2013FR AUD B Simulations

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.xplaonlng to a stall auditor how aIlOlJS s~u"'ions might ..n..ct the audit oplmon For .ach of the foIto-ng K,nllIlOS. ldemlfy Ihe
appopnate reportIng optlOll by doubl,<1Ic1ung on. shaded eel and seled",!! the appopnale OptlOll from the hSI plCMde<:i Assume thai any
finanelal stalemem tIIea II malenal and that U S auditIng standards are followed.
1 The Kope of the audrtor's eu ... natron rs all'ected by conditrons

that pleclude th. appllCatron of II necessary ilUdrtrng procedure .
2 The auditor decides to m.J1te ff*.nce to the report

auditor as I baSIS . rn pall . for ."",usrng 311 opnion.
J The
~nanc lal
unqu:;lIified "",nlOll
0( another
statements .... ;ifecttd by an aIIem3liw accountrng
tffatmentthal 15 depallUfe from GAAP. The us o of GAM> WOIJId

cause the Slalements to be ""sleading
4 Th e cOmp8f'y changed li S method of accoonling fo< long-term
cOl1slNCt iOl1 COl1tracIS. but maI"'''9I'ment was jU stifie<! in maki ng the
c h!l!1ge The new method IS acceptable under GAAP. and the change
was accoonl td lor prospectrve ly
""' , " ~ "" ,, .
or C;sc laime r of opiniOl1
5 Doubt aboot th , companys abi lity to continue as a going c once rn

is fu lly disc losed in th , not es to th , fin anc ial statements
S The financ ial stSlements are s ubJlCt to an uncertainty that wi ll

likely resu~ in a mttenal lon Man"9l'mem has been unable to
est ,mtte the amount of poIent ,al lon. but has property di sdose<! the
details ofth. s~ual.on
,,
"'...... OpinIon 0< disc la,mer of opioOon
7 The company changed ~s method of ""I"'ng i,..."m<><y, but

m.Jn"9l'mem d>d not h.... appopl.at, jIlslmcat,on lor Ihe change Th.
change It plopelfy disclosed on Ih, finane ",1 slatemems
8 A pledKtSSor audt1or's unqualified opln,on lor a prior yeaf' report

011 comparal"'" financ,aI SlaI,mems OS
not plesemed.
9 Requ,red supplementary onformallOll os ommed from Ihe financ,al

Slalementa
10 The aud~or ... ,hes to ,mphnlZe the
acquued co",,*,",
=Remrnder
acqurS~1OII 0(
newly
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2013
1. Qualified opinion or disclaimer of opinion

When the scope of the auditors examination is affected by conditions that preclude the application of a
necessary auditing procedure, a qualified opinion or disclaimer of opinion would be appropriate.
2. Unqualified opinion with explanatory language
When an auditor decides to divide responsibility, his or her report will be modified to reflect this division.
When there is a necessary and justified departure from GAAP, an unqualified opinion with explanatory
language is appropriate.
4. Qualified opinion or adverse opinion
Although management was justified in making the change to an acceptable accounting principle, the
method of effecting the change was not correct. The cumulative effect of a change in accounting principle
should be recognized as an adjustment in the retained earnings statement, not accounted for prospectively.
Doubt about the companys ability to continue as a going concern results in an unqualified opinion with
explanatory language, as long as the situation is fully disclosed in the notes to the financial statements.
6. Standard unqualified opinion
Since the potential loss is probable but not estimable, the proper treatment is disclosure only.
Management has properly disclosed this situation, so a standard unqualified opinion is appropriate.
7. Qualified opinion or adverse opinion
Since management lacked appropriate justification for the change, GAAP has been violated despite the
financial statement disclosure. Departures from GAAP result in a qualified opinion or an adverse opinion.
When a predecessor auditors unqualified opinion for a prior years report on comparative financial
statements is not presented, the successor auditor would need to include certain information in the
introductory paragraph of the current years report.
When required supplementary information is omitted from the financial statements, an explanatory
paragraph is used to disclose this situation.
The auditor may emphasize a matter while still expressing an unqualified opinion.
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Becker's Final Review
Audiling B 1 . Opinions
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ChallIS. CPA. aud~e<! th, consolidate<! finano;laI slatements 01 RaIe91lnduslries and all but two 01 U subsKloanlS for the y.ars ended
Dec ..oo.r 31 . Vear 1. and Dectmber 31. Vear 2_ TyI.r IS Ihe 51"" accountant asslQIled 10 the RaI.1gh
.ngage.......,
Chall.s eKprtlsed. qualified opnlOll on tht V~,.,. 1 financial starements because RaIIeigh Clpitahz ed cena," research and developonent
eKpendrlures that s hould h.,.. been ,xpensed. but RaI~91 has conec\ed this error In Vear 2. The Vear 1 inancl.t slattments h.,.. be.n
appropriately reslated. and an unqu~lfied Opinion 15 cunently beUIQ expressed on both sets 01 financIal statements
Karl & Karla. CPAs. audoted Ih, tinanclall SUlemelllS 01 tle'IOIon . Inc_. and 01 CaprICorn ConsuRIJIg, boIh 01 'llllleh ar. consolidated
lubsldianes 01 Raietgh Chart" hn c1Klded not to 3Ssume responsilil~y fa< Ihe work 01 Karl & Karl. WIth rlSpect to th, tJ,IOIon
el'lg8gemem , but .... 11 assume responsililrty fa< the work 01 Karl & Ka1;o WIth respect 10 Ih. Capncom job
Raleigh IS currenlly beIng I,...,St'9"'ed fa< possible securities law ';oIation. ThIS IS adequately disclosed In Ih. notes 10 the con solidated
financIal slatemem s . 001 Ih. u~lI"ar. outcome of Ihu@ matt "", cannot pre senlly be deleffnmed Thetefo/ . no prO'>'lIon for any liabOlrty Ihal
may resuR has be,n recorded .
Rale ,g, 'xpen,nc.d, nel loss In Year 2 and I. CUffenlty in def""tt under ." bslanll~ ly ~ I 01 its debt agr menIS Mam.gemenfs plans In
regard 10 Ih ese matlers 8(e 8dequ llt ely disclosed. a lthough no "nanc i" statement adJUstmenl S hIM been made Th ese matters ra<se
subst ant ial doubt aboot Raltlgl1's abO llty to cootlnue as a going concern
C h3~ es re.;.~d
Ty1ets draft 01 th e ~udito<'s report and indicat e<! in his re.;ew nole s that th ere well s_ ral deficiencies in tht re port _
Based oo ly on th e r.... ew noles . se lect th ose ite ms wh ich C ha~ e s ha s correctly ide ntifie<l as defic ief">C ies in th e report by clic king th e box
bes ide th e appropri ft e o~ ioo s Se lect all that apply_
~ 1 The refer&nce to the subsidiary. Newtoo. and Ihe magn ~ ooe of

its ~"af">C ,,1 stft ements s~id be In th @scopeparagraph rat herlhan
in Ihe openIng \Introductory) paragraph_
fl
2 Th' other .ndependem avdit",s. Karl & Kalla. s hould be nafllO'd

In th' scope paragraph rllther than In Ih~ opening (introduclory)
paragraph
rI )
1M refer....:t .. the scOpt paragraph 10 "the linanc....

stat,melllS are fret 01 matenal"'55tlll.~ment should be followed by
the phrase. "wheTher caused by ,n", Of 1r,.ucL
" Th. requited referenc, In tht scope paragraph 10 ass essIng
s.gnlficant esllmates mad. by management" has been ormte<l _
~ 5 Th. referenc. In the scope paragraph to "a ..e.sing fraud nst"
IS .napproflflil. and should be omitted from th@report_
[] 6 Th. requIre<! referenc. In the .cope paragraph to "muallng the

<MIfail ~OancllJl sw.ment pres,ntatlon" has been omitte<! .
~ 1 A separate explll"atory paragraph descn bO ng the i",""stigalioo
int o poss ltoe .. ~ft lonS of sec unt les laws is requ ire<! to be pl ace<!
bet~en th e scope and Opl nioo pa ragraphs
[] e Th . refere nce in th e . xplanato-ry pa ragraph (betwee n th e scope

and opln ioo paragraph s) to th e qualified opin ioo 00 th e Year 1 fi na nc ial
stat eme nt s is not prope rty pl ac ed The Year 1 opin ioo sh ould be
f. feref">Ced in th e Opl nlOO paragraph_
~ 9 The reference On the expl anat ory paragraph does not expres s
our belIef Ihllt the disck/sures .,e adequat e This belief s h<>u1d be
specmc alf)' eKpressed In th., paragraph_
~ 10 The reference to the OIher aood",. In Ihe apinioo paragraph IS
Incompltte ~ s~1d specmc alf)' Incloo~ Ih~ ......ds "unqualifie<l
OPInIon" to deSC ribe the type 01 OPlnlOll upresse<l by Karl & Karla_
~ 11 Tht OpInlOll paragrlph should "'1.I",d Ihe auditor's oprnlOO
beyond fioancl.t posnlOll to IJICludt tht r.suh 01 Rale91's Operat lOllS
and u change" stodcholdt,, " ,lIIIy_
12 Th. referenc, 10 th, unctOalnty .. the OpInloo paragraph IS

