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com

AICPA = GAAP + GAAS + More

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Sufficient evidence of consistency = no reference needed
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Positive Confirmation for Material A/R
Negative Confirmation for Immaterial A/R
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Sufficient appropriate audit evidence to afford a reasonable basis for the opinion.
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Scope Limitation = Scope Modification
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Mitigating Factors of Going Concern = Increase Cash Flow
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Actual agreements regarding restructuring of debt or amendments to covenants would be
required. (not just discussion)
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Lacks Independence = Automatic Disclaimer
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A material weakness must be reported to management and those charged with governance, but
would not be disclosed in an explanatory paragraph appended to an otherwise unqualified
opinion.
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GAAP allows a company to use different methods for costing different inventories as long as
the methods are disclosed. UNQUALIFIED.
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If going concern is repealed, explanatory paragraph need not be repeated.
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The auditors should address their report to the entity that engaged them.
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Scope Limitation Wording = Possible Effects on Financial Statement ≠ Scope Limitation Itself
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Omits SCF = Qualification
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Change = Note
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Going Concern is substantial doubt + disclosures are adequate, then the audit report may be
either:
• Unqualified with explanatory paragraph, or
• Disclaimed.
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When management does not provide reasonable justification that a change in accounting
principle is preferable and it presents comparative FS, the auditor should express a qualified
opinion each year that the FS initially reflecting the change are presented.
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Since the collective effect of the proposed adjustments is immaterial, an unqualified opinion
without modification should be expressed. In addition, footnote disclosure of proposed
immaterial adjustments is not required.
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Prior Auditor, Report not Present, Intro Paragraph
1) that the financial statements of the prior period were audited by another auditor, 2) the date of
the previous report, 3) the type of report issued by the predecessor auditor, and 4) if the report
was other than a standard unqualified report, the substantive reasons therefor.
The successor auditor may name the predecessor auditor only if the predecessor auditor's
practice was acquired by or merged with that of the successor auditor.
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Omitted audit procedure (1) impair ability to support opinion (2) no other procedures to
compensate (3) people relying (4) apply substantive procedures (5) notify charged with
governance (6) withdraw
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Report = AICPA standards
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When supplementary information that is not clearly distinguished from the financial statements
is not marked "unaudited," the auditor would generally issue a disclaimer on that information.
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The auditor would not perform a review or express negative assurance on supplementary
information required by GAAP that is included in an auditor-submitted document.
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When an auditor submits a document that contains information in addition to the client's basic
financial statements, and this information was subjected to auditing procedures, the auditor may
include in the auditor's report an opinion that the information is fairly stated in all material respects
in relation to the basic financial statements taken as a whole. This statement would follow the
opinion paragraph in the standard report.
Information in an ASD is not stated in an auditor's report to be in accordance with GAAS.
Instead, the auditor would state that the "information has been subjected to the auditing
procedures applied in the audit of the basic financial statements..."
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Material Inconsistency, F/S not need Revision, Client Refuses to Eliminate or Revise
Auditor: 1) revising the report to include a separate paragraph describing the inconsistency, 2)
withholding the report, or 3) withdrawing from the engagement.
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The auditor does not express an opinion (or provide any assurance) on whether condensed FS
conform with GAAP; only whether such statements are fairly stated in relation to the complete
FS.
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Certain limited procedures should be applied to required supplementary information, but this
information need not be audited.
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The auditor should read the "other information" in a client's document containing audited FS to
determine that it is consistent with the audited FS.
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The auditor would not perform or describe additional review procedures related to the
condensed financial statements. (READ)
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If management (of a governmental body) declines to present information required by the
GASB, the auditor should issue an unqualified opinion with an additional explanatory
paragraph.
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The report options for financial statements prepared for use in a foreign country depend upon
the intended distribution. The auditor should therefore obtain written representations from
management regarding the purpose and uses of the financial statements.
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Negative cash flows from operating activities most likely would cause an auditor to have
substantial doubt about an entity's ability to continue as a going concern.
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The auditor's standard report generally does not make reference to the entity's internal control.
Note that for an entity that does receive governmental financial assistance, a written report on
internal control is required. Also, note that an auditor may (but is not required to) expand his or
