CPA Exam – Audit Exam Review 2024

CPA Exam – Audit Exam Review 2024 Independent Auditor's Responsibilities - ANS-✔✔ Independent Auditor's Responsibilities: performing an audit in accordance with generally accepted auditing standards (GAAS). Management Resp onsibilities - ANS-✔✔ Management Responsibilities: responsible for the fair presentation of the financial statements in conformity with GAAP, even if the statements are prepared or audited by CPAs Effective Internal Control - ANS-✔✔ Management is also respo nsible for establishing and maintaining effective internal control and developing accounting policies. Users' Responsibilities - ANS-✔✔ Users' Responsibilities: Financial statement users should recognize that the accounting process necessitates the use of estimates and evaluations that affect the fairness of the financial statements. Vouching - ANS-✔✔ Vouching: Did the transactions summarized in the financial statements actually occur? From the financial statements to the accounts and ultimately to the orig inal transaction documents. Tracing - ANS-✔✔ Tracing: Have all transactions that occurred during the period been recorded properly in the accounts and summarized in the FS? (Completeness) From the original transaction documents to the accounts and ultimate ly to the finanical statements. Audit Process Steps - ANS-✔✔ Audit Process Steps: 1. Establish Understanding with Client 2. Obtain Understanding of the Entity & Its Environment 3. Assess the risks of material misstatement 4. Design & perform procedures to address the RMM 5. Evaluate audit evidence 6. Form opinion & issue audit report Establish Understanding with Client - ANS-✔✔ Establish Understanding with Client: The auditor should establish and understanding with the clie nt regarding the engagement services, including the objectives, scope, and limitations of the engagement, as well as the auditor's and management's responsibilities (engagement letter) Subjective Tests Requirement - ANS-✔✔ While tests of controls are optio nal, substantive procedures are required for all relevant assertions related to each material class of transactions, account balance, and disclosure. Financial Statement Audit - ANS-✔✔ Financial Statement Audit: objective is to express an opinion on the fa irness in all material respects, with which the financial statements present the organization's financial position, results of operations, and cash flows in conformity with GAAP. Compliance Audit - ANS-✔✔ Compliance Audit: Evaluates an organization's compl iance with a defined set of specifications. Operational Audit - ANS-✔✔ Operational Audit: Is usually performed by internal auditors, to evaluate the efficiency and effectiveness of some part of an organization in achieving its specific goals in relation to the general goals of an organization. Audit Program (Plan) - ANS-✔✔ Audit Program (Plan) detailed list of audit procedures to be performed to satisfy audit objectives External Auditors - ANS-✔✔ External Auditors: independent CPAs who provide a professiona lly competent evaluation (audit) of the finanical statements of a client. Independence - ANS-✔✔ Independence: Auditors represent neither the financial statement preparers (mgt) nor the financial statement users (investors, creditors, etc.) Materiality - ANS-✔✔ Materiality: An audit is directed toward the discovery of material misstatements or omissions in the financial statements. Materiality involves professional judgement and is influenced by the auditor's perception of the needs of a reaso nable person relying on the financial statements. Selective Testing - ANS-✔✔ Selective Testing: Auditors base their opinions on selective testing; they rarely examine all the items in an individual account or in the financial statements. Audit Risk - ANS-✔✔ Audit Risk: Audit risk is a functional of both the risk that the financial statements prepared by management are materially misstated and the risk that the auditor will not detect the misstatement. The auditor should perform teh audit to reduce audit ris k to a low enough level that is appropriate, in the auditor's judgment, to allow the expression of an opinion on the financial statement or if circumstances require, a disclaimer of an opinion. Audit Risk - ANS-✔✔ Audit Risk: An auditor's report provides r easonable assurance, not absolute, assurance as to whether the financial statements adhere to the established criteria. This is because audit risk cannot be eliminated due to the nature of audit evidence and the characteristics of fraud.