Incomplel. ~ s~1d d.scribe tht nature of Ih. uncenalnty as
peo .. mng 10 Ih. """st'9""on Into possibl... oIl noo" of Secuntles
,-
~ t J Th Xj)ianatory paragraph follOWIng the opinion paragraph

does not Include Ih. term "substantIal doubt Thi s term is requlfed to
be used ,n Ihll paragraph under thU@Clfcumstances
14 Th. uplanalory paragra ph follOWIng th e o pinion paragraph

don oot inc lude th, term "go<ng conc ern" This term is fe qu ired to be
used in tnis paragraph under th est c irc umstance s
~ 15 The expl.nft QfY paragraph foj lowi ng th e opin ioo pa ragraph
inc ludes I n inappropriate stft eme nt th at "the c ons olidat e<! fin anc ial
stft eme "t s do not inc lude any adJU stme nts that migl1t resu lt from the
outcome ri th ls u nce ~lInty" Tn is state me nt is mi s leading and s hou ld
be Omitt e<!
[] 16 Th. lIIdit or's report. IS nol CO)ffectf)' dale<! sir>ee ~ use. <>of)'
<>0. dat e h should be d ual dat ed bec a us ~ of lh e noles refe rring 10 Ihe
i"""S'"9111011 and the 9O'ng concern ur>e~n ll nty
.. =RerrMlder
1JIrec\ICII'1S 1
III
4 PrIMOUS
2013
Next
(~13.0. 0)
1. Charles is incorrect
Reference to the subsidiary that was not audited by the principal auditor and the magnitude of its financial
statements is included in the opening paragraph.
The other auditors can only be named with their express permission and if their report is being presented
together with that of Charles, CPA.
An unqualified opinion must state that the financial statements are free of material misstatement, but does
not state "whether caused by error or fraud."
4. Charles is correct.
There should be a reference in the scope paragraph to significant estimates made by management.
5. Charles is correct
Reference to the assessment of fraud risk is not part of the standard report and should be removed.
The audit report should include a reference in the scope paragraph to evaluating the overall financial
statement presentation.
Since Raleigh has provided adequate disclosure in the notes to its financial statements, there is no need for
the auditor to make mention of the uncertainty.
The substantive reasons for the different opinion should be disclosed in a separate explanatory paragraph
preceding the opinion paragraph. (This is an exception to the rule on the position of the explanatory
paragraph.)
The auditor's belief that disclosures are adequate is implied in the audit report, and need not be specifically
stated.
The type of opinion expressed by the other auditor need not be specifically identified. Rather, the principal
auditor provides his opinion on the consolidated financial statements taken as a whole, and simply
mentions that a portion of the work was performed by "other auditors."
The opinion should include the results of operations and the cash flows for the appropriate years. The
opinion should not include changes in stockholders' equity (incorrectly suggested by Charles).
An uncertainty that is adequately disclosed in the financial statements does not require the additional
explanations suggested by Charles.
The term "substantial doubt" is required to be used in situations where substantial doubt exists.
The term "going concern" is required to be used in situations where substantial doubt exists.
Tyler's report correctly explains that the financial statements do not include any adjustments that might
result from the outcome of the going concern uncertainty.
Dual dating is not required based on going concern issues or uncertainties.
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Becker's Fina l Review
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On February 12. Ve .. 3. an audnorlSsue<l an unqtlalifie<l audit report on a c~ent's comparalrYe 'nanera! stMement. for the years ,nded
December 31 . Vur 1. and December 31 . '1,,,, 2. The finaocral slatemenls were rssued on February 28 A number of Ind, pend, nt sttu",rons
relMed to the engagement .., dtscnbed below For each sttuation ~sled. oden1r1y the audttor's rtsponsrboltty '" CoIurm A and Ih, proper elll!'C!
on the auditor', report rn CoIurm B Anume lhai Ih' client r1ec~ned to make any additron. changes to the financIal statements
,
t On February 10. Yelll J. the sudrtor disc""",,red Ihat -;t
matenal rece ..able rncluded rn the December 31 . Year 2
financIal stMIments was worthless due 10 the
dtlenorMlng financIal ConditIon of one of Ihe dienfs
cuSlomers Thl d~nt did not adjusl the financial
slatemenlS for Ihos OCCUfflncl . br.rt fully d;sdosed Ihe
matler on Ihe "Olts 10 Ihl financi" slalemenls
2 On February 23. Ye .. 3. Ihe aud ilor became aware of
informal ioo lnding him 10 I:>elieYe Ih;ot Ih e d ien!"s
i11'>'eSlment in markelatNe sec ur~ i es was materially
CM! rstate<l in th e Deceml:>e r 31. Yur 2 ba lance s heet.
-+
Selenlt ....
The mlor hH I
responsibOl~y
to I"",,,slogale
Thl mlOf has no aclOVl! responsibilily 10

"MSltg&II
The audilor hes no aclOVl! respor1s ibi lily 10
i11'>'esligate . but s hoo ld coos id" ....n . lher Ih.
fin anc ial stateme nt s or disc los ures s hoo ld be
&dJUste<l
3 On February 2. Year 3. th e audilor fin alized his

drvorci from th e CFO of the el ien!"s company_ The
drvorci was BITIICBbOe anod the audit or maint ained an
appropriatl 1..... 1 of profess>on alism . nod inodependenc e
throogllout Ihe aud~
4 On February 11. Ye .. 3. lhe .ud~or disc""",,red Ihat.
due 10 I cOmp.lier failure. ail 'ecords 'e-garding lhe
payment of inYoocts for th, week of December 8 had
bertrl loS!
,ai payments wer. mad. during
Ihrs wnk. The auditto' WilS unable 10 perform acceptable
ah,,"M'" proc.oure. and WilS unsure wIlelh .. Ih.
payments h&d bertrl properly 'ecorded
s--r........
01(
I c.oco I
--,....
5 On January 1 Ve .. 3. lhe auditor drK""",ed that for

a numbtf of .ecunt,,, held '" lhe clients ,""",slmerrt
ponfoiKr, the quoted market pnces had matrtrlaily
changed smet Decembe, 31 , Ye", 2 The chent had not
&djUsted thl financIal $Iatements for Ihls occunence,
nor h&d any disclosure 01 th"e changes been InCluded
In thl notes 10 Ihl Manclal statements
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6 On January l . Yearl . Ihelludrtor drscowred Ihal Ihe

financIal statements had been mat.nally misstated due
10 I per.-IS ... schlme IrwoMng ffaud at Ihe hrghesl
levels of management
1 On Ftbruary 2ll . '11" 3. drJnng an Inlemill qtl al~y
conl~ ""'tw. ~ was discO'<'lred Ihat Ihe audilor had no1
made iI!1y inqtlln.. or performed any ;tudillng
procldures after Flbroary 12. '11'" 3
e On Febru.ry 27. Year 3. during"" inlemal qualily
cootrol r!Mew. It was discO'<'Ired Ihal Ih e staff
IICcou nt ant on Ihe JOb neYe r a.clu ally ma iled any
receivatMes coofirmat ions . bul s imply ass umed Ihat
receivatMes were fa" ly sifted How"",. all ool slanoding
receivatMes at yea,end were Pilid wilh in 30 days . and
matell al Clsh 'ecerpcs subsequenll o ye ar ... nod were
au.dile<l anod Iraced 10 Ihe 'ecelV8bOes worksheet as Pilrt
oIlh. aOOil of Clsh
9 On February . Year 3. the aud~or disc""",,red Ihat
lhe cl~nt was the defenodant .. a producl liability
lawsun The c~em's management asnned ns
Inrrocence. and u attorney agreed wnh thIS
assessment Ho ... ,". Ihe atlorney also noted Ihat tt
would be Slgr"frcantly less COSily 10 senl, out of court
Ihan 10 proceed to Inal. and Ihe c~ent's management
was hkely 10 follow \he ar:Mc., of counseL Settlement
costs could nOl be ,easonably esllmated at Ihat lime,
but Ihey were hklly 10 be matenal The chent had not
acuued Ihr. COSI to' marlI mentron 01 thIS matt.. In tts
financIal slatements IS. drd IlOl WIsh 10 !1M' an
appearancl 01 gul~ In anyway
to On J,nuary t9. Ye .. J. the .udrtor became aware
Ihat the chent was recalling onl of ns products due 10 a
dtsrgn defect thai posed, potentIal safely hazard The
potentIal cost of Ihl recall program was matenal anod
could be estImated WIth, renonatM. degree of
precISIon Thl ctilnt had lICC",ed Ihls cosl In rts
financ ial statements
.. =Ren.rdt,
Drrl!'C!ions
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<;iiu___________________-=::::::::::::__________________
ill Pasi. :
V''''''
On February 12. V.., 3. an audoIor "sued"" un'l"alified audit ,eporl on a c~e"rs comparatNe 'nane,aI SIMeme"', for lhe
ended
Decembe, 31 , Ve31 I, and Decembe' 31 '1'31 2 Th~ finaocral slat~menls we,~ ,ssued on Febru3ry 28 A numbe, of Independe nt sttuat,ons
,elMed 10 Ih ngageme", ar, descnbed below For each sttuatoon ~sled. !d~dy the audttor', ,espons,bolttV '" CoIulM A and Ih, prope' eIIed
on Ih. aud~or'l "pori ,n CoIulM B Assume lhai Ih. di~nt dec~ned 10 make any addiI,onlll changes 10 lhe finane,,1 SIM,melllS
,
I On Febru3ry 10, '1./11 3, th, audrtor disc_red Ihat a
,eceoyabi. 'neluded ,n Ih. December 31 , Vear 2
, SlaI.me"'s was worthless due 10 the
:'Rg ~n!
condit'on of one oflh. elienfs
'S T".dre"1 did
'
th. fin""",01
I'
I fu lly d;selosed Ihe
In. nous 10 the fin anc ial slill ,me nls
,
of lecUnl'ts held '" lhe eI",nfs ","""Slmen!
market pnces had materially