her audit report to clarify that a GAAS audit does not require the level of testing and reporting on
internal control that is required for issuers.
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A qualified opinion phrase is, "in our opinion, except for [explanation of problem] as discussed
in the preceding paragraph . . ."
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The opinion paragraph includes the auditor's opinion, but does not specifically mention the
auditor's responsibility to express an opinion - Introduction. (TRICKY)
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The magnitude of the portion of the FS examined by the other auditor appears only in the
introductory paragraph.
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Auditor-Submitted Documents = FACTS/DETAILS not Opinions
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GAAP – Explanatory/Opinion
GAAS – Scope/Explanatory/Opinion
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The following types of loans do not impair independence:
1) Automobile loans
2) Loans of the surrender value under terms of an insurance policy
3) Borrowings fully collateralized by cash deposits at the same financial institution
4) Credit cards and cash advances on checking accounts with an aggregate balance not
paid currently of $5,000 or less
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Independence is required for attestation engagements (i.e., audits and reviews). Not
compliations.
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Piecemeal opinions (major section) – Not use with disclaimed/adverse opinions. If not piece meal
(minor) – can be expressed but separate from disclaimer/adverse
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A "special report" (unqualified)
1. OCBOA
2. Specified elements, accounts or items of a financial statement.
3. Compliance with contractual or regulatory requirements – Negative Assurance
4. Prescribed form F/S
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An auditor may compile, examine, or apply agreed-upon procedures to limited use prospective
financial statements (PFS) such as a financial projection, but this would not constitute a special
report.
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Non-GAAP = Different Titles
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Modifications are made to the standard review report only when there is a departure from
generally accepted accounting principles. (Not Fraud/IC)
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REP letter is NOT required. SSARS does not require that the compilation report be printed on
the accountant's letterhead, nor does it require a manual signature (electronic = OK). According
to SSARS, a compilation report must state that a compilation has been performed, describe what
a compilation is, and emphasize that since no audit or review was performed, no assurance is
provided.
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Unaudited F/S = SSARS
Submission = Presenting F/S prepared by auditor (not book keeping)
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Review = State inquiries applied concerning the entity's procedures for recording and
summarizing transactions (not inquiries for to lawyer which is audit), substantially less in scope
(not compilation)
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Review/Audit = Independent
Compilation = Not Independent (state), state complied with SSARS issued by AICPA (not
auditing standards board)
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Review = Substantially less in Scope, Limited Assurance, Accountant Not Aware, “See
Accountant’s Review Report”(Not examine board minutes), AICPA in Intro
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Engagement Letter = Not Required in a Review
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The accountant is not required to communicate with the audit committee regarding material
weaknesses in internal control in a review engagement.
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Generating F/S = Compilation = Statements on Standards for Accounting and Review Services
(SSARS)
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Comparative F/S – Audited/Unaudited – Either reissue unaudited OR separate paragraph
describing responsibility assumed for unaudited statements
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When unaudited financial statements (generally the first quarter of the following year in an annual
report) are presented in comparative form with audited financial statements in documents filed
with the SEC, such statements should be clearly marked as "unaudited," but should not be
referred to in the auditor's report.
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Compiled financial statements that omit substantially all the disclosures required by GAAP are
not comparable to financial statements that do include required GAAP disclosures.
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The objective of a review of interim financial information is to provide the accountant, through
inquiries and analytical procedures, with a basis for reporting whether material modifications
should be made to such information to conform with generally accepted accounting
principles.
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If a report on a review of interim financial information is presented in a registration statement,
the prospectus should include a statement that the report is not a "report" or "part" of the
registration statement. The accountant should also read the other portions of the registration
statement to ensure that his or her name is not used in a way that indicates greater
responsibility than s/he intends.
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An attest engagement is one in which a CPA is engaged to issue an examination, a review, or
an agreed-upon procedures report on subject matter, or on an assertion about the subject
matter, that is the responsibility of another party. Providing the client with a financial statement
format does not fall under this description.
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Since use of the accountant's report should be restricted to specified parties when reporting
directly on the subject matter and a written assertion has not been provided.
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There is no requirement that the accountant's report be restricted to specified parties when
reporting on an assertion about the subject matter instead of reporting directly on the subject
matter.
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Agreed upon procedure: The report contains a statement that the sufficiency of the procedures
is solely the responsibility of the parties specifying the procedures and a disclaimer of
responsibility on the part of the accountant. [RESTRICTED]
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An examination of a financial forecast is a professional service that involves:

