AUD Study Group Q1 2017

CPA Exam Forum AUD AUD Review AUD Study Group Q1 2017

This topic contains 499 replies, has 70 voices, and was last updated by  Spartans92 45 minutes ago.

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  • #1426751
    Forem004
    Forem004
    Participant

    2-10

    During an engagement to review the financials of a nonissue, an accountant becomes aware of several leases that should be capitalized that are not. The accountant considers these leases to be material to the financials. The accountant decides to modify the standard review report bc management will not capitalize the leases. Under these circumstances, the accountant should:

    a. issue an adverse opinion bc of the departure from GAAP
    b. express no assurance of any kind on the financials
    c. emphasize that the financials are for limited use only
    d. disclose the departure from GAAP in a separate paragraph of the accountant's report


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426754
    Forem004
    Forem004
    Participant

    @HR 2-1 is correct!

    Also, in my comment the other day about typing the questions I got wrong…this also helps me to study which is what this forum is for, correct?


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426757
    Forem004
    Forem004
    Participant

    2-12

    Lawrence reviewed the interim financials of James Co, an issuer and a manufacturer of restaurant equipment. For each of the following procedures that Lawrence might perform during the review, identify whether it is:

    P – permitted but not required
    R – required
    N – not permitted

    5. Compares of disaggregated revenue data for the current period with that of prior periods.
    7. Add a paragraph to the review report to discuss scope limitations encountered during the review.
    8. Add a paragraph to the review report to disclose a lack of consistency.


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426760
    Forem004
    Forem004
    Participant

    2- 15

    A CPA is required to comply with the provisions of SSAE when engage to:

    a. report on financials that the CPA generated through the use of computer software
    b. review MD&A prepared pursuant to rules and regs adopted by the SEC
    c. provide the client with a financial format that does not include dollar amounts
    d. audit financials that the client prepared for use in another country


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426761
    HRSexton
    HRSexton
    Participant

    b. express no assurance of any kind on the financials

    It helps me study too 😉

    5 R
    7 n
    8 P

    b. review MD&A prepared pursuant to rules and regs adopted by the SEC


    Becker & Ninja MCQ

    Trying to finish by 5/31/2017 and continued motivation is my problem; I have never been a good studier.

    FAR

     

    AUD - 76
    BEC - NINJA in Training
    FAR - NINJA in Training
    REG - NINJA in Training
    #1426773
    HRSexton
    HRSexton
    Participant

    Incomplete

    This is your 2-3 question. This one was a little harder for me to answer. I'm hoping it was because the entire paragraph wasn't given. I think it should explicitly state the basis, then describe that it's different.


    Becker & Ninja MCQ

    Trying to finish by 5/31/2017 and continued motivation is my problem; I have never been a good studier.

    FAR

     

    AUD - 76
    BEC - NINJA in Training
    FAR - NINJA in Training
    REG - NINJA in Training
    #1426778
    Forem004
    Forem004
    Participant

    2-10: D: Failure to properly capitalize leases that the accountant considers material to the financials is a departure from GAAP. If mgmt will not capitalize the leases, the accountant should modify the standard review report or withdraw from the engagement. If modification to the report is sufficient to disclose the departure from GAAP, then the accountant may modify the review report.

    2:15: all correct!

    2-3: You are completely correct. I definitely should not have answered this one incorrectly bc I actually wrapped up an audit Friday that reports on the cash basis. 🙁


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426781
    Forem004
    Forem004
    Participant

    2-17

    Accepting an engagement to examine an entity's financial projection most likely would be appropriate if a projection were to be distributed to:

    a. all employees who work for the entity
    b. potential stockholders who request a prospectus or a registration stmt
    c. a bank with which the entity is negotiating for a loan
    d. all stockholders of record as of the report date

    I'm embarrassed to say how many times I have answered this incorrectly!


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426784
    Forem004
    Forem004
    Participant

    NINJA 260:

    A client maintains a large data center where access is limited to authorized employees. How may an auditor best determine the effectiveness of this control activity?

    A.
    Inspect the policy manual establishing this control activity

    B.
    Ask the chief technology officer about known problems

    C.
    Observe whether the data center is monitored

    D.
    Obtain a list of current data center employees


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426785
    Forem004
    Forem004
    Participant

    2-18

    When a CPA examines a client's projected financials, the CPA's report should:

    a. explain the principal differences between historical and projected financials
    b. state that the CPA performed procedures to evaluate managements assumptions
    c. refer to the CPA's auditor's report on the historical financials
    d. include the CPA's opinion on the client's ability to continue as a going concern


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426787
    HRSexton
    HRSexton
    Participant

    2-17 c. a bank with which the entity is negotiating for a loan


    Becker & Ninja MCQ

    Trying to finish by 5/31/2017 and continued motivation is my problem; I have never been a good studier.

