CPA Audit

What does TID stand for in the GAAS general standards?

Training, Independence, and Due professional care

What does PIE stand for in the standards of field work?

Planning and supervision, Internal Control, and Evidence

What does GCDO stand for in the standards of reporting?

GAAP, Consistency, Disclosure, and Opinion

When is an adverse opinion rendered?

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?
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?

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:

DR: Operating expensesCR: Accrued wages payable(accrued liab)

Why would an auditor modify the auditor's report based on the work
of a specialist?
If there is a difference between the specialist's valuation of an asset
and the client's.

who should make up the audit committee?

members of the board or directors who are not officers or
employees

what are the 3 general standards?

adequete training, independence of mental attitude, and due
professional care

3 fieldwork standards?
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?
generally accepted audit principles

what does the auditor primarily use to come up with materiality?

the prior year financial statements

basics of independence concerning a close relative?

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?
Because the methods influence the design of internal control

who appoints the PCAOB?

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?
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?
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?
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?
risk that auditor concludes no material misstatement exists when
there actually is one

3 components of audit risk?

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?
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?
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:

the combination of inherent & control risk. Multiplying IR by CR
results in the 'risk of material misstatement'

the level of detection risk is inversely related to:

the assurance provided by substantive tests. As the auditor
performs substantive procedures he becomes more and more sure
there are no material errors exist, and detection risk goes down

the audit program should be designed so that sufficient evidence is

gathered to:
support the auditor's conclusions

Do most illegal acts affect the fin statements directly or indirectly?

indirectly.
if you uncover an illegal act at a public company, the auditor is
required to notify:
the SEC

when auditor has reason to believe an illegal act has ocurred, he

should do what?
consider accumulating additional evidence, inquire of management
at a level above those who did the act, and consult with the client's
legal counsel

what is lapping fraud?

you steal customer A's money, then you get customer B's money
and apply it to A's account, then get C's money and apply it to B's
account, and so on

what is kiting?
money is moved from one account to the other but in different time
periods to inflate the amount being reported

does the PCAOB make auditing standards that must be followed by

all CPAs?
it only makes auditing standards for public companies

is the PCAOB a gov agency?

no

what is an S-1 form?

a form that must be filed with the SEC whenever a company plans
to issue new securities to the public
what is auditors responsibility for supplementary information such
as segment info?
auditor should apply limited procedures to the required info and
report deficiencies in or omission of such info

who creates auditing standards for private companies?

the AICPA

what is form 8-K?

the form filed with SEC to report a significant event

how long do you have to dispose of stock in a client if you inherited

some unsolicited?
30 days

do operating leases and claims against clients for immaterial

amounts impair indedpence?
no

are statements in the standards that include the word "should"

mandatory?
they are considered presumptively mandatory- the auditor can
depart from them if justification is documented

what is the completeness assertion concerned with?

determining that all transactions are recorded

in testing the existence assertion for an asset, the auditor normally

works from the ______ to the _______
accounting records to the supporting evidence
according to SOX how long does a firm keep audit documentation?
have to keep it 7 years

what is the best place to put in writing the understanding between

client and firm about what will take place during the audit?
the engagement letter

to see if checks are being issued for unauthorized purchases, the

auditor would most likely select testing from the population of:
canceled checks

what does tracing shipping docs to sales invoices accomplish?

that all items shipments have been invoiced

most effective control over recorded purchases?

supporting forms such as purchases orders and receiving reports
are independently compared for agreement

if trying to detect overstatement of sales, you start with the:

accounting records and trace to the source documents

what is pervasiveness?
the extent to which an exception affects different parts of the
financial statements

difference between adverse opinion and disclaimer of opinion?

adverse opinion is stating that the financials do not fairly present the
position of company in accordance to GAAP. Disclaimer of opinion
is when a material uncertainty affects the financials
what paragraph explicitly states the auditors responsibility to
express an opinion?
the opening paragraph of the standard audit report

when would a lack of independence cause a disclaimer of opinion?

in all cases

if the financials and/or footnotes fail to disclose information that is

required by GAAP, what type of opinion is issued?
adverse or qualified. if qualified, an extra paragraph would be
added that describes the nature of the missing info, and the opinion
paragraph would have an extra sentence "except for the information
discussed in previous paragraph"

on a public company audit, are the reports on the financial

statements and internal controls issued separately or combined?
it can be either

what are the 2 situations which result in a qualified opinion?

