MaoEn/USCPA_AUD_Data huggingface dataset:
Communication related to the inherent limitations of internal control of a nonissuer is required in which of the following documents?
A.
An engagement letter
B.
A review report
C.
A management letter
D.
A letter of inquiry sent to the client's attorney,"Choice "A" is correct. The engagement letter should include a statement saying that, because of the inherent limitations of an audit, together with the inherent limitations of internal control, an unavoidable risk exists that some material misstatements may not be detected, even if the audit is properly planned and performed.
Choice "B" is incorrect. A review report does not include a reference to the inherent limitations of internal control.
Choice "C" is incorrect. A management letter does not include a reference to the inherent limitations of internal control.
Choice "D" is incorrect. A letter of inquiry sent to the client's attorney does not include a reference to the inherent limitations of internal control."
Which of the following is an element of a CPA firm's quality-control policies and procedures applicable to the firm's auditing practice?
A.
Efficiency of organizational structures
B.
Computer information processing
C.
Professional skepticism of management
D.
Acceptance of a client relationship,"Choice "D" is correct. Acceptance of a client relationship is an element of a CPA firm's quality-control policies and procedures applicable to the firm's auditing practice. The elements of a CPA firm's quality control are human resources, engagement/client acceptance and continuance, leadership responsibilities, performance of the engagement, monitoring, and ethical requirements (HELP ME mnemonic).
Choice "A" is incorrect. Efficiency of organizational structures is not an element of a CPA firm's quality-control policies and procedures applicable to the firm's accounting and auditing practice.
Choice "B" is incorrect. Computer information processing is not an element of a CPA firm's quality-control policies and procedures applicable to the firm's accounting and auditing practice.
Choice "C" is incorrect. Professional skepticism of management relates to the conduct of an individual engagement rather than the CPA firm's quality-control policy."
What is the maximum number of days in which a nonissuer’s auditor should complete the assembly of the final audit file following the report release date?
A.
30 days
B.
14 days
C.
60 days
D.
75 days,"Choice “C” is correct. A nonissuer auditor should complete the assembly of the audit file within 60 days following the report release date.
Choice “A” and “D” are incorrect, per the above explanation.
Choice “B” is incorrect. An auditor should complete the assembly of the audit file within 14 days for an issuer, not a nonissuer."
According to COSO, management should be concerned with the effectiveness of the monitoring processes of an entity regarding internal controls over financial statement preparation for each of the following reasons, except:
A.
Effective monitoring assists those charged with governance to ensure that the entity meets its operating and financial expectations.
B.
Effective monitoring allows those charged with governance to identify and correct deficiencies before they materially affect financial statements.
C.
Effective monitoring enables those charged with governance to determine whether the control processes continue to operate effectively over time.
D.
Effective monitoring provides incentive for employees to perform their duties properly over time.,"Choice “A” is correct. Monitoring is the process of assessing the quality of control performance over time by assessing the design and operation of controls on a timely basis and taking the necessary corrective actions.
There is no assurance that an entity will meet its operating and financial expectations, and controls are not put into place to ensure that these expectations are met. Expectations often differ from actual results, and controls are not designed to prevent those differences from occurring.
Choice “B” is incorrect. The ongoing evaluations to ascertain whether controls are present and functioning is one of the principles of the monitoring component of the Internal Control—Integrated Framework.
Choice “C” is incorrect. Effective monitoring does help show whether processes continue to operate effectively over time.
Choice “D” is incorrect. Monitoring does serve to provide incentives for employees to perform their duties properly over time."
In assessing the objectivity of internal auditors, the independent CPA who is auditing the entity's financial statements most likely would consider the:
A.
Tests of control activities that could detect errors and fraud.
B.
Materiality of the accounts recently inspected by the internal auditors.
C.
Internal auditing standards developed by The Institute of Internal Auditors.
D.
Results of the tests of transactions recently performed by the internal auditors.,"Choice "C" is correct. Objectivity is reflected by the organizational level to which the internal auditor reports as well as by policies prohibiting audits of areas where the internal auditor lacks independence. In assessing the objectivity of internal auditors, the independent CPA who is auditing the entity's financial statements considers information obtained from previous experience, from discussions with management, from external quality reviews (if performed), and from professional internal auditing standards (such as those developed by The Institute of Internal Auditors).
Choice "A" is incorrect. Tests of control activities that could detect errors and fraud would not help the CPA assess the objectivity of the internal auditor.
Choice "B" is incorrect. The materiality of the accounts recently inspected by the internal auditors would not help the CPA assess the objectivity of the internal auditor.