    FAR

     

    AUD - 76
    BEC - NINJA in Training
    FAR - NINJA in Training
    REG - NINJA in Training
    #1426791
    HRSexton
    HRSexton
    Participant

    2-18 b. state that the CPA performed procedures to evaluate managements assumptions


    Becker & Ninja MCQ

    Trying to finish by 5/31/2017 and continued motivation is my problem; I have never been a good studier.

    FAR

     

    AUD - 76
    BEC - NINJA in Training
    FAR - NINJA in Training
    REG - NINJA in Training
    #1426793
    Forem004
    Forem004
    Participant

    NINJA 1089

    A compilation report is always required when financial statements prepared by the accountant are expected to be used by which of the following?

    A. Management only

    B. Third parties only

    C. Management and third parties

    D. A compilation report is only required whenever the accountant is engaged to subject the financial statements to compilation procedures.


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426796
    Forem004
    Forem004
    Participant

    2-17: correct!

    2-18: also correct!


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426799
    HRSexton
    HRSexton
    Participant

    NINJA 1089 D. A compilation report is only required whenever the accountant is engaged to subject the financial statements to compilation procedures.

    I think this one is right, but it threw me off a bit when I came across it because there was another question about compilations that was similar. I don't know the specific number, but it was NINJA. Something along the lines of having put together a financial statement that wasn't intended for use outside of management, but the gave it to the bank. Once the auditor finds out, what is the best course of action? The correct answer was to issue a compilation report.


    Becker & Ninja MCQ

    Trying to finish by 5/31/2017 and continued motivation is my problem; I have never been a good studier.

    FAR

     

    AUD - 76
    BEC - NINJA in Training
    FAR - NINJA in Training
    REG - NINJA in Training
    #1426809
    Forem004
    Forem004
    Participant

    You are correct and I know which other questions you're referring to about the financials to the bank. I believe that is because it should have been subject to compilation procedures since it was given to a third party, therefore the same line of reasoning in 1089.

    THat's what is so hard about this portion! Questions and topics are so similar, so it's easy to get confused! Also, there is so much judgement in audits, so it's hard to pick a “right” answer.


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426823
    Forem004
    Forem004
    Participant

    NINJA 538:

    In auditing payroll, an auditor most likely would:

    A. verify that checks representing unclaimed wages are mailed.

    B. trace individual employee deductions to entity journal entries.

    C. observe entity employees during a payroll distribution.

    D. compare payroll costs with entity standards or budgets.


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426827
    HRSexton
    HRSexton
    Participant

    NINJA 538: D. compare payroll costs with entity standards or budgets.

    forem004 when do you take the test? I bet you are so ready to get this past you being that you've passed all of the others.


    Becker & Ninja MCQ

    Trying to finish by 5/31/2017 and continued motivation is my problem; I have never been a good studier.

    FAR

     

    AUD - 76
    BEC - NINJA in Training
    FAR - NINJA in Training
    REG - NINJA in Training
    #1426842
    Forem004
    Forem004
    Participant

    You are correct on the question and correct about me! I take it the day after you.


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426850
    Forem004
    Forem004
    Participant

    Get ready…I missed quite a few on Chapter 3 also 🙁

    3-8

    On the basis of audit evidence gathered and evaluated, an auditor decides to increase the assessed risk of material misstatement from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would:

    a. decrease substantive testing
    b. decrease detection risk
    c. increase inherent risk
    d. increase materiality levels


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426859
    Forem004
    Forem004
    Participant

    NINJA 1083:

    Which of the following circumstances would ordinarily preclude a CPA from issuing a review or a compilation report on the financial statements of a nonissuer client that had originally engaged the CPA to perform an audit?

    The CPA has been prohibited by the client from corresponding with the entity's legal counsel.
    The entity refuses to provide the CPA with a signed representation letter.
    A. I only

    B. II only

    C. Both I and II

    D. Neither I nor II

    I hate when I don't fully read the question!


