of material misstatement refers to: correct answers the combination of inherent
& control risk. Multiplying IR by CR results in the 'risk of material misstatement'