Choice "D" is incorrect. Results of the tests of transactions recently performed by the internal auditor would aid the auditor in evaluating the internal auditor's competence rather than his or her objectivity."
As part of communicating the overall strategy for an audit of an issuer's internal control over financial reporting, an auditor should communicate which of the following matters to the audit committee?
A.
The extent of interim testing to be performed
B.
The accounts that will be tested exclusively by substantive tests
C.
The effect of specific internal controls on the financial statements
D.
The extent to which the auditor plans to use the work of company personnel,"Choice "D" is correct. Communicating the overall audit strategy is done in the engagement letter. This written agreement reduces the risk that either the auditor or the client may be unclear on the needs or expectations of the other party. If an auditor plans to use the work of company personnel, it is helpful to include a reference to these plans in the letter so that the client is aware and can plan.
Choice "A" is incorrect. The auditor does not communicate the extent of interim or year-end testing to be performed to management or those charged with governance. This topic is more detailed than is required or expected in communication with the audit committee.
Choice "B" is incorrect. The auditor does not communicate to the audit committee the accounts that will be tested or how the accounts will be tested. This topic is more detailed than is required or expected in communication with the audit committee.
Choice "C" is incorrect. The auditor does not communicate how specific internal controls effect the financial statements during the communication of overall audit strategy. This topic is more detailed than is required or expected in the engagement letter."
Which of the following is not true about the report release date?
A.
It is defined as the date after which existing documentation must not be deleted, and additions to the documentation file must be documented as such.
B.
It is often the date on which the report is delivered to the client.
C.
It is used to define the beginning of the retention period.
D.
It is the date on which the auditor grants the client permission to use the report.,"Choice "A" is correct. 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.
Choice "B" is incorrect. The report release date is often the date on which the report is delivered to the client.
Choice "C" is incorrect. The report release date is used to define the beginning of the retention period.
Choice "D" is incorrect. The report release date is the date on which the auditor grants the client permission to use the report."
A company has established and communicated baseline expectations for performance to all employees. The company's action demonstrates a focus on which of the following components of the COSO Internal Control framework?
A.
Monitoring activities
B.
Information and communication
C.
Control activities
D.
Control environment,"Choice "D" is correct. The control environment component of the Internal Control framework represents the processes, structures, and standards that provide the foundation for the establishment of an entity's internal control system. Baseline expectations for employee performance are included in the accountability principle within the control environment.
Choice "A" is incorrect. Monitoring activities involve assessing internal control performance in a timely manner and taking corrective actions if necessary. Baseline performance expectations would not be included in the monitoring component of the framework.
Choice "B" is incorrect. The information and communication component of the framework involves the identification, capture, and exchange of information. Baseline performance expectations would not be included in the monitoring component of the framework.
Choice "C" is incorrect. Control activities are established by an entity's policies and procedures and would not include performance expectations."
Which of the following controls is least likely to be relevant to a financial statement audit?
A.
Use of computer passwords to limit access to data files.
B.
Procedures that prevent the excess use of materials in production.
C.
Generation of production statistics used to evaluate variances.
D.
Policies that relate to compliance with income tax regulations.,"Choice "B" is correct. Procedures to reduce inefficiency on the production line relate to operational objectives, and not necessarily to financial reporting objectives.
Choice "A" is incorrect. Use of computer passwords to limit access to data files would be important to the reliability of financial reporting.
Choice "C" is incorrect. The generation of production statistics used to evaluate variances would be important to the reliability of financial reporting.
Choice "D" is incorrect. Policies related to compliance with income tax regulations would be important to the reliability of financial reporting. "
During the end of a client audit, one member of the audit engagement team does not agree with the conclusion reached by the remaining audit team members on a key client accounting issue. Under this scenario, the dissenting auditor may take any of the following actions, except for:
A.
Consulting with the engagement partner on the matter.
B.
Accepting the engagement team’s conclusion despite reservation after orally discussing the concern with the audit supervisor.
C.
Disassociating from the audit conclusion in the event there is not an adequate resolution to the dispute.
D.
Requesting that his or her dissenting opinion be documented.,"Choice "B" is correct. When there is a disagreement on an accounting or auditing issue at the end of the audit, the dissenting auditor should first consult with the engagement partner on this matter. If an adequate resolution is not obtained, the dissenting auditor should be allowed to disassociate from the resolution. The dissenting auditor should document their dissociation from the final accounting issue resolution. To accept the audit engagement team’s conclusion despite continued reservation on this accounting issue after an oral discussion with the audit supervisor is not an acceptable course of action.
