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- The best outcome for an audit is for the auditor to issue an unqualified opinion, which states that the financial statements are free of any material misstatements. Material, in this case, means that the auditor did not find any errors that were large enough to change the opinion of the financial statement reader. Essentially, materiality is a judgment made by the auditor. Consequently, in order to issue an unqualified opinion the auditor must have access to all records and to company management. Furthermore, the audit evidence must support the unqualified opinion, and these facts must be explained to the client. Assume, for example, that the auditor was not able to perform a physical count of inventory near the balance sheet date: the date used on the balance sheet that is under audit. An inventory count is considered the best evidence to support the inventory balance.
- Hence, the auditor may conclude that other procedures are not sufficient to support the inventory balance. If this case, the auditor may issue an opinion which states that, except for the inventory balance, the financial statements are free of material misstatement. Unfortunately, a qualified opinion can have a negative impact on stakeholders, such as investors and creditors.
- This is because it raises concerns about the accuracy of the financial statements. There are several other types of opinions that an auditor may issue on the financial statements. Consequently, the client must clearly understand each type of audit opinion. Hence, working with these professionals requires good communication. Communication is important so that the outside expert understands exactly what they are being asked to do. Once the auditor locates a qualified actuary, he or she must determine if the expert can effectively function as a member of the audit team. Auditors use audit programs, which list the specific tasks required to collect audit evidence. Therefore, the expert must be willing to use the audit program.
- This topic will require an extensive discussion and proper auditor communication. Furthermore, the manager of the audit team must also supervise the work of the outside expert and ensure that the audit program is followed. Communications Between Predecessor and Successor Auditors Businesses occasionally change to a new audit firm. Consequently, the communication between the predecessor and successor auditors is important. The predecessor auditor may have resigned during the audit, or possibly terminated. The successor auditor, on the other hand, is the company that is considering accepting an engagement. In fact, the successor auditor should tell the prospective client that the firm cannot accept the audit engagement until after discussing audit issues with the predecessor auditor. Here are some required communications for this scenario: 7- Auditor and client disagreements The predecessor auditor and the client may have disagreed on accounting issues.
- Hence, the successor auditor must take these disagreements into consideration. Disagreements may involve accounting principles, required audit procedures, or a lack of sufficient internal controls. Assume, for example, that the client has a policy to recognize revenue when goods are shipped to customers. Consequently, the client decides to change the policy and recognize revenue when customers are invoiced.
- However, if the predecessor auditor believes that the new revenue recognition policy is misleading to financial statement readers, or cannot be justified, the new policy may result in a qualified audit opinion. Basically, successor auditors must decide for themselves if the client is willing to comply sufficiently with accounting standards. If not, the successor may not accept the engagement. If the client attempts to limit responses, the successor may consider this action to be a red flag that prevents the firm from accepting the engagement. Furthermore, the successor auditor should review the documentation of audit planning, the assessment of internal controls, the audit evidence collected, and the conclusions reached by the predecessor auditor.
- Why Communications Are So Important The communications explained above help the auditor to clarify the responsibilities of both the client and the audit firm. As you can see, the conversations with the predecessor auditor allow the successor to determine if the new CPA firm should accept the audit engagement.
- Dependent child. Preparation of a fraudulent tax return. Felony conviction. Accidentally failing to file a personal tax return. Preparation of fraudulent tax return for a client. Acting as an executor of an estate that had an immaterial indirect financial interest in the client. Refinancning an automobile loan from a bank client. When nonattest service are provided, the client must: A. Assume all responsibilities of decision making. Designate an individual in senior management with requisite skills and knowledge to oversee these services. Must be responsible for establishing internal controls. All of the above. The client must oversee, evaluate and accept responsibility for results. In addition the client must establish and maintain internal controls. In performance of any professional service, a member shall A. Maintain objectivity and integrity B. Avoid conflicts of interest C. Not knowingly misrepresent facts or subordinate judgment D.
- The audit client believes that this event could have a significant direct effect on the financial statements. The auditor should: A. Advise management to disclose the event in notes to the financial statements. Advise management to adjust the financial statements at a point in the future when the extent of the flood and the direct effect on the financial statements is known. Conditions which come into existence after year-end which may have a significant direct effect on the financial statements should be disclosed in the notes to the financial statements. Which of the following is an example of an advocacy threat to member independence? An engagement team member is litigating a bill for unpaid invoices by the attest client. CPA provides consulting services and charges less than a competitive rate in order to win the business of the client. ANSWER: C According to Rule , in performance of any professional service, a member shall maintain objectivity and integrity, avoid conflicts of interest, and not knowingly misrepresent facts.