sone. Decembe' 31. '1.31 2 Th. chent had nor:
Ih. flnanc'aI SIM.ments for th,s occurrenc
Ihes. changes been rncluded
;~- Ih. nor:es 10 Ih. M3IIC'aI stM.ments
"".;,.,:,;,;.;;J.be.n
Ih. audrtor disclM!red Ihal Ihe
matenJ l1y mrsstated due
I'
:at~"
sch.me 'rmMRg hud at Ihe hrghesl
~ ~
I
.,~
'
; diSC?,
'",
,d th
~
,, [~ftoo
r
ing
,d tl
~~;e;
re f,"
t
tI I
I
,
qu ality
stall'
asi~ilun;tthat
t
....
avd~or
disclM!,ed Ihat
chent was lhe defend"'" '" a ~odur;1 liability
The c~ent'. management assened tts
U MlorneV agreed WIth Ih,s
tic
Ih. Mlom.y also nor:ed Ihat n
be srgnrflcarnlv I,ss COSily 10 settle out 01 coon
10
Inal and Ih, c~,nt'$ management
('1y.10 follow lhe ar:Mc' 01 couns.1. Settlement
be re3SonJbiy 'Sllmated at Ihat lime.
mat,nal Th. chent had nor:
or mad. mentoon 01 th,s matter '" tt.
1$ tt did nor: WIsh 10 !1M' an
*' ,".
On
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On February., Year 3, lhe
m~;C" + - --+----1
"audit
'~",",:
~: 'I
..
J'nu~~.arYJOwa
.O..cy,,,,.C~C,C.C,-<:C:C,_
:::cC,C.C,,C.-
chent was recaltrng on. of ft. pmducts due 10 ~

Iha! posed , poIent'aI $afely hazard The
I, cost ofth. recalt ~ogr~m was maten31 and
be .st,mated WIth J renonabl. degru of
,
Th. C~.nl had lICCfYed !h,. cost ,n rt.
slateme"' .
Drred"",. 1 2
rn 4
4 Prewlus
2013
Nelli
(~13.0.0 J
The auditor has an active responsibility to investigate certain subsequent events between the date of the
financial statements and the date of the auditors report (12/31/Y2 through 2/12/Y3, in this case). The auditor
would also be responsible for investigating the effects of any omitted audit procedures discovered after the
submission of the audit report.
The auditor has no active responsibility to make inquiries or perform any further auditing procedures after the
date of the auditor's report (2/12/Y3), but should consider the implications of any information coming to his or
her attention.
1. The auditor has a responsibility to investigate | The unqualified opinion issued was inappropriate;
the auditor should have issued a qualified or adverse opinion
Since this discovery took place prior to the date of the auditor's report, the auditor was responsible to
investigate. Additionally, since this condition likely existed at the date of the financial statements, and
since the loss was probable and estimable, a financial statement adjustment was required. Since no
adjustment was made, a qualified or adverse opinion would have been appropriate.
2. The auditor has no active responsibility to investigate, but should consider whether the financial
statements or disclosures should be adjusted | The unqualified opinion issued was inappropriate;
The auditor had no responsibility to make inquiries or perform any further auditing procedures after February
12, but could not ignore information that came to his attention. Given the new information, a qualified or
adverse opinion would have been appropriate. (At this point, however, the client would more likely be
advised to revise the financial statements, since they have not yet been issued.)
3. The auditor has no active responsibility to investigate | The unqualified opinion issued was
inappropriate; the auditor should have issued a disclaimer of opinion
There is no need or requirement for further investigation of this relationship. As of December 31, Year 2, the
auditor was still married to the CFO. Despite the fact the auditor may have been independent in fact, this
relationship impairs independence because he was not independent in appearance. Lack of independence
results in a disclaimer of opinion.
the auditor should have issued a disclaimer of opinion
investigate. Since the auditor was unable to perform acceptable alternative procedures and was unsure
whether the payments had been properly recorded, a disclaimer of opinion would have been appropriate.
appropriate
The auditor is only required to investigate certain subsequent events between year-end and the date of the
auditor's report. Changes in the market prices of securities are not among these items. Such changes are
to be expected and would not require adjustment to or disclosure in the financial statements. The
unqualified opinion issued was therefore appropriate.
6. The auditor has a responsibility to investigate | The unqualified opinion issued was inappropriate,
because the auditor should not have been associated with these financial statements
investigate. Additionally, since this situation posed serious concerns about both the financial statements
and managements integrity, the auditor should have withdrawn from the engagement and should not have
been associated with these financial statements.
appropriate
The auditor had no responsibility to make inquiries or perform any further auditing procedures after February
12. Since no problems had come to his attention, the unqualified opinion remained the appropriate option.
8. The auditor has a responsibility to investigate | The unqualified opinion issued was appropriate
The auditor is responsible for investigating the effects of any omitted audit procedures discovered after the
submission of the audit report. In this case, it appears that other audit procedures tended to compensate for
the omitted audit procedure, so the unqualified opinion remains the appropriate option.
investigate. The incurrence of this cost was probable but not estimable, so GAAP requires footnote
disclosure. Since the company neglected to disclose the situation, a qualified or adverse opinion should
have been rendered.
10. The auditor has a responsibility to investigate | The unqualified opinion issued was appropriate
investigate. The cost was both probable and estimable, so the company properly accrued this amount.
Since GAAP was followed, an unqualified opinion remains the appropriate option.
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An audi1 repOll includes tt~ ..n bilSH; ele".,.llIs What gtndanc e is 1""Oided by AlCPA ProfeSSIonal ~andards \IIII1h respe<:t \0 lh, baSIC
elemen1. of the audilOf" pOII?
Choose a title from the list
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PCAOB
AT
AR
ET
BL
VS
=Remondoef
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1 2 J
20D
Source of answer for this question:

AU 508.08
Keywords: Standard report
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Spec ial Report s AlItl>o<i!a!Ne UNa ur.. Help

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Fort ier & Yarrow. CPAs . h""" . ud ited the fi naoci ai st ilt ements 01 {),oef1""d Syst ems foc the year eOOe<l Docember 31. Year 1 o... r1 . nd has loan
agreeme nt with Foo rth Federa l S""; ngs under wh ich it is requ ired to fu mish compl i.nce report s with respect to its JI1Iyments of interest and maintenance
of c urrent ratios Fourt h Federa l S""; ngs has reque st ed ass urance from Fort ier & Yarrow. Ila s ed 00 its aud it. th.t o... r1 . nd has compl ied with certain
C<Ne nants of this loan agreement Whic h of the loll owi ng statements are true aboot this engageme nt ? Chock all that .ropIy
Ll 1. Fort ier & Yarrow may not
pr"",de assu rance with

respect to compl iance . s ince th is was not the pu rpose of
the ~ n .nc i . 1 statement audit.
o 2. Fort ier & Yarrow mu st perform add itioo al

procedures spec i~cal ly des igned to ""aluate
compl iance . beloce issu ing a report 00 compl iaoce .
Ll 3. Fort ier & Ya rrow may pr"",de
pos itrve . ssu ra nce
reg<l rd ing compl i. nce.