1) evaluating the preparation of the prospective financial statements,
2) evaluating the support underlying the assumptions,
3) evaluating the presentation of the prospective financial statements in conformity with
AICPA guidelines, and
4) issuing an examination report.
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The report on a review of pro forma financial information would include an explanation of the
objective and limitations of the information, but would not discuss the uncertainty surrounding
occurrence of the transaction or event.
The accountant's report on a review of pro forma financial information should include a reference
to the financial statements from which the historical information is derived and a statement as to
whether such financial statements were audited or reviewed.
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Negative assurance may be expressed when an accountant is requested to report on the results
of performing a review of management's assertion.
No assurance is provided in a compilation of prospective financial statements.
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Attestation engagements specifically exclude consulting services, advocacy services, and
return preparation.
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Comparative Statements = Audit Year 1, Review Year 2 = No mention of audit report in intro.
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Planning - Analytical procedures, which involve comparisons of recorded amounts to
expectations.
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The auditor's preliminary judgment about materiality is generally based on either annualized
interim financial statements or annual financial statements from a prior period.
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The initiative to communicate with the predecessor auditor rests with the successor auditor.
Note, however, that the successor auditor must first receive permission from the client.
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Engagement letter = Auditor Responsibility and Limitation of Engagement (Audit Risk/Not Able to
Catch All Material Errors)
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Test of Controls => Control Risk => Terms of F/S Assertions ≠ Identify Procedures Relevant to
Assertions ≠
The assessment of control risk affects the design of audit procedures but is not relevant in
determining materiality. Materiality determination = F/S.
Audit Risk = RMM * DR = Audit Procedures
In developing an overall audit strategy, an auditor should consider preliminary evaluations of
materiality, audit risk, and internal control.
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Inquiry of a client's attorney and evaluation of the attorney's response is performed during
fieldwork, after the planning process has been completed.
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The existence of significant deficiencies in internal control may represent a conscious
decision by management to accept that degree of risk because of cost or other considerations.
[OK]
Therefore, although failure to correct such deficiencies is considered a fraud risk factor, the
auditor is more likely to be concerned about transactions that are not supported by proper
documentation.
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Direct Illegal = Reasonable, Indirect Illegal = No Assurance
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The auditor should obtain a sufficient understanding of the entity and its environment, including
its internal control, to plan the audit of the entity's financial statements.
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Tests of the operating effectiveness of controls, however, are only performed when the
auditor's risk assessment is based on the assumption that controls are operating effectively,
or when substantive procedures alone are insufficient.
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Observation = Design
Re-performing Control = Operating Effectiveness
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Information Systems = Transactions = Preparation of Accounting Estimates
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Substance over form" concerns relate to controls that appear on the surface to exist but in
reality are not operating effectively.
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Primary internal control planning objectives of an auditor in a financial statement audit:
a. Identify types of potential material misstatements.
b. Consider factors that affect the risk of material misstatements.
d. Design effective substantive tests.
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In obtaining an understanding of an entity's internal control, an auditor is required to obtain
knowledge about the design of controls and whether they have been implemented. The auditor is
not required to obtain knowledge about the "operating effectiveness of controls" as part of
obtaining an understanding of internal control.
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An entity's objectives consist of financial reporting, operations, and compliance.
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Focus on financial reporting not operational objectives
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Tests of controls (Assess control risk) include such procedures as inspecting documentation,
inquiry, observation, and reperformance.
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The objective of tests of details of transactions performed as substantive tests is to detect
material misstatements in the financial statements.
Performed as tests of control = operating effectively.
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Certain factors unique to electronic processing may make it impractical or impossible to reduce
detection risk to an acceptable level through substantive testing alone. In such cases, tests of
controls should be performed to address the increased potential for unauthorized access,
the risks of insufficient paper-based audit evidence, and the fact that the appropriateness and
sufficiency of evidence may be dependent to some extent on computerized controls. Simply
expanding the sample size, adjusting materiality levels, or applying analytical procedures will not
address these concerns.
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If not test of control= > Time substantive testing
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Control environment factors include:
1. Communication and enforcement of integrity and ethical values.
2. Commitment to competence.
3. Participation of those charged with governance.
4. Management's philosophy and operating style.
5. Organizational structure.
6. Assignment of authority, responsibility, and accountability.
7. Human resource policies and practices.
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The audit should be designed to identify material misstatements due to illegal acts, but illegal
acts that relate to operating aspects rather than accounting aspects may not directly affect the
financial statements, and therefore they may be less likely to be discovered by the auditor.