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426863
    Forem004
    Forem004
    Participant

    3-9

    Which of the follow statements best describes an auditor's res to detect errors and fraud?

    a. an auditor should design an audit to provide reasonable assurance of detecting errors and fraud that are material to the financials

    b. an auditor is resp to detect material errors, but has not resp to detect fraud that is concealed through employee collusion or mgmt override of internal control

    c. an auditor has no resp to detect errors and fraud unless analytics or tests of transactions identify conditions causing a reasonably prudent auditor to suspect that the financials are materially misstated

    d. an auditor has no resp to detect errors and fraud because an auditor is not an insurer and an audit does not constitute a guarantee


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426869
    Forem004
    Forem004
    Participant

    3-11

    In planning an audit, the auditor's knowledge about the design of relevant internal controls should be used to:

    a. Identify the types of potential misstatements that could occur

    b. assess the operational efficiency of internal control

    c. determine whether controls have been circumvented by collusion

    d. document the assessed level of control risk

    When I get these questions wrong, it makes me so angry! If I would just pay attention, I know this!


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426872
    Forem004
    Forem004
    Participant

    3-14

    An auditor should obtain sufficient knowledge of an entity's information system relevant to financial reporting to understand the:

    a. safeguards used to limit access to computer facilities

    b. process used to prepare significant accounting estimates

    c. procedures used to assure proper authorization of transactions

    d. policiies used to detect the concealment of fraud


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426877
    Forem004
    Forem004
    Participant

    3-17

    After performing risk assessment procedures, an auditor decided not to perform tests of controls. The auditor most likely decided that:

    a. the available evidence obtained through tests of controls would not support an increased level of control risk

    b. a reduction in the assessed level of control risk is justified for certain financial assertions

    c. it would be inefficient to perform test of controls that would result in a reduction in planned substantive tests

    d. the assessed level of inherent risk exceeded the assessed level of control risk

    I have a problem with the way this one is worded….


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426889
    Forem004
    Forem004
    Participant

    NINJA 520:

    As a result of tests of controls, an auditor assesses control risk too high. This incorrect assessment most likely occurred because:

    A. control risk based on the auditor's sample is less than the true operating effectiveness of the client's control activity.

    B. the auditor believes that the control activity relates to the client's assertions when, in fact, it does not.

    C. the auditor believes that the control activity will reduce the extent of substantive testing when, in fact, it will not.

    D. control risk based on the auditor's sample is greater than the true operating effectiveness of the client's control activity.

    Why can I not get this concept straight in my mind???


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426898
    HRSexton
    HRSexton
    Participant

    3-8b. decrease detection risk
    NINJA 1083:C. Both I and II
    3-9a. an auditor should design an audit to provide reasonable assurance of detecting errors and fraud that are material to the financials. This one was tricky to me.
    3-11a. Identify the types of potential misstatements that could occur
    3-14b. process used to prepare significant accounting estimates
    3-17c. it would be inefficient to perform test of controls that would result in a reduction in planned substantive tests. I hate this question.


    Becker & Ninja MCQ

    Trying to finish by 5/31/2017 and continued motivation is my problem; I have never been a good studier.

    FAR

     

    AUD - 76
    BEC - NINJA in Training
    FAR - NINJA in Training
    REG - NINJA in Training
    #1426904
    Forem004
    Forem004
    Participant

    3-8: correct!

    1083: nice to see you fully read your questions! 🙂

    3-9: me too, but it should not have been. I just twist some of the wording on these questions.

    3-11: correct!

    3-14: correct!

    3-17: correct! It sounds like the the TOC would reduce substantive procedures, but if the auditor decides not to test controls, it's because they're ineffective so substantive procedures would be increased. I keep reading it repeatedly thinking something will make sense, but it just seems like it's worded backwards.


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426947
    Forem004
    Forem004
    Participant

    NINJA 489:

    When an auditor increases the assessed level of control risk because certain control activities were determined to be ineffective, the auditor will most likely increase the:

    A.
    level of detection risk.

    B.
    extent of tests of controls.

    C.
    level of inherent risk.

    D.
    extent of tests of details.

    I guess I keep getting these wrong, bc we don't document the specific terms in an audit. I just do the procedures necessary when things aren't going as planned.


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
    #1426953
    Forem004
    Forem004
    Participant

    NINJA 678:

    Which of the following procedures most likely would assist an auditor in determining whether management has identified all accounting estimates that could be material to the financial statements?

    A.
    Inquire about the existence of related party transactions.

    B.
    Determine whether accounting estimates deviate from historical patterns.

    C.
    Confirm inventories at locations outside the entity.

    D.
    Review the lawyer's letter for information about litigation.

    I'm a little confused about this one. We'll talk when you read it.


    Tiffany
    AUD - 84
    BEC - 75
    FAR - 78
    REG - 82
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