- The CPA would be knowingly misrepresenting the facts by providing a bid that was clearly off the mark. The process of cleaning data for it to be used in an audit data analytic is called: A. Data extraction.
- This Paper has 30 answerable questions with 0 answered. Total No. If a candidate who has not opted for Hindi medium, answers in Hindi, his answers in Hindi will not be valued. Answer Questions 1 and 2 and any four from the rest. Marks 1. What are your views on the following? An appeal filed by A Ltd. On 12th July, , the auditor came to know through paper reports that the point involved in the appeal of A Ltd. The auditor insisted that provisions be made of Rs. The Management was of the view that since its own case is still pending, no provision is called for. It was also of the view that the event does not have any effect on the financial position of the company on the date of the Balance Sheet.
- Is the view of the Management tenable? During the financial year —04 it has issued bonus shares in the ratio 1 : 1. The net profit after tax for the years 31—03— and 31—03— is Rs. Is the disclosure correct? However the management gave him a certificate to prove the existence and value of the machinery as appearing in the books of account. The auditor accepted the same without any further procedure and signed the audit report. Is he right in his approach? The Managing Director told the auditor that since he is not involved in the activities of the firm and since the amount paid to it is insignificant; there is no need to disclose the transaction.
- He further contended that such a payment made in the last year was not disclosed. Is Managing Director right in his approach? Do you approve of the following? If not, why? One of the partners of the firm was a Non—Executive Director of the company. Qureshi, Chartered Accountant, in practice died in a road accident. His widow proposes to sell the practice of her husband to Mr. Pardeshi, Chartered Accountant, for Rs. Can widow of Qureshi sell the practice and can Mr. Pardeshi continue to practice in that name as a proprietor? The State in which the company had its registered office and also its major sales had moved a bill in the State Assembly to ban manufacture and sale of all kinds of Pan Masalas in the State. While finalising the accounts for the year ended 31—03—, the CFO of the Company created a Deferred Tax Asset for the tax benefits that would arise in future years from the earlier years losses that had remained unabsorbed in Income Tax.
- The borrowings are used to invest in shares of Small Ltd. As on 31st March, , since the said project was not complete, the directors of Big Ltd. Lay down the audit procedure, you will follow in cases i when the financial statements are audited for the preceding period by another auditor; and ii when financial statements are audited for the first time. Our responsibility is to express an opinion on these financial statements. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material statement.
- An audit includes examing, on a test basis, evidence supporting the amounts and disclosures in financial statements. As audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial presentation. The company has Rs. The Management desires to adjust the accumulated losses against the share premium balance. Advise the Company giving your reasons. Briefly explain your duty as a statutory auditor in this connection. How you will deal with the matter in your audit report as a statutory auditor?
- Internal audit nothing but the checking the product that you produced. External audit is checking your product by your customer. Here it means you may not find mistakes in your processes but a third man who comes and check the system he may see some deviations in the system and give suggestions for the improvements of the system. Question Answer : An internal audit is one which is conducted by the internal auditors of the company. It is not mandatory for the company and the company just conducts it to keep a check on the operations of the company. On the other hand statutory audit is very important because it is by the external auditors and it is mandatory for all kinds of companies. Statutory audit is usually conducted for various purposes like tax regulatory requires it for taxation purposes.
- Answer : Compliance procedures are tests designed to obtain reasonable assurance that these internal controls on which audit reliance is to be placed are in effect. The auditor can test the functioning of the controls and not the transactions. He can check the exceptions and departure from suggested internal control. When there is strict supervisory control the staff can not digress from prescribed control procedures. Compliance procedures can be applied with the help of audit sampling. The samples can be selected from various categories of transaction in order to test the control aspect. He can examine evidence through inspection of signature. He can apply re performance and observation techniques. He can check custodial control over assets.
- He can examine the segregation of duties. He can go through supervisory controls. The auditor can test all the items included in the sample. The compliance procedures can ensure the auditor that internal control exists. The control is operating effectively. The control has so operated throughout the period of intended reliance.
- Answer : With internal audit we always need to be careful of any manipulations within the company itself. Answer : Internal audit is an independent appraisal function which is established by the management of an organization for the review of its internal control system as a service to the organization. To learn about the scope of internal audit. Answer : This charter describes the mission, independence and objectivity, scope and responsibilities, authority, accountability and standards of the Internal Audit function.