1) when the statements are materially misstated due to one account
balance or class of transaction that does not have a pervasive effect
on the statements2)when the auditor is unable to obtain audit
evidence regarding a particular account balance that does not
pervasively affect the statementsEssentially either a single deviation
from GAAP or a scope limitation. The report itself is very similar to
an unqualified opinion but an extra paragraph is added to explain
the qualification after the scope paragraph but before the opinion
paragraph

how many paragraphs does a standard unqualified report have and

what are they?
3. The introductory paragraph states the audit work performed and
states the responsibility of the auditor and auditee in relation to the
financial statements, the scope paragraph details the scope of the
audit work, and the opinion paragraph simply states the unqualified
opinion

when is an adverse opinion issued and how does the report

change?
Adverse is the opposite of an unqualified opinion. It means that the
financial statements as a whole are materially misstated and do not
conform with GAAP. or the "differ pervasively" from GAAP. On the
report, the scope paragraph is modified accordingly and an
explanatory paragraph is added after the scope paragraph but
before the opinion paragraph. In the opinion paragraph, the auditor
specifically states that the statements are not in accordance with
GAAP.

What situations would result in a disclaimer of opinion?

When the auditor is not independent or there is a conflict of
interest.When a limitation on scope is imposed by the client and the
auditor cant gather sufficient audit evidence.When there is a
substantial going concern issue.When there are significant
uncertainties in the business of the client.

when an auditor selects one or a few transactions and follows them

through the entire accounting process, he is doing what?
a walkthrough. A walkthrough combines observation,
documentation, and inquiry. PCAOB Standard 2 requires at least
one walkthrough per major class of transaction

which section of SOX requires mgmt to issue an internal control

report?
Section 404 requires auditors to assess and report on the
effectiveness of the internal control over financial reporting

what is the definition of incompatible functions?

those that place any person in a position to both perpetrate and
conceal errors or irregularities in the normal course of their duties.
well designed controls should separate the duties of authorization,
record keeping and custody of assets

what is the primary purpose of the auditors consideration of internal

controls?
to determine the nature, extent, and timing of audit tests to be
applied

if the auditor finds a reportable condition in internal controls, who

should they tell first?
the audit commitee

if after understanding the ICs the auditor decides to perform tests of

controls, the auditor most likely decided that:
it would be efficient to perform tests of controls that would result in a
reduction in planned substantive tests

what is the concept of reasonable assurance?

recognizes that the cost of internal controls should not exceed the
benefits derived

7 factors of the control environment: (I see ham bone)

I- integrity and ethical valuesC- commitment to competenceH-
human resource policies and practicesA- assignment of authority
and responsibilityM- management's philosophy and operating
styleB- board of directors or audit committee participationO-
organization

even the best designed IC can fail due to:

human error, faulty judgement, collusion, management override
what are the five components of internal control? (clowns run
cartels in mexico)
1) control environment2) risk assessment3) control activities4)
information and communication5) monitoring

***What is the process of assessing risk in general?

You assess inherent risk and control risk to determine the amount of
substantive testing that must be carried out to reduce detection risk
to a level so that overall risk will still achieve an acceptably low
level. Acceptable audit risk is not changed.

what is the audit risk formula?

inherent risk X control risk X detection risk = overall audit risk

the auditor uses the assessed level of control risk to determine the
acceptable level of
detection risk for financial statement assertions

if auditor increases the level of control risk because controls are

found to be ineffective, the auditor would most likely increase the
extent of tests of details

what do assertions about existence or occurrence deal with?

