Audit Final Exam Review Questions PDF

1. List the procedures an auditor might use to search for unrecorded liabilities a. obtain a listing of payments made after the balance sheet date up to the current date b. select items to test and obtain supporting documents for the payment c. review the docum...

1. List the procedures an auditor might use to search for unrecorded liabilities a. obtain a listing of payments made after the balance sheet date up to the current date b. select items to test and obtain supporting documents for the payment c. review the documents to determine which time period the liability should have been recorded based on service or shipment date d. determine of the liability was properly recorded in the correct period e. review unpaid/open invoices at fieldwork for the same 2. Discuss how an auditor might audit inventory costing f. Inventory price testing i. obtaining a detailed listing of inventory and select a sample for testing ii. for sample selected, obtain original purchase documents to verify cost of inventory item iii. recalculate average cost in inventory and compare to the cost shown on the inventory listing iv. Recalculate finished goods costs by assessing labor and overhead components as necessary 3. List the procedures that the auditor should perform during the count of the entity's physical inventory g. the auditor should v. scrutinize the care with which client employees are following the inventory plan vi. observe that all merchandise is counted once and only once. If the inventory is tagged, no items should be double tagged vii. determine the electronic count media, pre numbered inventory tags, or compilation sheets are properly controlled viii. perform some test counts and trace quantities to final count 1. direction of testing matters - sheet to floor vs floor to sheet ix. be alert for empty containers and hollow squares (empty spaces) that may exist when goods are stacked in sold formations x. identify the last receiving and shipping documents used and determine that goods received during the count are properly segregated xi. watch for damaged and obsolete inventory items and evaluate the general condition of the inventory xii. inquire of employees about the existence of slow moving inventory items xiii. ensure consignment inventory is properly separated and marked h. should also xiv. count locations outside the entity or confirm with those locations xv. examine consignment contracts or agreements 4. List the major items on a bank reconciliation and discuss how an auditor might go about testing the bank reconciliation and its various items i. Major items: xvi. outstanding checks xvii. deposits in transits xviii. cash receipts xix. cash disbursements j. procedures xx. foot the reconciliation and outstanding check listing xxi. trace balances per book to general ledger xxii. obtain bank confirmation and trace balance per bank to bank reconciliation xxiii. obtain cutoff bank statement xxiv. trace deposit in transit, outstanding checks and other reconciling items to cutoff bank statement 5. How are the audits of cash, revenue, and purchases/payables related? k. Cash balances are affected by internal controls related to cash receipts and cash disbursements l. Controls over cash receipts and cash disbursements are tested as part of testing controls in the revenue process and the purchasing process 6. How are the audits of inventory, revenue and purchases/payables related? m. Inventory is affected by internal controls related to purchases and revenue sales n. Tracing documentation of transactions that decrease inventory balances such as sales provides evidence for existence, valuations, and accuracy assertions o. Helps determine that entries were recorded and entered at correct amounts 7. What information does the auditor ask the attorneys to provide related to pending or threatened litigation? p. Existence of uncertainties arising from litigation q. time period in which the cause for legal action occurred r. the probability of an unfavorable outcome for the client s. an estimate for potential loss 8. What are the types of subsequent events relevant to financial statement audits? t. type 1; event that provides evidence of conditions that existed at the date of the financial statements xxv. requires an adjustment to financial statements u. type 2: event that provides evidence of conditions that arose after the date of the financial statements xxvi. no adjustments 9. Why does an auditor obtain a representation letter from management, who signs the letter, and when is it obtained? v. To corroborate significant oral representations made by management during the audit w. Serves as evidence for some issues but cannot be sole source of evidence for everything x. Obtained right at completion of date y. Signed by whoever is in charge of financial reporting at the organization (CEO, CFO, chair of audit committee) 10. What types of procedures are performed near the end of the audit/at the completion stage? z. final analytical procedures a. re evaluate materiality b. re evaluate risk assessment xxvii. audit risks based on audit findings (inherent, control, fraud risk) c. consider indications of fraud d. review corrected and uncorrected misstatements xxviii. factual, judgmental, projected misstatements xxix. any quantitative and qualitative factors from effect of uncorrected misstatements e. consider going concerns f. final work paper review g. quality control review h. obtain management representation letter i. issue report j. required communication with management k. issue management comment letter 11. What are the situations that cause an auditor to modify its opinion on the financial statements to something other than unqualified or unmodified? How does materiality and pervasiveness impact the opinion rendered? xxx. Scope limitation: results from an inability to obtain sufficient appropriate evidence about something on financial statements 2. issue a qualified opinion or disclaimer xxxi. not in conformity with GAAP: results when FS are materially affected by a departure from GAAP 3. issue a qualified opinion or adverse opinion xxxii. auditor not independent: results when auditor has some form of prohibited relationship with entity 4. issue a disclaimer l. Pervasiveness xxxiii. As materiality increases, auditor must judge the effect of the item on the financial statements overall xxxiv. pervasive effects on FS 5. not confined to specific elements, accounts, or items on FS 6. if so confined, represent or could represent a substantial portion of the financial statements 7. with regard to disclosures, are fundamental to users understandings of FS xxxv. requires lots of auditor judgment 12. What are the major sections of the audit report (private company) and what are the differences between the private and public company reports m. Major sections xxxvi. title - must include the term independent xxxvii. address xxxviii. opinion section xxxix. basis for opinion paragraph xl. management's responsibility paragraph xli. signature xlii. date n. Differences o. clean opinion for PCAOB - unqualified and ASB - unmodified p. ASB audit report is called independent auditors report q. ASB report has no reference to ICFR r. critical audit matters is required in PCAOB (public) and ASB (private) is voluntary