[] 4. Fort ier & Yarrow may issu e a s eJl1l rate report on
compl iance
Ll 5. Fort ier & Yarrow may. within the . ud it
report o n
the ~nanc i . 1 statements . pr"",de as su rance with res pect
to compl i.nce.
o 6. II Fort ier & Yarrow h""e iss ued a qu a l i~ ed opin ioo

00
00
or =Remindef
o... rl and"s ~ nanc i al stat eme nt s . th ey may not report

compl iance with the loan <>greeme nt
Oi roctions
o;J
2 3 4
p,......oos
Next
2013 (vI3.0.0)
1. False
Fortier & Yarrow may not provide assurance with respect to compliance, since this was not the purpose of
the financial statement audit.
Fortier & Yarrow may provide negative assurance relative to loan covenants based on their audit of the
financial statements.
2. False
Fortier & Yarrow must perform additional procedures specifically designed to evaluate compliance, before
issuing a report on compliance.
financial statements. There is no requirement that additional procedures be performed; however, such
assurance should only extend to covenants that relate to matters that have been subjected to audit
procedures.
3. False
Fortier & Yarrow may provide positive assurance regarding compliance.
Fortier & Yarrow may provide negative (not positive) assurance relative to loan covenants based on their
audit of the financial statements.
4. True
Fortier & Yarrow may issue a separate report on compliance.
Fortier & Yarrow may provide negative assurance relative to loan covenants, based on their audit of the
financial statements. This assurance may be given in a separate report or within the auditor's report
accompanying the financial statements.
5. True
Fortier & Yarrow may, within the audit report on the financial statements, provide assurance with respect to
compliance.
Fortier & Yarrow may provide negative assurance relative to loan covenants, based on their audit of the
financial statements. This assurance may be given in a separate report or within the auditor's report
accompanying the financial statements.
6. False
If Fortier & Yarrow have issued a qualified opinion on Overland's financial statements, they may not report
on compliance with the loan agreement.
financial statements. While such assurance should not be given if the auditor has expressed an adverse
opinion or disclaimed an opinion on the financial statements, there is no prohibition on providing such
assurance when a qualified opinion has been expressed.
._
,.
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o hours 0 mi nut es
Int erim Fin anc ial Stat eme nts
G~"'~"~'"~!l~;iJ
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D EHIl
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________________________________________._____
Brown & Lawrence . CPA, . have !>ee n engaged to
,""ew the
~ rst
qua rte r !i nane i" stateme nts of Wide World Syst ems . " JlUbl ic company.
r---------------------------------------------------------------I . Wh id " f th e foll owi ng would Brown & Lawre nce most like ly pe rform with res pect to th e ,,,,,,, nue cyc le?
'-., Send acc ounts ' e<:"""ble confirmat ions .

.-' Troc e from sh i[lpi ng docume nts to sa les jnwKes .
~
V<>uc h mate rial s ales by agree ing to the ,e lat ed s hiJlPi ng documents .
Calc ulate acc ounts r"".""III. tum """ ,.

2.
-~
- - - ---_ ._Wh id of th e foll owi ng would Brown & Lawre nc e most like ly pe rform with res pect to th e expe nditure cyd e?
Inquire regarding "JIPI'opriat e s"9'egat ioo of dut ies wit h re sJI""t t o JlUrc hases .
R"". lc ulate acc ru ed int erest paya!>e
Inquire regarding Ove rf ands reve nu e recogn it ion JIOlicy_
.-. PerfOfm c ut off t est ing for pu rcha ses recOfded ju st before and ju st afi er year..,nd.
L _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ._ _ _ _ _ _ _ _ _ _ ._ _ _ _ _ _ ._ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ "
~
c-----
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---~~-----~-
3_ W it h re sJlOCt t o int emal c ont roL Brown & Lawrence:

Sh ould obta in a gene ral underst and ing of int ema l cont rol.
Sh ould ret est any c ont rols th at we re not ope rat ing effect ",,1y during t he an nu al audit.
Sh ould perfOfm t est s of cont rols only fOf those c ont rols on which th ey plan t o rely _
Need not obtain an unde rst anding of int emal c ont roL
c________________
___ __________________ ______________ _
~
4_ Brown & Lawrence's r"';ew reJlOrt sh ould include:

Negat "" as surance wit h resJlOCt t o the ~ nanc i a l stat ement s
Pos it "" assu ra nce wit h resJlOCt t o th e ~ nanc i a l stat ement s_
,~
't
=R emindef
An opi nion on t he fin anc ial st at eme nts _
[l;rectioos
1 III
,.
~ PH"'OOS
2013 (
1. Choice 4 is correct Calculate accounts receivable turnover

With respect to the revenue cycle, Brown & Lawrence would most likely calculate accounts receivable
turnover. A review consists primarily of inquiry and analytical procedures, and ratio calculation and analysis
is one form of analytical procedure. Confirming receivables, tracing from shipping documents to sales
invoices, and vouching sales are all audit procedures that would not likely be performed during a review.
2. Choice 1 is correct Inquire regarding appropriate segregation of duties with respect to purchases
In a review of the interim financial information of a publicly held company, the accountant should make
appropriate inquiries to understand the entity's business and its internal controls. Inquiry regarding Wide
World's revenue recognition policy does not relate to the expenditure cycle, and recalculation of accrued
interest payable and performance of cutoff testing are audit procedures that would not likely be performed
during a review.
3. Choice 1 is correct Should obtain a general understanding of internal control
The accountant needs to have a general understanding of the entity's business and internal control in order
to determine what types of material misstatements may occur, evaluate the likelihood of such
misstatements occurring, and select appropriate inquiries and analytical procedures. There is no
requirement that the accountant perform tests of controls, nor does the accountant rely on controls during a
review.
4. Choice 1 is correct Negative assurance with respect to the financial statements
The review report should include a negative assurance, such as, "We are not aware of any material
modifications that should be made to the accompanying financial statements..."
h~
~ ----------~--
~ \.
Altest Engagements AutllOOtat;'" litefaill(&
Co<
Time Elapsed
Audi ting B 2 _ Other Reports & Services
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....
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As pa rt of its """"a l plann ing process . Bingha m Systems has prepare<! !inanei" statements that reflect its best est imate offinanc ial resu lts f<>r the
coming ye ar rae ,t Est imate Financ ial Statements"). In addition , Bingham is cons idering the sa le of Hendrix ComlX"'ents , a sma ll subs idiary that has
not bee n perf<>rming up to compa ny standards _ A second set of financ ial st ate me nts has been preJl'l red. to ana lyze eXJI"<'te<l fin anc ial resu lts ~ Hendrix
is sold during the secood quarter of the yea, (r inanc ial Statements without Hendrix"). Thaye r & Cox, CPAs , have been engaged to pr""de attestation
s"o.ice . on these fina"c ial state me nts .
F<>r eoch of the fol lowing. doubled id on the shad ed ce ll a nd se lect the best opt ion from the choices prcMded.
,
,
,
,
form of En9a9""",nt
Thaye r & C ox may compi le the
Thaye r & Cox may r"';ew the
~nanc ia l
~nanc i 1li
state ments .
"Best Est imate Financ ial St atements ' on ly
state me nt .
"'F inanc ial Statements without Hendrix' on ly
Thaye r & Cox may examine the financ ia l state me nts .
Thaye r & Cox may perform agreed -u pon procedures wit h respect t o the
financ ial st atements .
form of Report
,
,
s<-I..ct Itom
Both sets
of~nanc i a l
statements
Ne ither set of fi nanc ial stat ements
Thaye r & Cox mu st include a JI'I ragra pi1 rest rict ing t he use of the report .
; Thaye r & Cox may include a paragrapi1 restrict ing the use of the report.
Thaye r & Cox mu st include a st atement ind icat ing t hat the financ ial
st atement resu lts may not be ach ieved.
8. Thaye r & Cox may include a state me nt indicat ing that the report wi ll be
updat ed for mat erial changes occurring with in a reasona ble period of t ime .
"
,. =Remindet-
, ' Ill ,
Q;rections ,
"
'~
I c.,.c, I
Pr"';oos
"'"
2013 (vI3.0.0)
Form of Engagement
1. Both sets of financial statements
Thayer & Cox may compile either set of financial statements.
2. Neither set of financial statements
A review of prospective financial statements is not allowed.
Thayer & Cox may examine either set of financial statements.
Thayer & Cox may perform agreed-upon procedures with respect to either set of financial statements.
Form of Report
5. "Financial Statements without Hendrix" only
Thayer & Cox must include a paragraph restricting the use of the report for the financial projection, which is
only appropriate for limited use.
Thayer & Cox may include a paragraph restricting the use of the report for either the financial forecast or the
financial projection, depending on the client's intended use of the financial statements. Remember that
both financial forecasts and financial projections are appropriate for limited use.
Whenever they are reporting on prospective financial statements, Thayer & Cox must include a statement
indicating that financial statement results may not be achieved.
8. Neither set of financial statements
Whenever they are reporting on prospective financial statements, Thayer & Cox must include a statement
indicating that they have no responsibility to update the report. It would therefore be inappropriate for them
to express responsibility for updating the report.
. _ .. c
,.
Help
Time El apsed
Audi ting B 2 _ Other Reports & Service s
o hours 0 mi nutes
'"
What Quid,,,,, " is prcM<le<l by AlCPA P rofes s iOf1al Stoodard. '''9",ding th e s ubJects that may be c""",e<I in a c omfort lett er?
Choose a @efrom the st
", J
AU
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PCAOB
AT
AR
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"

AU 634.22
Keyword: Comfort letter
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Auil>ofitat .... Uefatll(e He!