whether assets or liabilities exist at a given date and whether
recorded transactions have occurred during a given period

when an auditor assesses control risk as low, he must:

identify specific policies and procedures that are likely to prevent or
detect material misstatements, and he must perform tests of
controls to evaluate the effectiveness of such policies and
procedures. if the tests of controls result in the control risk being
assessed as low, then the auditor may limit the extent of
substantive testing

what does 'information and communication' refer to as far as

internal control within an organization?
the ability of the accounting system to generate reliable info and
convey it in a timely manner to the parties in the organization that
need it

What are the 5 assertions about classes of transactions and events

for the period?Alistair Overeem Cant Cut Corners
Accuracy- amounts and other data have been recorded
appropriatelyOccurrence- transactions and events that have been
recorded have occurredCompleteness- all transactions and events
that should have been recorded have been recordedCutoff-
transactions and events have been recorded in the correct
accounting periodClassification- transactions and events have been
recorded in the proper accounts

4 assertions about account balances at end of period?Even Cain

Realizes Value
Existence- assets, liabilities, and equity interests
existCompleteness- all assets, liabilities, and equity that should
have been recorded have been recordedrights and obligations- the
entity holds or controls the rights to assets, and liabilities are the
obligations of the entityValuation and allocation- assets, liabilities,
and equity interests are included in the financial statements at
appropriate amounts and any resulting valuation or allocation
adjustments are appropriately recorded

4 assertions about presentation and disclosure:Overeem Can't

Complain Anymore
Occurrence & rights and obligations- disclosed events and
transactions have occurred and pertain to the entityCompleteness-
all disclosures that should have been included have been
includedClassification and understandability- financial information is
appropriately presented, described, and clearly expressedAccuracy
and valuation- financial and other info are disclosed fairly and at
appropriate amounts

why is it best to have "blind" invoices received by the receiving

department?
to make sure the receiving dep counts the incoming merchandise
so that they only pay for what they received

what is the purpose of purchase cutoff testing?

to determine that items actually received in inventory have been
included in the proper period

what is an integrated test facility?

it puts fake transactions in with real transactions which are
processed together without client employees knowing it

a person who mails signed checks can also:

cancel the supporting documents

an effective control over purchases would be to have the

purchasing department authorized to:
purchase, but not initiate purchases

an increased extent of tests of controls is most likely to occur when:

controls appear to be effective so that the preliminary control risk
assessment is low. this is because auditor can then do less
substantive testing.

are significant deficiencies and material weaknesses supposed to

be relayed orally or written to those charged with governance?
AU 325 says that sig def and material weaknesses in a public
company must be communicated in writing to the audit committee
of the board of directors

when should control deficiencies be reported?

either during the audit or after the audit's completion, within 60 days
of the report release date

management must disclose material weaknesses in internal control

if the weakness exists:
at the end of the year

what are the 2 types of control deficiency?

design and operations. design means its poorly designed, while
operations means the people performing their tasks are doing them
deficiently

what is ratio estimation used for?

to measure the total estimated error amount within a population

there is an inverse relationship between sample size and:

tolerable error. as the tolerable error decreases the sample size
would increase

what is sampling risk?

the risk that the sample chosen doesn't accurately represent the
population

How is the allowance for sampling risk calculated?

It's the difference between the upper limit and the deviation rate of
the sample.
what are embedded audit modules?
coded into the clients system to collect data for the auditor

purpose of test data approach?

test data is entered with a known outcome into client's system to
see if it produces same result

under the PCAOB standards, a scope limitation related to internal

controls over financial reporting should result in:
a disclaimer of opinion.

if a control deficiency is discovered, what is the next step?

determine if it is a material weakness by gathering additional
evidence

what opinion is rendered if there is one or more material weakness

in internal control over fin reporting?
an adverse opinion

"if this statement is not correct... give details of difference directly to

our auditors
acc rec confirmation

"in our opinion, these statements audited by us comply in all

material respects"
comfort letter to underwriters

"no claims that OUR lawyer..."

management rep letter

"which raises substantial doubt about its ability to continue as a

going concrern"
auditors report

CPA is associated with the financial statements, but is NOT

independent
Compilation report

providing NEGATIVE assurance on a company's financials

review report

material departure from GAAP but NOT materially misstated

qualified report for GAAP departureWhat does TID stand for in the
GAAS general standards?
Training, Independence, and Due professional care

What does PIE stand for in the standards of field work?