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If specific information comes to an auditor's attention that implies the existence of possible illegal
acts that could have a material, but indirect effect on the financial statements, the auditor
should next apply audit procedures specifically directed to ascertaining whether an illegal act has
occurred. The auditor should obtain an understanding of the situation, inquire of management
(at a level above those involved), consult legal counsel, and consider applying additional audit
procedures if necessary.
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Before performing substantive tests at an interim date, the auditor must assess the difficulty in
controlling the incremental audit risk from the interim date (on which the substantive
procedures are performed) to the year-end date (on which an opinion is rendered).
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Predecessor give successor info about contingencies and balance sheet accounts.
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Monitoring is the process of assessing the quality of internal control performance over time
and taking necessary corrective actions.
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An increase in the assessed level of control risk leads to an increase in sample size. See it as
higher risk to control… Thus need a larger sample size to verify.
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The sample size for a test of controls varies directly with the expected deviation rate and
inversely with the tolerable rate. If the auditor expects more errors, he or she would increase
sample size; conversely, if the tolerable rate of deviation increases, not as many items need to be
selected.
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Embeded audit module = in process
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Generalized Audit Software Package = Extract = First Step
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Any report issued on significant deficiencies noted during an audit should (1) indicate that the
purpose of the audit was to report on the financial statements and not to provide assurance on
internal control, (2) include the definition of significant deficiencies, and (3) include a restriction on
the use of the report. Not management representations.
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In an audit of an issuer, the auditor is required to communicate both significant deficiencies and
material weaknesses to management and the audit committee, but only material weaknesses
result in an adverse opinion on the effectiveness of internal control.
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A scope limitation requires the auditor to disclaim an opinion or withdraw from the
engagement, and a material weakness in internal control requires the auditor to issue an
adverse opinion. Neither situation would result in a qualified opinion.
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A significant deficiency exists for weaknesses that are important enough to merit the attention
of those responsible for financial reporting, and a material weakness exists when there is a
reasonable possibility of material misstatement.
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Extra GAGAS rule…
1. Reports on compliance with laws, rules, and regulations, violations of which may affect
financial statement amounts, and
2. Reports on internal control over financial reporting. (scope)
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Generally Accepted Government Auditing Standards primarily apply to audits of federal financial
assistance but have been adopted by some states for audits of state financial assistance.
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A single audit represents a combined audit of both an entity's financial statements and federal
financial assistance programs. The single audit provides audited organizations with the
opportunity to capitalize on the efficiency of satisfying their audit requirements with a single audit.
Auditors are governed by the Single Audit Act and OMB Circular A-133.
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OMB Circular = Major Federal Programs
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Audit organizations seeking to enter into a contract to perform an audit in accordance with
government auditing standards should provide their most recent external quality control review
report to the party contracting for the audit.
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GAGAS = A concurrent opinion on the financial statements taken as a whole is not a
required part of the auditor's report.
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Government Auditing Standards require a description of the scope of the auditor's testing of
compliance and of internal control. This is not required under generally accepted auditing
standards + results.
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The auditor is required to communicate to those charged with governance regarding certain
matters, including management consultation with other auditors. Consequently, the auditor must
ask management about this matter.
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Failure to correct a known weakness in internal control may be a conscious decision based on
the cost and benefit involved with making the correction. Such decisions do not imply that
management lacks integrity. INTERNAL CONTROL FAIL ≠ F/S FAIL.
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Classification and Understandability = F/S Disclosure
Rights and Obligations = Specific Accounts
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Kiting occurs when a check drawn on one bank is deposited in another bank and no record is
made of the disbursement in the balance of the first bank. Frequent kiting may result in a high
level of deposits coupled with a low average balance.
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By ensuring that credit approval is obtained before goods are shipped to customers, the auditor is
testing management's assertion that accounts receivable are collectible (valuation or
allocation).
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Disbursement/Receipt = Look at books
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The permanent file includes items with continuing audit significance, such as debt agreements.
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The working trial balance generally contains a column for adjustments and reclassifications
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A list of procedures and findings is required for an agreed-upon procedures engagement, not
for an audit.
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The documentation completion date (and not the report release date) is defined as the date
after which existing documentation must not be deleted, and additions to the documentation file
must be documented as such.
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Documentation Completion Date = 45 Public, 60 Private

