AUD Study Group Q1 2017
January 8, 2017 at 11:54 am #1426751
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 reportJanuary 8, 2017 at 11:55 am #1426754
@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?January 8, 2017 at 11:58 am #1426757
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.January 8, 2017 at 12:01 pm #1426760
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 countryJanuary 8, 2017 at 12:10 pm #1426761
b. express no assurance of any kind on the financials
It helps me study too 😉
b. review MD&A prepared pursuant to rules and regs adopted by the SECJanuary 8, 2017 at 12:14 pm #1426773
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.January 8, 2017 at 12:26 pm #1426778
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. 🙁January 8, 2017 at 12:28 pm #1426781
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!January 8, 2017 at 12:29 pm #1426784
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?
Inspect the policy manual establishing this control activity
Ask the chief technology officer about known problems
Observe whether the data center is monitored
Obtain a list of current data center employeesJanuary 8, 2017 at 12:31 pm #1426785
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 concernJanuary 8, 2017 at 12:32 pm #1426787
2-17 c. a bank with which the entity is negotiating for a loanJanuary 8, 2017 at 12:34 pm #1426791
2-18 b. state that the CPA performed procedures to evaluate managements assumptionsJanuary 8, 2017 at 12:36 pm #1426793
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.January 8, 2017 at 12:37 pm #1426796
2-18: also correct!January 8, 2017 at 12:39 pm #1426799
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.January 8, 2017 at 12:55 pm #1426809
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.January 8, 2017 at 1:09 pm #1426823
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.January 8, 2017 at 1:12 pm #1426827
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.January 8, 2017 at 1:23 pm #1426842
You are correct on the question and correct about me! I take it the day after you.January 8, 2017 at 1:27 pm #1426850
Get ready…I missed quite a few on Chapter 3 also 🙁
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 levelsJanuary 8, 2017 at 1:34 pm #1426859
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!January 8, 2017 at 1:38 pm #1426863
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 guaranteeJanuary 8, 2017 at 1:40 pm #1426869
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!January 8, 2017 at 1:42 pm #1426872
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 fraudJanuary 8, 2017 at 1:45 pm #1426877
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….January 8, 2017 at 2:06 pm #1426889
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???January 8, 2017 at 2:20 pm #1426898
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.January 8, 2017 at 2:35 pm #1426904
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.
3-17: 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.January 8, 2017 at 3:35 pm #1426947
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:
level of detection risk.
extent of tests of controls.
level of inherent risk.
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.January 8, 2017 at 3:37 pm #1426953
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?
Inquire about the existence of related party transactions.
Determine whether accounting estimates deviate from historical patterns.
Confirm inventories at locations outside the entity.
Review the lawyer's letter for information about litigation.
I'm a little confused about this one. We'll talk when you read it.
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