Planning and supervision, Internal Control, and Evidence

What does GCDO stand for in the standards of reporting?

GAAP, Consistency, Disclosure, and Opinion

When is an adverse opinion rendered?

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?
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?

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:

DR: Operating expensesCR: Accrued wages payable(accrued liab)

Why would an auditor modify the auditor's report based on the work
of a specialist?
If there is a difference between the specialist's valuation of an asset
and the client's.

who should make up the audit committee?

members of the board or directors who are not officers or
employees

what are the 3 general standards?

adequete training, independence of mental attitude, and due
professional care

3 fieldwork standards?
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?
generally accepted audit principles
what does the auditor primarily use to come up with materiality?
the prior year financial statements

basics of independence concerning a close relative?

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?
Because the methods influence the design of internal control

who appoints the PCAOB?

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?
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?
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?
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?
risk that auditor concludes no material misstatement exists when
there actually is one

3 components of audit risk?

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?
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?
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:

the combination of inherent & control risk. Multiplying IR by CR
results in the 'risk of material misstatement'

the level of detection risk is inversely related to:

the assurance provided by substantive tests. As the auditor
performs substantive procedures he becomes more and more sure
there are no material errors exist, and detection risk goes down
the audit program should be designed so that sufficient evidence is
gathered to:
support the auditor's conclusions

Do most illegal acts affect the fin statements directly or indirectly?

indirectly.

if you uncover an illegal act at a public company, the auditor is

required to notify:
the SEC

when auditor has reason to believe an illegal act has ocurred, he

should do what?
consider accumulating additional evidence, inquire of management
at a level above those who did the act, and consult with the client's
legal counsel

what is lapping fraud?

you steal customer A's money, then you get customer B's money
and apply it to A's account, then get C's money and apply it to B's
account, and so on

what is kiting?
money is moved from one account to the other but in different time
periods to inflate the amount being reported

does the PCAOB make auditing standards that must be followed by

all CPAs?
it only makes auditing standards for public companies

is the PCAOB a gov agency?

no

what is an S-1 form?

a form that must be filed with the SEC whenever a company plans
to issue new securities to the public

what is auditors responsibility for supplementary information such

as segment info?
auditor should apply limited procedures to the required info and
report deficiencies in or omission of such info

who creates auditing standards for private companies?

the AICPA

what is form 8-K?

the form filed with SEC to report a significant event

how long do you have to dispose of stock in a client if you inherited

some unsolicited?
30 days

do operating leases and claims against clients for immaterial

amounts impair indedpence?
no

are statements in the standards that include the word "should"

mandatory?
they are considered presumptively mandatory- the auditor can
depart from them if justification is documented

what is the completeness assertion concerned with?

determining that all transactions are recorded

in testing the existence assertion for an asset, the auditor normally

works from the ______ to the _______
accounting records to the supporting evidence

according to SOX how long does a firm keep audit documentation?

have to keep it 7 years

what is the best place to put in writing the understanding between

client and firm about what will take place during the audit?
the engagement letter

to see if checks are being issued for unauthorized purchases, the

auditor would most likely select testing from the population of:
canceled checks

what does tracing shipping docs to sales invoices accomplish?

that all items shipments have been invoiced

most effective control over recorded purchases?

supporting forms such as purchases orders and receiving reports
are independently compared for agreement

if trying to detect overstatement of sales, you start with the:

accounting records and trace to the source documents

what is pervasiveness?
the extent to which an exception affects different parts of the
financial statements
difference between adverse opinion and disclaimer of opinion?
adverse opinion is stating that the financials do not fairly present the
position of company in accordance to GAAP. Disclaimer of opinion
is when a material uncertainty affects the financials

what paragraph explicitly states the auditors responsibility to

express an opinion?
the opening paragraph of the standard audit report

when would a lack of independence cause a disclaimer of opinion?

in all cases

if the financials and/or footnotes fail to disclose information that is

required by GAAP, what type of opinion is issued?
adverse or qualified. if qualified, an extra paragraph would be
added that describes the nature of the missing info, and the opinion
paragraph would have an extra sentence "except for the information
discussed in previous paragraph"

on a public company audit, are the reports on the financial

statements and internal controls issued separately or combined?
it can be either

what are the 2 situations which result in a qualified opinion?