Choice "A" is incorrect. This is the initial step that the dissenting auditor should take to attempt to resolve the accounting issue difference with the engagement team.
Choice "C" is incorrect. If an acceptable resolution is not obtained, the dissenting auditor should disassociate from the engagement’s team conclusion, which includes documenting the basis for the disassociation.
Choice "D" is incorrect. Documenting the dissenting auditor’s disagreement is an acceptable course of action under the above scenario."
Which of the following statements regarding the risk of material misstatement is correct?
A.
The risk of material misstatement includes the auditor’s assessment of inherent risk as well as control risk.
B.
Only factual misstatements should be considered when making the assessment of risk and the determination of any adjustments that may need to be made.
C.
Detection risk is the risk that a material misstatement will not be detected by the entity’s controls.
D.
The risk that a material misstatement may occur due to complex calculations, faulty estimates, or high volume transactions is known as control risk.,"Choice "A" is correct. Inherent and control risk are both components of the risk of material misstatement.
Choice "B" is incorrect. Factual, judgmental, and projected misstatements should be considered when assessing risk and determining what adjustments to make.
Choice "C" is incorrect. The risk described in this statement is control risk.
Choice "D" is incorrect. The risk described in this statement is inherent risk."
Which of the following is true?
A.
If the assessed level of fraud risk is high, the auditor should attempt to reduce detection risk.
B.
Audit risk and fraud risk are synonymous terms.
C.
Fraud risk is comprised of the risk of material misstatement and detection risk.
D.
If fraud risk is assessed at a minimum level, audit risk will also be minimal.,"Choice "A" is correct. As part of planning, the auditor should assess overall fraud risk, and design audit procedures in light of this assessment. The auditor should also respond to specifically identified fraud risks by altering the nature, timing, or extent of audit procedures. If the assessed level of fraud risk is high, audit procedures would be appropriately designed to minimize detection risk. This helps ensure that the auditor will obtain reasonable assurance about whether the financial statements are free of material misstatement caused by fraud.
Choice "B" is incorrect. Audit risk and fraud risk are not synonymous terms. Audit risk is the risk that the auditor may unknowingly fail to modify appropriately the opinion on financial statements that are materially misstated. Fraud risk is the risk that misstatements will arise from fraudulent financial reporting or misappropriation of assets. For example, insufficient audit work may give rise to audit risk, but would not affect fraud risk, which exists independently of the audit.
Choice "C" is incorrect. Audit risk (not fraud risk) is comprised of the risk of material misstatement and detection risk.
Choice "D" is incorrect. Fraud risk contributes to overall audit risk, but it is not the only factor affecting audit risk. For example, if the auditor is unable to perform certain audit procedures, audit risk may increase (through an increase in detection risk), while fraud risk would be unaffected. The occurrence of unintentional errors (perhaps due to a weakness in internal control) might also increase audit risk while not affecting fraud risk."
An auditor is evaluating a client's controls. Which of the following situations would be the most difficult control issue for an auditor to detect?
A.
The technology department writes a program that does not properly implement the control, due to a lack of understanding.
B.
Someone erroneously disables edit checks in a software program designed to identify control exceptions.
C.
The accounting staff neglects the control, due to increased transactions to be processed.
D.
Two employees, who work in different departments, are circumventing a control.,"Choice "D" is correct. Collusion among two employees, who work in different departments, would be the most difficult internal control issue to detect.
Choice "A" is incorrect. An auditor would be able to detect a control that is not properly implemented when testing the design effectiveness of controls.
Choice "B" is incorrect. An auditor would be able to detect if a software program failed to identify control exceptions when testing the operating effectiveness of the control.
Choice "C" is incorrect. An auditor would be able to detect whether an accounting staff member neglects the control when testing the operating effectiveness of the control."
A successor auditor ordinarily should request to review the predecessor's audit documentation relating to:
Contingencies
Internal control
A.
Yes
No
B.
No
No
C.
No
Yes
D.
Yes
Yes,"Choice "D" is correct. A review of the predecessor's audit documentation related to matters of continuing accounting and auditing significance would be permitted. This would include documentation concerning contingencies and internal controls.
Choice "A" is incorrect. It is appropriate for the successor auditor to review the predecessor's audit documentation relating to internal controls.
Choice "B" is incorrect. It is appropriate for the successor auditor to review the predecessor's audit documentation relating to internal controls and contingencies.
Choice "C" is incorrect. It is appropriate for the successor auditor to review the predecessor's audit documentation relating to contingencies as they may have an impact on the current year financial statements."