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When an analytical procedure is used as the principal substantive test of a significant
financial statement assertion, the auditor is required to document both the auditor's expectation
and the factors considered in developing that expectation.
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Final Analytical Procedure– Manager/Partner must know Entity, Check for Unusual
Relationships
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Analytical procedures involve comparison of recorded amounts, or ratios developed from
recorded amounts, to expectations developed by the auditor. Projecting an error rate from a
statistical sample does not involve such a comparison.
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The acid-test ratio = CA – Inven – Prepaid/CL
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After performing a count of negotiable securities, the auditor would generally obtain an
acknowledgment from the client that the securities were returned intact. This helps maintain
accountability for the securities, and reduces the likelihood of employee misappropriation (e.g., if
a client employee were to steal a security and blame the auditor).
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Dividend income from investments is tested by referring to the dividend record books produced
by investment advisory services.
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Joint custody by two company officials over assets like cash and marketable securities helps
safeguard the assets. Under joint custody, collusion is required for a defalcation to occur.
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Inspecting loan agreements under which an entity's inventories are pledged provides evidence
regarding completeness with respect to presentation and disclosure, since such information
must be disclosed in the financial statements.
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If the control risk is assessed as low, less substantive testing is necessary. In such an
instance, substantive testing would normally be limited to analytical procedures and recalculating
year-end accruals.
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In auditing the granting of stock options, the auditor would normally trace the transactions to
approval by the board of directors.
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Analysis of repairs and maintenance expense provides assurance with regard to management's
assertion that expenditures for property and equipment have been capitalized and have not been
charged to expense.
Unclaimed payroll checks should be returned to an independent party for follow up. Returning
such checks (assets) to the payroll department (recordkeeping) represents an inadequate
segregation of duties.
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First understand how management developed estimate then: a) review and test the process
used by management to develop the estimate, b) develop an independent expectation of the
estimate to corroborate the reasonableness of management's estimate, or c) review subsequent
events.
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Compensating balance arrangements may be maintained by or for related parties.
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The cost of obtaining evidence is an important consideration to an auditor in selecting
appropriate audit procedures. The cost of a procedure may be a valid reason for omitting that
procedure, as long as an appropriate alternative procedure is available.
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An auditor most likely would analyze inventory turnover rates to obtain evidence concerning
management's assertions about valuation and allocation (i.e., if the inventory is becoming older,
an obsolescence reserve might be required).
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Two assertions for which the confirmation of accounts receivable balances provides primary
evidence are rights and obligations (does the client have a right to the receivable?) and
existence (does the receivable really exist?). [Confirmation = Receivables]
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If an auditor discovers that the original insurance policy on plant equipment is not available
for inspection, this most likely indicates that there is a lien on the plant equipment, since the
original policy would likely be in the possession of the lien holder.
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Equipment Acquisition = Variance Analysis
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Examination of bond trust indentures should be included in audit program of long-term debt to
assure that the client was not in violation of any covenants in the indentures.
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The most likely result of ineffective internal control policies and procedures in the revenue
cycle is that final authorization of credit memos by personnel in the sales department could
permit a salesman to sell, collect, and pocket the collection, then cover it up by issuing a credit
memo. Final authorization of credit memos should be performed by an employee who is
independent of the sales department such as the credit manager in the treasury department.
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Large companies often use a registrar to provide registration services and maintain the
stockholder list. The primary responsibility of the registrar is to verify that stock is issued only
with proper authorization
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Agreed-upon procedures engagements ordinarily do not require a written assertion.
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Dual Date = Safer, not extend audit to subsequent to F/S
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Report Date = Auditor has obtained sufficient appropriate evidence.
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Prior to Year End = Adjustment