1) when the statements are materially misstated due to one account
balance or class of transaction that does not have a pervasive effect
on the statements2)when the auditor is unable to obtain audit
evidence regarding a particular account balance that does not
pervasively affect the statementsEssentially either a single deviation
from GAAP or a scope limitation. The report itself is very similar to
an unqualified opinion but an extra paragraph is added to explain
the qualification after the scope paragraph but before the opinion
paragraph

how many paragraphs does a standard unqualified report have and

what are they?
3. The introductory paragraph states the audit work performed and
states the responsibility of the auditor and auditee in relation to the
financial statements, the scope paragraph details the scope of the
audit work, and the opinion paragraph simply states the unqualified
opinion

when is an adverse opinion issued and how does the report

change?
Adverse is the opposite of an unqualified opinion. It means that the
financial statements as a whole are materially misstated and do not
conform with GAAP. or the "differ pervasively" from GAAP. On the
report, the scope paragraph is modified accordingly and an
explanatory paragraph is added after the scope paragraph but
before the opinion paragraph. In the opinion paragraph, the auditor
specifically states that the statements are not in accordance with
GAAP.

What situations would result in a disclaimer of opinion?

When the auditor is not independent or there is a conflict of
interest.When a limitation on scope is imposed by the client and the
auditor cant gather sufficient audit evidence.When there is a
substantial going concern issue.When there are significant
uncertainties in the business of the client.

when an auditor selects one or a few transactions and follows them

through the entire accounting process, he is doing what?
a walkthrough. A walkthrough combines observation,
documentation, and inquiry. PCAOB Standard 2 requires at least
one walkthrough per major class of transaction
which section of SOX requires mgmt to issue an internal control
report?
Section 404 requires auditors to assess and report on the
effectiveness of the internal control over financial reporting

what is the definition of incompatible functions?

those that place any person in a position to both perpetrate and
conceal errors or irregularities in the normal course of their duties.
well designed controls should separate the duties of authorization,
record keeping and custody of assets

what is the primary purpose of the auditors consideration of internal

controls?
to determine the nature, extent, and timing of audit tests to be
applied

if the auditor finds a reportable condition in internal controls, who

should they tell first?
the audit commitee

if after understanding the ICs the auditor decides to perform tests of

controls, the auditor most likely decided that:
it would be efficient to perform tests of controls that would result in a
reduction in planned substantive tests

what is the concept of reasonable assurance?

recognizes that the cost of internal controls should not exceed the
benefits derived

7 factors of the control environment: (I see ham bone)

I- integrity and ethical valuesC- commitment to competenceH-
human resource policies and practicesA- assignment of authority
and responsibilityM- management's philosophy and operating
styleB- board of directors or audit committee participationO-
organization

even the best designed IC can fail due to:

human error, faulty judgement, collusion, management override

what are the five components of internal control? (clowns run

cartels in mexico)
1) control environment2) risk assessment3) control activities4)
information and communication5) monitoring

***What is the process of assessing risk in general?

You assess inherent risk and control risk to determine the amount of
substantive testing that must be carried out to reduce detection risk
to a level so that overall risk will still achieve an acceptably low
level. Acceptable audit risk is not changed.

what is the audit risk formula?

inherent risk X control risk X detection risk = overall audit risk

the auditor uses the assessed level of control risk to determine the
acceptable level of
detection risk for financial statement assertions

if auditor increases the level of control risk because controls are

found to be ineffective, the auditor would most likely increase the
extent of tests of details

what do assertions about existence or occurrence deal with?