Copy
I "'" Paste I
Rae & joseph . CPAs. are au o; t i n ~ tne finandal statem ents of JanOs . Inc .. a nonpul>M c entill'. for t!1 . year ended Dece mbe r 31. Year 2 . Rae is tne enQaQement
supe "'; sor, and Ke lty is an auditin Q ass istant on tne enQaQement.
Jaco b, CPA, audited tne Year 1 finanda l statements of Jan is, Inc. Rae & Joseph h..e obta ine d perm iss ion from Jan is to make inqu iries of Jacob. Rae &
Joseph wi ll evaluate inf()l'm ation rece illed from jaco b. as we ll as otner inform ation. in p l ann i n ~ tne Jan is enQaQement. For earn of tne fo ll owi n ~ items. ide ntify
when it would be appropriate for cons ide ration by do u bte -c1icl:: i n ~ on a sha ded ce ll and se l ectin~ the appropriate option fro m tne list prcMded.
Se lect Item
I . The nu ml>e r of yea rs of experience that Jacob had as

Jan is. Inc .'s aud itor.
2. R"';ew of Jacob's aud it documentat ion from his Year 1

aud it
3. Recent trends occu rri11g in t he ir<iustry.
4. The abi lity of Jan is. Inc . to increase its level of

earn ings each year
engagement
;,~:~:':piooning
~::::r. accepl ing the engagement as part
Not an important cons iderat ion
5. Met hods use<! by Janis t o gather and process

account ing informat ion
6. Situat ions that occurred during the pri()l' year aud it that
might l>ear
on manage me nfs integrity .
7. The risk of material mis st atement surround ing various

financ ial state me nt assert ions .
8. Coordinat ing the ass istance of Jan is" intern al aud it

deJl'lrtment.
9. Jacob's underst and ing as t o the appropriat e opin ion on

the Year 2 financ ial state me nts
10 Commu nicat ions l>etwee n Jacob and those charged
with the governance of Jan is. Inc .
OK
., =Reminder
Q;rectioos
[j]234
Cancel
Pn"';oos
2013 (vI3.0.0)
1.
Not an important consideration

The number of years of experience that Jacob had as Janis, Inc.'s auditor is not an important consideration for
Rae & Joseph, as it has no bearing on the Year 2 audit.
2.
Consider after accepting the engagement, as part of audit planning

Review of Jacob's audit documentation from his Year 1 audit often provides information of continuing accounting
and auditing significance. Such review generally would not be performed until the engagement has been
accepted.
3.

Recent trends occurring in the industry should be considered as Rae & Joseph design audit procedures during
planning.
4.

The ability of Janis, Inc. to increase its level of earnings each year does not affect the audit. A company can be
financially stable even if earnings do not grow annually.
5.

Methods used by Janis to gather and process accounting information should be considered as Rae & Joseph
design audit procedures during planning.
6.
Consider prior to accepting the engagement

Situations that occurred during the prior year audit that might bear on management's integrity should be
considered prior to accepting the audit engagement. Rae & Joseph would not want to accept the engagement if
management lacked integrity.
7.

The risk of material misstatement surrounding various financial statement assertions would be used to
determine an appropriate level of detection risk, as part of planning the audit.
8.

As part of planning the audit engagement, Rae & Joseph would want to coordinate any assistance to be provided
by Janis' internal audit department.
9.

Jacob's understanding as to the appropriate opinion on the Year 2 financial statements is irrelevant. Rae &
Joseph would need to form their own professional opinion on the Year 2 financial statements.
10. Consider prior to accepting the engagement

Prior to accepting the engagement, Rae & Joseph should make inquiries of Jacob regarding instances of fraud,
illegal acts, and matters related to internal control which were communicated to those charged with the
governance of Janis, Inc.
, .L.~
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[]
Time Elapsed
Auditing B 3 _ P I~nning
o hours 0 mi nut es
Split Hmiz
'f
i
Split v..rtic.1
SPf. .d.h~
Caicu~ to r
'"
Ris k of Mate rial Misstate me nt Aull>ofitat"", lit",atun, HeI

Cut
l .oil Copy I i& P aste I

Duma m. CPA. is coosi<!ering a ud it risk at t he ooaocial state"'""t 1"",,1in plarWrlQ the aud it of DML Company' s financ ial state me nts for t he ye ar
ended Dece mbe r 31 , Yea r I . DML is a jlI';"ate ly -owned ent ity that controct s with outs ide compan ies to jlI'cMde foc iliti es ma nage me nt se ".;ces for
jlI'ofess ional offic es .
Bas ed 00 oo ly th e information be low. ind icate wheth er eoch of th e foll owing foctors would most like ly increase . decrease. or h...... no effect 00 th e risk
of mate rial mi sstate me nt (RMM ). For eoch of th e ite ms in th e ta bie be low, ident ify th e effect on aud it ris k by doubie-c licking 00 s hooed ce ll and
se lecting t he approjll'iate opt ion from the list jlI'cMded.
I. Th is was th e ~rst time in ""'" ye",s DM L ope rat ed at a jlI'olit

beca us e one of its current cl ients relocated its corporate
he oo qua rters to a large loc al foc ility. jlI'O"oid ing a s ign ificant increase
In reve nue
Increase in RMM
10.",,,,-.
2. The intem<li a uditor reports to th e cont",l l", and t he control l",

reports to Moms , the majority stoc kholder, who also octs as a ch ief
exec ut ;"e officer
RMM
No effect on RMM
3. The occount ing department ha s experienced a high rate of

turn """ r of key pe rsonn el
4. During Year I, DML cha nged its method of jlI'eparing its fi nanc ial
state me nts from th e cash ha s is to th e occrual ha s is , in orde r to
conform with ge nera lly occepted occounting jlI'inc ipies
5. During Year 1. DM L sold one ha lf of its cont roll ing inte rest in
Lawrence Equ ipme nt Leas ing (LELl. DM L retained a s ign ikant
interest in LEL.
6. During December Ye ar I, DM L s igned a controct to lease office

equ ipme nt fro m a company owned by Morris" s ister Th is re lated
pa rty tra nsoction is not d isclosed in DML's notes to its Ye ar 1
financ ial state me nts
7. During December Yea r 1. DM L completed a ha rte r transoct ion

OK
with D"';d's Plu mbi ng Se "';ce s DM L jlI'wded D"';d wit h a

redes igned ~(}() r pla n for his offic e. and in excha nge. D"';d repa ired
a major leak in DML's corporate offices
Cane,"
8. Inqu iries about a substantial incre ase in r""e nue recorded by

DML in the fou rth qua rt er of Yea r 1 d iscl osed a new policy In an
effort to incre ase its cl ient base , DM L bega n jlI'wd ing an
uncond itional money boc k gua r.ntee to cl ients who are not
sat isfied with the se "';ce s jlI'cMded. Clients may request th is refund
for up to three months after th e compietioo of the job.
9. An initi al pul> ic offering of DM L's stock is planned for late Year 2.
., =Remin<let-
[)j,ectioos
1 [l]
3 . ~.
PH"';OOS
Next
2013 (v13.0.0)
1. Decrease in RMM
Since DML returned to profitable operation, its healthier financial condition leads to a decrease in the risk of
material misstatement.
2. Increase in RMM
The risk of material misstatement increases when the internal auditor reports to top management rather
than to the audit committee, because it is less likely that the internal auditor will be able to objectively
perform his or her duties.
3. Increase in RMM
The risk of material misstatement increases when key management positions (particularly senior
accounting personnel) encounter turnover.
4. Increase in RMM
A change to generally accepted accounting principles will increase the risk of material misstatement
because the change in basis requires management to prepare a number of entries that have not been made
in the past. These entries may be made improperly. Also, difficulty in determining beginning accrual basis
balances may increase the risk of misstatement.
5. Increase in RMM
The sale of one half of the companys controlling interest in Lawrence Equipment Leasing is a transaction
that is outside the ordinary course of business, and accordingly, increases the risk of material
misstatement.
6. Increase in RMM
The risk of material misstatement increases when significant related party transactions occur, as the
substance of a transaction may differ somewhat from its form.
7. Increase in RMM
The risk of material misstatement increases where there are unusual and difficult accounting issues
present. The barter transaction would be considered to be an unusual transaction.
8. Increase in RMM
The risk of material misstatement increases, as it appears that management has taken an aggressive
attitude toward reporting this transaction. In addition, this appears to be an unusual and difficult accounting
issue involving revenue recognition.
9. Increase in RMM
Entities may have an incentive to intentionally misstate reported financial condition and operating results in
situations in which a public (or private) placement of securities is planned. Accordingly, an initial public
offering of stock increases the risk of material misstatement.
Time Elapsed
Audi ting B 3 _ p r~nnirtg
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SplitHoriz
T Components
,l Cut
Splltv"rticol ,
S pr~ _h...t C3icu~ to r
IAulhOOtatioe litefatu", IHelp
".
I .Q Copy I (ft. Pa ste I