After Year End = Note
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When the subsequent event occurs between the date of the original report and the date of
the reissuance of the report, the event may be labeled unaudited.
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A disclaimer of opinion may be appropriate but an "except for" qualified opinion is never
appropriate when substantial doubt about an entity's ability to continue as a going concern has
been adequately disclosed
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Auditors should not refer to consistency when an adverse opinion is issued because
consistency implies the application of GAAP.
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Accounting Estimate Change ≠ Consistency Problem, Footnote
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Required Unaudited Incorrect Information = Unqualifed with Explanatory
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difference of opinion between the auditor and the client will generally originate from a
departure from GAAP. Therefore, a qualified "except for" opinion or an adverse opinion
would be appropriate.
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AR 100 requires that the date of completion of the compilation be used as the appropriate
date for an auditor's compilation report
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Prospective ≠ Review
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When issuing a special report on a specific financial statement item, the measurement of
materiality must be related to that item.
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Forecast examination report presents an opinion concluding whether the forecast meets
AICPA guidelines, not on whether the forecast is fairly presented.
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five Trust Services principles are Security, Availability, Processing Integrity, Online
Privacy, and Confidentiality.
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Immaterial instances of noncriminal acts need not be included in a report on compliance

with laws and regulations
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Forecast/Projection = Attest
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a review does not require an assessment of the risk of material misstatement due to fraud
and because significant deficiencies do not result in report modification. Review reports
are modified primarily for departures from generally accepted accounting principles.
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Analytical = Output Testing
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attribute sampling is used to estimate the error rate for internal control activities also
pricing.
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Sarbanes-Oxley Act does not require a certification by management that it has violated
no major laws.
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COSO: Auditing standards include objectives to provide reasonable assurance regarding
the achievement of objectives in three categories: (1) reliability of financial reporting, (2)
effectiveness and efficiency of operations, and (3) compliance with applicable laws and
regulations.
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control activities include performance reviews, information processing, physical controls,
and segregation of duties.
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Foreign Corruption Act = require publicly held companies to devise and maintain
adequate internal control.
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material weakness has more than a reasonable possibility of resulting in a material
misstatement.
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remittances should be opened by an individual such as a receptionist who is independent