- A charter is basically a delegation or grant of authority from a person or organization of authority to another person or organization. The purpose of an internal audit charter is to compel the departments that need to be audited to provide the information required by the auditor. Without this charter or similar authority most managers wouldn't see any benefit to being audited and would likely refuse to provide anything the auditor needed. Answer : The internal audit is a continuous review of operations and records undertakes within the business and is normally done by specially assigned staff. It should operate independently of all the internal check and in no case should divest any one of the responsibilities placed upon him. Internal auditing is an independent appraisal activity within an organization for the review of operations as a service to management.
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It is managerial control which functions by measuring and evaluating the effectiveness of other controls. Answer : The function of internal audit is concerned with analysis of internal check. The internal audit can look into the duties of each employee. All employees are provided jobs on the basis of their abilities. The auditor can test the effectiveness of internal check. The function of internal audit is examining the application of legal requirements. The accounts are prepared under certain legal frame work. Verification of accuracy is a function of internal audit. The accuracy of accounting books and records can be verified with the help auditing techniques. The audit techniques include inspection, observation, inquiry, confirmation, computation and review. An auditor can check the accuracy through these techniques. Confirmation of liability is a function of internal auditor can determine the work done by every person. The carelessness or negligence on the part of worker is noted.CPA AUD Exam Section: 2021 Ultimate Guide To Auditing And Attestation
The concerned person is given a chance to explain his position. If the reason is not justified, the liability is confirmed. The function of internal audit is to examine the assets protection. The proper record is to be maintained. The possession must be in the hands of senior officer. The assets are used for business only. There are proper purchase and disposal of these assets. The internal auditor can check that assets are protected. Answer : Planning is an essential feature of internal audit. The auditor can plan to check the accounting system. The plan may relate to accounting functions like purchase, sales, income, expenses and shares. The planning includes degrees of risk and extent of audit. It also states the nature of audit work.- Controlling is an essential feature of internal audit. Auditor can examine the operations of accounting system. He can control audit work through audit program. The whole audit work is distributed among audit staff. Recording is an essential feature of internal audit. The audit can record the facts and figures in order to express his views in the business activities. The audit note book and audit working papers are used to record the information. Independence is essential element of internal audit. The work of internal audit is done by an employee of the company. He must not be influenced by management. He must be free in developing audit program, audit investigation and audit reporting. Answer : The purpose of internal audit is to keep proper control over business activities. When there is proper control there is maximum efficiency. The internal auditor determines the degrees of control over work. The purpose of internal audit is to evaluate the accounting system. It is concerned with checking proper authority for transactions like purchase, retirement and disposal of fixed assets.
- The vouchers can be compared with entries in order to determine that figures are facts. The purpose of internal audit is to help the management. Internal auditor can point out the weakness. The internal audit can be used as a tool to correct the situation. The management functions can be performed properly. The purpose of internal audit is to review the working of business. The working of current tear can be reviewed in detail just to note the successful area of working. There is a need to locate the weak points. The corrective measures can be taken for proper working.
CPA Audit Exam Questions - CPA Sample Questions And Study Materials
Dependent child. Preparation of a fraudulent tax return. Felony conviction. Accidentally failing to file a personal tax return. Preparation of fraudulent tax return for a client. Acting as an executor of an estate that had an immaterial indirect financial interest in the client. Refinancning an automobile loan from a bank client. When nonattest service are provided, the client must: A. Assume all responsibilities of decision making. Designate an individual in senior management with requisite skills and knowledge to oversee these services. Must be responsible for establishing internal controls. All of the above. The client must oversee, evaluate and accept responsibility for results. In addition the client must establish and maintain internal controls.- In performance of any professional service, a member shall A. Maintain objectivity and integrity B. Avoid conflicts of interest C. Not knowingly misrepresent facts or subordinate judgment D. The audit client believes that this event could have a significant direct effect on the financial statements. The auditor should: A. Advise management to disclose the event in notes to the financial statements. Advise management to adjust the financial statements at a point in the future when the extent of the flood and the direct effect on the financial statements is known.
- Conditions which come into existence after year-end which may have a significant direct effect on the financial statements should be disclosed in the notes to the financial statements. Which of the following is an example of an advocacy threat to member independence? An engagement team member is litigating a bill for unpaid invoices by the attest client. CPA provides consulting services and charges less than a competitive rate in order to win the business of the client. ANSWER: C According to Rule , in performance of any professional service, a member shall maintain objectivity and integrity, avoid conflicts of interest, and not knowingly misrepresent facts.