Elfown . CPA. is eva luat ing the risk of material misstatement 00 an eflQagemenL For each of tne IoHowir>g. ident ity the risk component most direct ly
affected by double-c licking on a shooed ce ll in the RISi< Component column and se lect ing the appropriate opt ion from the list Jll'cMded. Then ind icate
what effect the s ituat ion descril>ed would h""" 00 th is risk by double-c licking 00 a shooed ce ll in the Effect 00 R,si< column and se lect ing the
appropriate opt ioo from the list Jll'cMded.
Risk
Component
1. The ent ity's P'Jrchas ing agent is requ ired to obta in apJII'O"Ia l
from sen i", ma nage me nt fO( purchases in excess of$2,OOO.
Select It~m
Effect on Risk
Inherent ris k
Control risk
2. A good port ion of the entity's hed asset ha se cons ists of

capita lized leasei10ld ite ms .
Detect ion risk
3. Brown ~ans to pe rfO(m extens"", tests of detai ls

surround ing the payroll !unct ioo
4. The ent ity keeps a large qua nt ity of cash on ha nd.
5. Brown ~ans to perf",m all of its test ing re lated to cash at
year-end.
6. The ent ity's computer appl ications are not Jll'otected by
pas sword controls .
7. E m~oyees report the hours worked each week without
supe"';so-ry ""ers ight
8. Brown wi ll obla in ..;de nce prima rily from external sources
in test ing the entity's rece ivables .
9. The ent ity's financ ial statements do not re quire use of
s ign ificant est imates .
OK
[ C<lOC,"
10. Brown pla ns to perform on ly limited tests of deta ils

re lated to the pu rc has ing !unct ion .
... =Reminoor
o;rectioos 1 '.
,,
2013 (vI3.0.0)
1.~
~
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...
.-.---------.
Time Elaps ed
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C3icu~ t o r
'"
Bfown . CPA. is eva luat ing the ris k of materi al mis state me nt 00 an eflQageme11t For each of the loHowinog. ide nt ify th e ris k compone nt most direct ly
affected by double-c licking 00 a sh ad ed ce ll in th e Risk Component c olumn and s elect ing th e appropriat e opt ioo from th e list Jll'cMded. Then ind icate
what effect th e s itu at ion de scril>ed wou ld h""" 00 th is risk by double-c licki ng 00 a sh aded c ell in the Effect 00 R,sk c ol umn and s elect ing th e
appropriat e opt ioo from th e list Jll'cMded.
Ri sk
Component
s" lect Item
Effect on Risk
Incre as e ri s k
I. The ent ity's p<J rc has ing age nt is requ ired to obt ain apJII'""al
from s eni", ma nagement fO( p",c ha s es in exce s s 01 $2.000
Dec,ea s e risk
2. A good port ion olth e entitys hed ass et ha s e cons ists 01

c apitaliz ed lea s ehold items .
3. Brown " ans to pe rfO(m ext ens .... tests of det" ls
su rround ing th e payroll function
4. The ent ity keeps a large qua ntity 01 ca sh on hand.
5. Brown " ans to perform all 01 its test ing re lat ed to c ash at
year-end.
6. The entity s comp<Jter ap" ications are not Jll'otected by
pa ssword cont rols .
7. Em" oyees report th e hours worked each week with o-ut
su pe",;so-ry ",e rs ight.
8. Brown wi ll obl ain ..;de nce prima ri ly from ext ern al source s
in test ing the entitys receivable s
9. The ent ity's fin anc ial stat eme nt s do not require us e of
s ign ifica nt est imates .
OK
'"
Brown "a ns to perform only limited tests 01 details

related to th e p<J rc has ing function.
,. =Remindet-
I ""'- I
,,
2013 (vI3.0.0)
1. Control risk | Decrease risk

Requiring approval for large purchases is a good control that would reduce control risk.
2. Inherent risk | Increase risk
Assertions involving complex calculations (such as lease calculations) have relatively high inherent risk.
3. Detection risk | Decrease risk
Extensive testing reduces detection risk.
4. Inherent risk | Increase risk
Cash is inherently risky as it is easily stolen and not easily identified as to owner.
Testing at year-end (as opposed to during an interim period) reduces detection risk.
6. Control risk | Increase risk
Failure to appropriately limit access to computer applications increases control risk.
7. Control risk | Increase risk
Failure to require supervisory approval of hours worked increases control risk (e.g., the risk that employees
may deliberately overstate hours worked).
Use of external evidence reduces detection risk.
9. Inherent risk | Decrease risk
Not having to rely on estimates, which often have a subjective component, reduces inherent risk.
10. Detection risk | Increase risk
Performing limited tests of details increases detection risk.
.L.~
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________________________________________________
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During the aud it. an aud itor disc"","rs the foll crMng foor s~ualions The auditor i. r e qu~ed to commoo icate any indicat ion of fra ud to appropriate pa rt ies
For each of the s e s ituati oos , identify the appropriate pa rty/part ies by double-c licking on the shaded ce ll s and se lect ing from the list pr""'ded.
I. An account ing cl erk has st olen $50 from the petty cash fund.
2. The entity does not h.... e appropriate access cootr,"s in pl ac e
to limit access to company ~nanc i al records . The aud itor be li""es
that this is a s i gn i~ can t defic iency in the des ign of the entity's
intern al controL Th is weakness 311 owe<! "" empl oyee to access
the payroll syst em and g;." ," mse~ an u"a-uthori.zed pay mcreas e.
The aud itor concludes that th is wi ll not h..... a materia l effect 00
the entity's financ ial stat eme nt .
Sen ior management

Th ose charged with gove rn ance
The s en ior partn er of Duma m's CPA firm
3. A clerk in the acC01.Jflt s payable de[l1lrtment ge nerat ed s everal

checks to pay la rge pe rs oo'" debts . Th is had a materia l effect on
the current period ~nanc i al statements .
BoIh senior manageme nt and those cha rge<!

wit h governance
4. The CEO de libe rat ely ""," rstates c urrent ye ar reven ue by

includ ing severa l key sal es that did not occur unti l the next
accounting pe riod .
Both the s en ior pa rtner of Duma m's CPA firm

and thos e charged with gove rnance
The sen ior pa rtner of Duma m's CPA fi rm.
sen ior manageme nt. and those charged with
gove rn ance
OK
., =RemiOOet-
,,
[); rections . . ;
[ eaocel
Pr.,,;oos
Next
2013 (v13.o.0)
1. An appropriate level of management, at least one level above those involved

Generally, any indication of fraud (even immaterial fraud) should be discussed with an appropriate level of
management at least one level above those involved.
2. Both senior management and those charged with governance
Although the effect of this fraud is immaterial, it represents a significant deficiency, which should be
communicated to senior management and those charged with governance.
3. Both senior management and those charged with governance
Fraud that causes a material misstatement of the financial statements should be discussed with senior
management and reported directly to those charged with governance.
4. Those charged with governance
Fraud involving senior management should be reported directly to those charged with governance.
,.
. _ .. C .
Audi ting B)
PI~nning
Help
Time Elaps ed
o hours 1 mi nut es
Rese arc h AuthOfiIatMlUefatW&
'"
~'~'ej'~L====================================================
In eva luat ing th e risk of "",terial mi sstat ement due to hud. th e auditor should con s ider c erta in att ributes of th e ris k. What gu idance is JII'""ded by
AJCPA P rofess ion <>i Standards about th e attri butes of risk?
Choose a @e from the
~C
PCAOB
AT
AR
ET
~sl.
BL
VS
d, ll