whether assets or liabilities exist at a given date and whether
recorded transactions have occurred during a given period
when an auditor assesses control risk as low, he must:
identify specific policies and procedures that are likely to prevent or
detect material misstatements, and he must perform tests of
controls to evaluate the effectiveness of such policies and
procedures. if the tests of controls result in the control risk being
assessed as low, then the auditor may limit the extent of
substantive testing

what does 'information and communication' refer to as far as

internal control within an organization?
the ability of the accounting system to generate reliable info and
convey it in a timely manner to the parties in the organization that
need it

What are the 5 assertions about classes of transactions and events

for the period?Alistair Overeem Cant Cut Corners
Accuracy- amounts and other data have been recorded
appropriatelyOccurrence- transactions and events that have been
recorded have occurredCompleteness- all transactions and events
that should have been recorded have been recordedCutoff-
transactions and events have been recorded in the correct
accounting periodClassification- transactions and events have been
recorded in the proper accounts

4 assertions about account balances at end of period?Even Cain

Realizes Value
Existence- assets, liabilities, and equity interests
existCompleteness- all assets, liabilities, and equity that should
have been recorded have been recordedrights and obligations- the
entity holds or controls the rights to assets, and liabilities are the
obligations of the entityValuation and allocation- assets, liabilities,
and equity interests are included in the financial statements at
appropriate amounts and any resulting valuation or allocation
adjustments are appropriately recorded
4 assertions about presentation and disclosure:Overeem Can't
Complain Anymore
Occurrence & rights and obligations- disclosed events and
transactions have occurred and pertain to the entityCompleteness-
all disclosures that should have been included have been
includedClassification and understandability- financial information is
appropriately presented, described, and clearly expressedAccuracy
and valuation- financial and other info are disclosed fairly and at
appropriate amounts

why is it best to have "blind" invoices received by the receiving

department?
to make sure the receiving dep counts the incoming merchandise
so that they only pay for what they received

what is the purpose of purchase cutoff testing?

to determine that items actually received in inventory have been
included in the proper period

what is an integrated test facility?

it puts fake transactions in with real transactions which are
processed together without client employees knowing it

a person who mails signed checks can also:

cancel the supporting documents

an effective control over purchases would be to have the

purchasing department authorized to:
purchase, but not initiate purchases

an increased extent of tests of controls is most likely to occur when:

controls appear to be effective so that the preliminary control risk
assessment is low. this is because auditor can then do less
substantive testing.

are significant deficiencies and material weaknesses supposed to

be relayed orally or written to those charged with governance?
AU 325 says that sig def and material weaknesses in a public
company must be communicated in writing to the audit committee
of the board of directors

when should control deficiencies be reported?

either during the audit or after the audit's completion, within 60 days
of the report release date

management must disclose material weaknesses in internal control

if the weakness exists:
at the end of the year

what are the 2 types of control deficiency?

design and operations. design means its poorly designed, while
operations means the people performing their tasks are doing them
deficiently

what is ratio estimation used for?

to measure the total estimated error amount within a population

there is an inverse relationship between sample size and:

tolerable error. as the tolerable error decreases the sample size
would increase

what is sampling risk?

the risk that the sample chosen doesn't accurately represent the
population

How is the allowance for sampling risk calculated?

It's the difference between the upper limit and the deviation rate of
the sample.

what are embedded audit modules?

coded into the clients system to collect data for the auditor

purpose of test data approach?

test data is entered with a known outcome into client's system to
see if it produces same result

under the PCAOB standards, a scope limitation related to internal

controls over financial reporting should result in:
a disclaimer of opinion.

if a control deficiency is discovered, what is the next step?

determine if it is a material weakness by gathering additional
evidence

what opinion is rendered if there is one or more material weakness

in internal control over fin reporting?
an adverse opinion

"if this statement is not correct... give details of difference directly to

our auditors
acc rec confirmation

"in our opinion, these statements audited by us comply in all

material respects"
comfort letter to underwriters

"no claims that OUR lawyer..."

management rep letter

"which raises substantial doubt about its ability to continue as a

going concrern"
auditors report

CPA is associated with the financial statements, but is NOT

independent
Compilation report

providing NEGATIVE assurance on a company's financials

review report

material departure from GAAP but NOT materially misstated

qualified report for GAAP departure