- The CPA would be knowingly misrepresenting the facts by providing a bid that was clearly off the mark. The process of cleaning data for it to be used in an audit data analytic is called: A. Data extraction.
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The fundamental objective of the audit of a company is to: a. Protect the interests of the minority shareholders b. Detect and prevent errors and fraud c. Are responsible for ensuring that the company complies with the law b. Are responsible for ensuring that the company pays its tax by the due date c. Report suspected fraud and money laundering to the authorities Ans: c 3. Why do auditors concentrate their efforts on material items in accounts? Because they are easier to audit b. Because it reduces the audit time c. Because the risk to the accounts of their being incorrectly stated is greater d.- Because the directors have asked for it Ans: c 4. Reporting to the shareholders on the accuracy of the accounts b. Establishment of internal controls c. Keeping proper accounting records d. Supplying information and explanations to the auditor Ans: a 5. International auditing standards are issued by the: a. International Accounting Standards Board b. Financial Accounting Standards Board c. International Audit and Assurance Standards Board d. When an auditor is proposed for removal from office, which one of the following is he NOT permitted to do? Circulate representations to members b. Apply to the court to have the proposal removed c. Which one of the following is NOT a duty of the auditor? Duty to report to the members c. Duty to sign the audit report d. Duty to report on any violation of law Ans: a 8. Assuming that it is not the first appointment of the auditor, who is responsible for the appointment of the auditor? The shareholders in a general meeting b. The managing director c.
- Lectures, class discussions, case studies and participation Prescribed Texts and Tutorials Quality Auditor Primer, Published by Quality Council of Indiana Mode of Evaluation Since this is a professiona credit subject, marking standards reinforce professional practice by demanding legible, tidy work. Written assignments should be well organized and grammatically correct, with proper spelling and punctuation. Computer assignments should be well organized and documented to the instructor's standards. Late assignments are penalized. For particulars, please obtain standards, dates, etc.
- While attendance and participation in class discussions are not formally part of this evaluation schedule, you should be aware that absenteeism will almost guarantee your inability to achieve satisfactory grades. Some of the progress tests and quizzes may not be announced in advance and details of assignment requirements may be explained in class. There is no formal provision for make-up tests to replace tests you miss. To attain a passing grade for the subject, a student must complete and obtain a passing grade on all combined assignments and tests term work and also a passing grade on the final exam. For further information on evaluation and academic standing, see a copy of Academic Policy.
- Auditing - Final - Multiple Choice - ProProfs Quiz The final exams for the Audit class are just around the corner and the quiz below is designed to help you pass the quiz by getting rid of the cold feet you may be having. Give it a try and choose the right answer according to you for each question. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Auditing - Exam 3 Final - Short Answer.
- Please take the quiz to rate it. Questions and Answers 1. What major considerations sould the auditor take into account in determining how extensive the review of subsequent events should be? You can re-take each set of questions an unlimited number of times within your days of access. On this page you will be able to view past exams for paper exams.
- Important note: You must use any past exam questions and solutions published on this page with caution The question paper consists of 6 pages and 24 questions. An audit to determine whether an entity is following Which of the following differs between assurance ser-vices and consulting services when exercising due pro The Auditing and Assurance Standards Handbook is not permitted to be used in this examination. The value of each question is indicated at the start of each question. Calculators are not permitted. Attempt all questions. Answer multiple choice questions in the answer sheet provided..
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This can result in unrecorded sales transaction and theft. Accounts Receivable should be segregated from what? General Ledger This can result in unrecorded sales transactions and theft of goods Cash receipts should be segregated from what? Accounts REceivable Theft in cash may happen. Inherent risk factors affectin revenue process 1. Complexity and contentiousness of revenue recognition issues 3. Difficult of auditng transactions and account balances 4. Understand and document the flnal process based on a reliance approach 2. Plan and perform tests of controls on revenue transactions 3.- Continuing professional development and due professional care. Human relations and communications. Organizational status and objectivity. View answer Incorrect. Staffing and supervision relate to the professional proficiency of the internal audit activity. Continuing professional development and due professional care qurstions to the professional proficiency of the internal auditor. Human relations and communications relate to the professional proficiency of the internal auditor. According to Practice Advisoryorganizational status and objectivity permit members of the internal audit activity suestions render the impartial and unbiased judgments essential to the proper conduct of engagements.
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