AU 316.40
Keyword: Attributes of risk
Time Elapsed
Auditing B ( _Evid e nce ami CommunicatioM
o hou r. 0 mi nutes
Ej ' O
".
,
V iclo:y is a first ye ar staff accou ntant who is unsure of the difference betwee n t est s of controls and subst ant ive test ing. For eoch of the foll owi ng t est s,
ind icate whether it is more like ly to be used as test of controls or as a su bstant ive t est by cl icking th e box in the appropriate colu"", _
r octua l sa les t o t
sa les _
Select Item
Test of controls
3_Confi rm <>ccounts receivabl e_
audit ots t est cou nt s of i
, ,
schedule_
cl ient's i
Subst ant ive t est
5_ Perform sales cutoff!est
I ,
I _
8_ Observe th e us e of time clocks and time cards .
'"
"
iIN" sl me nt in bonds _
OK
l" =Reminde r
Io; rectioo s
,-
.
..
I Car<:," I
P r.,,;oo s
Next
Tests of controls are procedures performed to evaluate the effectiveness of either the design or the operation of
a control.
Substantive tests are of tests of the details of transactions and balances, and analytical review procedures.
1. Substantive test
Comparing actual sales to forecasted sales is an analytical review procedure.
2. Test of controls
Verifying that voucher packages indicate agreement of purchase order, receiving report, and invoice allows
the auditor to determine whether the control is operating effectively.
3. Substantive test
Confirmation of accounts receivable is a test of the details of the receivables balance.
4. Substantive test
Tracing the auditors test counts of inventory into the client's inventory schedule is a test of the details of
the inventory balance.
5. Substantive test
Performing a sales cutoff test is a test of the details of sales transactions.
6. Substantive test
Examining subsequent cash collections is a means of testing the details of the receivables balance.
7. Test of controls
Inspecting checks for restrictive endorsement prior to deposit is a means of determining whether the control
is operating effectively.
8. Test of controls
Observation of the use of time clocks and time cards is a means of determining whether the control is
operating effectively.
9. Test of controls
Inquiring regarding access controls to the client's computer system is a means of determining whether the
control is operating effectively.
10. Substantive test
Recalculating interest expense for reasonableness is a test of the details of interest transactions.
11. Substantive test
Calculating interest income as a percentage of average investment in bonds is an analytical review
procedure.
Auditing B' _Evid ence ami CommunicatioM
D El O
".
Time Elapsed
o hoors 0 mi nutes
, I
As po rt of perf()l'mi ng th e aud it of a el ienf. c urrent ye ar fin anc ial stat eme nts , Roch el & Shannon , CPA. , c alcu late varioos fin ancial state me nt rat ios
For eoch of the foll owi ng rat ios , identify the int erpretat ion al th e rat io by double -d icking 00 shooed ce ll and se lect ing the .wopriate opt ion from th e
list pr"";ded.
~Item
Th e cl ient's ."' Iity to C<Ner interest charges
Ratio
Th e el ienf. Jll'ofit rate
3_ Debt to
Th e cl ient's short -t erm liqu id ity
it rat io
interest earned
The el ienf. immediat e short -t erm liqu id ity
Th e cl ient's """cess in coli ed ing outstanding

' e<: e "" bI e s
7. Total asset tu m""",
Th e el ienf. effici ency in us ing its resources

H ow qu ickly th e cl ient's inve nt Of)' is sold
during th e year
How effective ly th e cl ient make s use of its
I Cane .. I
1" =Re mindef
o;,ectioos 1
..,
PnMoos
Next
Time Elapsed
Auditing B 4 _Evid e nce ami CommunkatioM
o hoors 0 mi nutes
'"
, I
As part of perf()l'ming the audit of a cl ienfs current ye ar fin anc ial statements , Rache l & Sh ann on , CPAs , c alcu late , ari oos fin anc ial statement rat ios
F()I' each of th e foll owing rat ios , ide ntify th e interpretat ion of the rat io by double -d icking 00 shooed ce ll and se lect ing th e 'j}JII'opriate opl ion from th e
list prcM<led_
Select Item
The cl ienfs s""cess in coll ect ing o utstanding
rece ""bles
Ratio
The cl ienfs effic iency in us ing its resources

3_Debt to
it rat io
How qu ickly the cl ienfs inve nt<>ry is sold

d uri ng the year
interest earned
How effective ly th e cl ient makes use of its

assets
7_Total asset tu rn ove r
The degree of proted ion afi'()I'ded to the
cl ient's cred it()l's in case of ins ,*"" ncy
The retu rn earned by the cl ienfs sh areholders
[ Ca'lCei
'I' =Re,m,der
I Q;,ectioos
,,
Pr.",;oos
Next
1. The client's immediate short-term liquidity

(Cash equivalents + Marketable securities + Net receivables) / Current liabilities
This ratio provides an indication of Silvas immediate short-term liquidity. Inventory and prepaids are not
included.
2. The client's short-term liquidity
Current assets / Current liabilities
This ratio provides an indication of Silvas short-term liquidity.

3. The degree of protection afforded to the client's creditors in case of insolvency
Total liabilities / Common stockholders' equity
This ratio indicates the degree of protection afforded to creditors in case of insolvency.
4. The client's ability to cover interest charges
(Recurring income before interest and taxes) / Interest
This ratio reflects Silvas ability to cover interest charges.

5. The client's success in collecting outstanding receivables
Net sales / Accounts receivable (net)
This ratio indicates Silvas success in collecting outstanding receivables.

6. How quickly the client's inventory is sold during the year
Cost of goods sold / Inventory
This ratio indicates how quickly inventory is sold during the year.
7. How effectively the client makes use of its assets
Net sales / Total assets
This ratio indicates how effectively Silva makes use of its assets.
8. The client's profit rate
Net income / Net sales
This ratio indicates Silvas profit rate.

9. The client's efficiency in using its resources
Net income / Total assets
This ratio indicates Silvas efficiency in using its resources.