of the sales function. That individual will prepare any needed remittance advice.
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The broad objectives of internal control are to render reasonable assurance that assets are
safeguarded from unauthorized use or disposition and that financial records are
sufficiently reliable to permit the preparation of financial statements.
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Service Auditor = Scope and Nature of Audit, Operations and Operating Effectiveness
not Policies/Procedures
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Material Deficiency = Red Flag = Adverse
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Engagement Letter Not Required – Written Required
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system of quality control is necessary to provide a CPA firm with reasonable assurance
that it is conforming to generally accepted auditing standards.
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The requirement is to identify the purpose of a quality control policy and procedure for
accepting a new client. Answer B is correct because CPAs wish to minimize the
likelihood of becoming associated with clients whose management lacks integrity.
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Confirmation of most estimates (e.g., warranty liabilities) is not an appropriate approach
for evaluating the reasonableness of the estimate
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Audit Program – Pathway of Audit – Required
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Least likely to reconcile the stock certificate book with the general ledger for publicly
traded companies due to the fact that most stock certificate books are maintained by
independent registrars.
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Prior income statement accounts are less likely to have continuing significance than are
balance sheet accounts and contingencies.
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lead schedules serve to accumulate similar or related information before it is transferred
to the working trial balance.
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Kiting = Bank Transfer
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Bank cutoff statements. A cutoff statement is a bank statement for the first 8-10
business days after year-end. Know that its primary purpose is to help auditors to verify
reconciling items on the year-end bank reconciliation. Tests performed using a cutoff
statement include verifying that outstanding checks have been completely and accurately
recorded as of year-end, and that deposits in transit have cleared within a reasonable
period. The statement is sent directly by the bank to the auditor.
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Simultaneous verification. Because of the liquid nature of securities, the auditor’s
inspection is generally performed at year-end simultaneously with the audit of cash, bank
loans (e.g., a revolving credit agreement), and other related items.
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Discuss the adequacy of the allowance for doubtful accounts with management and
the credit department and compare it to historical experience to verify valuation
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Presentation = Curent/Noncurrent
Trustee = Transactions
Holders = Balances
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Financing. This cycle includes issuance and repurchase of debt (bank loans,
mortgages, bonds payable) and capital stock, and payment of interest and dividends.
Debt and capital stock transactions should be authorized by the board of directors. Often
an independent trustee issues bonds, monitors company compliance with the provisions
of the debt agreement, and pays interest.

For capital stock transactions, corporations may either employ an independent stock
registrar and a stock transfer agent, or handle their own transactions. Normally, internal
control is stronger when a stock registrar and a stock transfer agent are utilized. A stock
registrar's primary responsibility is to verify that stock is issued in accordance with the
authorization of the board of directors and the articles of incorporation; the stock transfer
agent's primary responsibility is maintaining detailed stockholder records and carrying
out transfers of stock ownership.

Major Financing Controls Frequently Missing in CPA Exam Questions

(1) Debt and equity transactions are properly approved by the company's board of
directors.

(2) An independent trustee handles bond transactions.

(3) A stock registrar and a stock transfer agent handle capital stock transactions.

(4) Canceled stock certificates are defaced to prevent their reissuance.

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Omitted Procedures Discovered After the Report Date (AU 390). Subsequent to
issuance of an audit report, an auditor may realize that one or more necessary procedures
were omitted from the audit. When this occurs, the auditor should first assess its
importance. If omission is considered important (i.e., it affects present ability to support
the previously expressed opinion) and if the auditor believes individuals are relying or are
likely to rely on the financial statements, the procedures or alternate procedures should be
promptly applied. If the procedure is then applied and misstatements are detected, the
auditor should review his/her responsibilities under AU 561 on subsequent discovery of
facts existing at the date of the auditor's report. If the client does not allow the auditor to
apply the necessary procedure(s), the auditor should consult his/her attorney as to
appropriate action.
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Operational Auditing
Operational audits, generally performed by internal auditors, typically evaluate the
effectiveness and efficiency of various operational processes. As such they are similar to
"performance audits" as presented in the Government Auditing Standards. In fact, the
topic "operational auditing" was dropped from the AICPA Content Specification Outline
when compliance auditing was added.
As an example of an operational audit, consider an auditor's examination of the sales,
receivables, and cash receipts cycle to consider whether policies and procedures
concerning the effectiveness and efficiency of related management decision-making
processes. A financial statement audit, on the other hand, would deal more directly with
controls relating to the entity's ability to record, process, summarize, and report financial
data consistent with the assertions in the financial statements.
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Analytical procedures won’t value derivaties!
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bad debt write-offs should be independent of the sales authorization and recordkeeping
functions aka Treasurer