In assessing the need for a stronger system of internal controls, management will most likely use the Internal Control—Integrated Framework to do all of the following, except:
A.
Define rules that must be followed throughout the organization.
B.
Apply controls throughout all levels of the organization.
C.
Identify and analyze risks and risk mitigation strategies.
D.
Eliminate inefficient and ineffective controls.,"Choice “A” is correct. The Integrated Framework is built on a principles-based (rather than rules-based) approach, which allows management to use judgment and flexibility in applying internal controls.
Choice “B” is incorrect. Internal controls are ideally applied throughout all levels of the organization.
Choice “C” is incorrect. The Integrated Framework can be used to identify/analyze risk and to establish risk mitigation strategies.
Choice “D” is incorrect. The Integrated Framework is often used to eliminate inefficient and ineffective controls."
Which of the following is an effective electronic access control for an on-line-real-time hotel reservation computer system?
I.
Restricted access to the hotel's front desk area.
II.
The existence of a hot site to be used in the event of disaster recovery being required.
III.
A system of passwords to allow access to the system (passwords are changed on a regular basis).
IV.
A firewall that prevents unauthorized access to the network.
A.
II and III only.
B.
III and IV only.
C.
II, III, and IV only.
D.
I and III only.,"Choice "B" is correct. Passwords and firewalls are both examples of electronic access controls.
Choices "C", "A", "D" are incorrect:
The correct answer should exclude I. Restricted access to the hotel's front desk is a physical access control.
The correct answer should exclude II. A hot site is a part of the disaster recovery plan; it is not an electronic access control.
The correct answer should include III. Passwords are electronic access controls that authenticate user access to a system, its applications and data.
The correct answer should include IV. A firewall is an electronic access control that prevents unauthorized access to a system, its applications and data."
Management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when:
A.
External policies established by parties outside the entity affect its accounting practices.
B.
Management is dominated by one individual who is also a shareholder.
C.
Internal auditors have direct access to the board of directors and the entity's management.
D.
Those charged with governance are active in overseeing the entity's financial reporting policies.,"Choice "B" is correct. When management is dominated by one individual who is also a shareholder, there may be an opportunity for management to override control procedures.
Choice "A" is incorrect. Influence of external parties serves an oversight role that strengthens the control environment and minimizes the effect of management's attitude.
Choice "C" is incorrect. Existence of internal auditors with direct access to the board of directors strengthens the control environment and lessens the effect of management's attitude.
Choice "D" is incorrect. Active participation of those charged with governance serves an oversight role that strengthens the control environment and lessens the effect of management's attitude."
Before applying principal substantive tests to an entity's accounts receivable at an interim date, an auditor should:
A.
Consider the likelihood of assessing the risk of incorrect rejection too low.
B.
Project sampling risk at the maximum for tests covering the remaining period.
C.
Ascertain that accounts receivable are immaterial to the financial statements.
D.
Assess the difficulty in controlling the incremental audit risk.,"Choice "D" is correct. When audit procedures are performed before year-end, the auditor must assess the incremental risk involved and determine whether sufficient alternative procedures exist to extend the interim conclusions to year-end.
Choice "A" is incorrect. The risk of incorrect rejection relates to the efficiency of audit testing, since an item that is initially (and erroneously) rejected will be subject to additional audit testing that should correct the error. The likelihood of assessing this risk lower than it should be does not affect the auditor's decision regarding the appropriate timing of audit work.
Choice "B" is incorrect. When audit procedures are performed before year-end, the auditor must assess the incremental risk involved, but this risk would not necessarily be assessed at the maximum level.
Choice "C" is incorrect. Interim testing may be performed on material accounts, as long as the auditor assesses the incremental risk involved and determines whether sufficient alternative procedures exist to extend the interim conclusions to year-end. Immaterial accounts would not need to be tested."
Which of the following would not be a primary function of an audit strategy?
A.
Provide a preliminary assessment of materiality and tolerable misstatement.
B.
Outline reporting objectives.
C.
Provide the scope of the audit.
D.
Outline the nature, extent and timing of audit procedures.,"Choice "D" is correct. Although the audit strategy and audit plan are linked together, the audit plan (not the audit strategy) outlines the nature, extent, and timing of the audit procedures that will be performed by the auditors on an engagement.
Choice "A" is incorrect. The audit strategy would include a preliminary assessment of materiality and tolerable misstatement for the current audit.
Choice "B" is incorrect. The audit strategy would outline reporting objectives.
Choice "C" is incorrect. Providing for the scope of the audit is a primary function of the overall audit strategy."