10. The return earned by The client's shareholders
Net income / Stockholders' equity
This ratio indicates the return earned by shareholders.
Time Elapsed
A"ditir>g B 4 _Evid e nce and CommunicatioM
o hou r. 0 mi nutes
".
, I
D"';s & Smith , CPAs , h.... " performed 3 variety of aud it t est s as part of the ir audit of Silva Inc and mu st now ",," II/ate th eir resu lts For eoch of the
foll owi ng s ituations , identity wheth er th e se lected balance (sh own in pare ntheses ) is merstated, unde rstat ed, or fai ny staled by double-d ic king on ,
s hooed ce ll and se lect ing th e .wopriate opt ion from th e list prcMded.
s<-Iect It~m
.',,""",',;",
I
;'," ;';,'"SU i>Jl! iers s hiwed goods to S ilva 00 Decembe r 2, Year 1, FOB de st inat ion ,
ba s ed
00
""""I date of December 30, Ye ar 1 The goods did not arm.. at Si"a.
Understated
the schedu led a,,",31date of Dece mbe r
Fairly stat ed
One of S i" a's customers is holding goods on coos ignment f<>r S ilva. The goods were
I r lothe customer 00 Decembe r 31 , Year 1 S i". has included th e retail . allle of these
1 fall s on a Wednesday. oot S i""
its employees
r includes all checks writt en t r
(}/1
Fri<!ays Th e
~~~--l-----------!
December 31 .
5. On Dece mber 31 , S i" a sold goods to a re lat ed JI'I rty. The goods were sold abeNe S i" a"s
I
t oot be low the norma l retail .alue
OK
" =Reminde r
Directioos
,,
Cane ..
1. Overstated
Title does not transfer until the goods have arrived at Silva's receiving dock, regardless of the scheduled
arrival date. Therefore, these goods should not be included in Year 1 inventory.
2. Fairly stated
Silva properly excluded the goods from inventory as title transferred to the buyer as soon as the goods were
shipped.
3. Overstated
Silva's sales will be overstated. Goods held on consignment (which have not yet been sold) still properly
belong to Silva. No sale has taken place.
4. Understated
Payroll expense should properly be accrued for the last three days of the year, even though no money will
be paid until January Year 2.
5. Fairly stated
Related party transactions are by definition not considered to be consummated at arm's-length, and such
transactions must be disclosed in the financial statements. However, this does not imply that there is an
error in sales.
Time Elapsed
Auditing B 4 _ Evidenc~ ami Communication.
o hou r. 0 mi nutes
'"
,
An aud itor may dec ide to make use of a spec ialist in obta ining .uffic ient apJII'opr;<lte audit ""de nee in certain c ircu mstance s t hat are material to the fair
p<e sent<lt ioo of the fi nanc ial st<lte me nts Wh at gu idance is p":Mded by AJCPA P rofess iooal Slandards regarding the types d matters that the audit",
may dec ide requ ire him Of her to cons ider us ing the work of 3 spec ialist ?
Choose a@efromthe list
AU
AU -C
PCAOB
AT
AR
ET
BL
VS
" =RelTffider
-'I
PrlMoos
llc<1

AU 336.07
Keyword: Specialist
o hours 0 mi nutes
5F>111Hori,
Time Elapsed
Auditing B 4 _ TrBnsBction Cycles
Ej !CJ
5F>111Verticol ! 5~e_h"," ~~u~tOf !
h i
,
A CPA nrm uses an audit mecklist to cons ide r potential mi sstatements and ide ntify contro ls wh im miQht prevent or detect sum errOrS . The enQaQement
SUpe M SOr has instructe d the au dit ass istant to use tn is mecl<l ist to evaluate a a ienfs internal controls. For eam of tne fo ll ow; n ~ potential errors, ide ntify a
control procedure tnat would most likely be enect",e in p r ""e nt i n ~ or detectinQtne problem by do ubie-d ickinQ on a sha ded ce ll and se l ec!in~ the appropriate
option fro m tne list prc,.,;ded Contro l procedures may be se leded once more tn"n once or not at all
S ~I..ct It~m
:',:
I . Cred it sa les are made to indMduals with

unsat isfoctory credit rat ings.
-1
2. Employee s rece "" unauthorized rate irlCreases .
3. Ve ndor irl'VOice s are paid for more goods than were
,
are requ ired for goods
warehouse
~h'::;'~~~
ma iled to all
with outstanding balances
rece ;"ed.
i ~~i J>Ping clerks compare goods receiwd from
4. Fictit ious employees are added to payroll.
warehouse with appr<>"le<! sa les orders
5. Sales invoices for goods are posted to incorrect
custome r occounts .
7. Customer checks are mi sappropriated before be ing

forwarded to the cash ier for depos it
Supe"';sors approve t ime cards
8. The receMng clerk fa ils t o count the goods rece ""d.
9. Customer checks are rece""d for less than the

custome rs" fu ll occount balances , oot the customers" fu ll
occount balances are credited.
I o;rectioos
personne l department authorizes all new

hires
.
10. Terminated employees re ma in on the payroll.
" =Re minde r
are compared with the

approved customer list
6. Goods sh ipped to customers do not agree with goods

ordered by customers .
"
,,
I ""'- I
Pr.,.,;oo s
Time Elapsed
Auditing B 4 _ T'Bn ... ction Cycle.
o hoors 0 min ut es
,
A CPA nrm uses an audit rnecki ist to cons ide r potenti al misstateme nts and ide ntify contro ls wh irn miQ ht pre.e nt or detect surn errors. Th e enQaQeme nt
supeMso< has instru cted the audit assistant to use tn is rne ci<t ist to evaluate a a ienfs intern al controls. Fo r earn 01tne l o ll ow; n ~ potential errors , ide ntify a
co ntrol procedu re lt1 at woo ld most liketJ be enect",e in p r e . e nti n~ or detectinQlt1 e problem by doubie-d ickinQ on a shaded ce ll and se l ecti n ~ the appropri ate
option tro m tne list prc,.,;ded Contro l procedu res may be se leded once, more tna n once, 0< not at all
I~~ ,r'rsonne l SUpeMSor'S password is
I . Cred it sa les are made to indMdua ls wit h
requ ired t o make rat e changes
unsati sloct o.ry c redit ratings .
:,:,;":,:",;, ;", ,';

I
2. Employees rece"" un autho<ized rate inc rea ses
ew
, s are requ ired by th e pe rsonne l
t , wh ic h Io<wards doc ument s to
3. Ve ndor irNOices are paid 10< Il)()(e goods than we re

rece;"ed.
4. Fictit ious employee s are added t o payroll.
I" , ve ndor invoice . rece Mng report . and
5. Sa les invoices 10< goods are post ed t o incorrect
purc hase o<der are matc hed belore th e

~'"""r is appr<>"<e<! 10< payment
c ust ome r occoont s.
6. Good s sh ipped t o c ust omers do not agree with goods

o<dered by cu st omers
vouc her pacbge and suwort ing

t are cance ll ed when checks are
signed
7. Cust omer checks are misawopriated belore be ing

Io<warded t o t he ca sh ier 10< depos it
8. The receMng cl erk la ils t o count t he good s rece""d
9. Cust omer checks are received 10< less t ha n th e
c ust ome rs" fu ll occount ba lances , oot th e c ust ome rs" fu ll

occoo nt ba lances are c redit ed.
I [);,ectioos
. wit hout th e
I c.". I
10 Terminat ed employee s rema in on t he payroll
?' =Reminde,
a "bl ind"
,-
D El iI O
Time Elapsed
Auditing B 4 _ TrBn'Bction Cycl e .
o hours 0 mi nut es
5~e_""," Cakou~t",
h i
,
A CPA nrm uses an audit rnecklist to consider potenti al mi sstatements and identity controls wh irn miQht pre. ent or detect surn errors. The en QaQement
supe M sor has instructed the audit assistant to use tn is rne cl<:t ist to evaluate a a ienfs intern al controls. Fo r earn 01tn e l o ll ow; n ~ potential errors, identity a
co ntrol procedu re tn at would most likety be enect",e in pr.. e ntin ~ or d e t ect i n ~ tn e problem by d o u bl e - d i c k i n ~ on a shaded ce ll and se l ec1i n ~ the appropri ate
option tro m tne list prc,.,;ded Control proce du res may be se led ed once more tn an once or not at all
Select Item
!Th"
I . Credit sales are made t o indMduals wit h

un sati sfact ory c redit rat ings.
-1
2. Empl oy ees receive un authorized rate irlC rea ses .
3. V endor i"""" es are paid for more goods than were

rece ;"ed.
"'
",'
,
vouc her pac bge and support ing

a<e c oocel led wh en chec ks are
sign ed
4. Fictit ious employ ee s are 1tdded t o Jl'lYl'olL

5. Sa les invoices for goods are post ed t o incorrect
pu rchas ing de pa rt ment sends a "bl ind"

purc hase order (e.9 .. wit hout th e
qu ant ity ) to th e receMng clerk
c ust ome r account s.
6. Good s sh ipped t o c ust ome rs do not agree with goods

orde red by c ust ome rs.
,,
7. Cust ome r chec ks are mi sappropriated before be ing
post ed t o t he account s
rece ;"able ledge r from remitt arlCe il<Mces are
with t he , alidated ban k de posit slip
forwarded t o t he ca sh ier for depos~ .
8. The receMng cl erk fa ils t o cou nt t he good s received.

9. Cust ome r chec ks are received for less t ha n th e
c ust ome rs lu ll account balarlCes . oot th e c ust ome rs" lu ll
account ba larlCes are c redit ed.
10. Terminat ed empl oy ee s rema in on the payroll.
" =Re minder
I [); rect ioos
0'
;
.
., ..
'
I """ I
Pr.,.;oo s
Next
1.
Customer orders are compared with the approved customer list

Credit approval should be received before sales are made, to ensure that customers are on an approved list.
This should reduce the risk of sales to customers with unsatisfactory credit.
2.
The personnel supervisor's password is required to make rate changes

Using password controls reduces the likelihood of unauthorized rate increases. As long as the password is not
shared, only the personnel supervisor would have the ability to make such changes.
3.
The vendor invoice, receiving report, and purchase order are matched before the voucher is approved for
payment
Matching these documents ensures that payment is only made for goods that were ordered and received.
4.
The personnel department authorizes all new hires

Requiring authorization for new hires helps prevent the addition of fictitious employees to the payroll.
5.
Monthly statements are mailed to all customers with outstanding balances

If sales invoices are posted to incorrect customer accounts, customers who are erroneously billed are likely to
make inquiries regarding these invoices.
6.
Shipping clerks compare goods received from the warehouse with approved sales orders
Requiring shipping clerks to compare both the amount and the type of goods received from the warehouse with
approved sales orders assures that goods shipped agree with goods ordered by customers.
7.
Monthly statements are mailed to all customers with outstanding balances

Checks misappropriated prior to forwarding to the cashier are not posted to customer accounts (assuming that
the remittance advices were stolen as well). A customer would likely question why his or her account hasn't been
appropriately credited.
8.
The purchasing department sends a "blind" copy of the purchase order (i.e., without the quantity) to the
receiving clerk
When the receiving clerk only receives a blind copy of the purchase order, he or she is forced to actually count the
goods received.
9.
Total amounts posted to the accounts receivable ledger from remittance advices are compared with the
validated bank deposit slip
The total receipts credited to customer accounts in the subsidiary ledger should equal the total receipts
deposited, given that daily receipts are deposited intact.
10. Exit interviews are required by the personnel department, which forwards documents to payroll
Requiring exit interviews and forwarding the related documents to payroll minimizes the risk that departing
employees will remain on the payroll.
Time El apsed
Auditing B 4 _ TrBn..,ction Cyd ...
o hours 0 mi nutes
'"
,
An enQaQe ment supe ,.,; sor has asked the au<l;t ass istant to pe~or m the fo li owi nQprocedures re lated to an enQaQement. For earn procedure listed, ide ntity
the nnanctal statement assertion b e i n ~ tested by do u b l e-d i c ld n ~ on a sha ded ce ll and se l ect i n ~ the appropriate opUon from the list prc,.,;de d.
Select Item
I . Exa mi ne cons ignment agreements

2. Exa mine check regster for the mont h foll owing ye arend for disoorse me nt s re lat ing to t he current pe;ioo.
Compieteness (account ba lances )
3. Re"; ew bond indenture agreement and ascertain that
Compiet eness (transoct ions and eve nts )
the cl ient has compl ied with any restrictive covenants .

Compieteness (pre sentat ion and disclosure )
4. Inspect major new add it ions to fumrture and fixtures

during the current period
Exist ence
5. Ascerta in that the financ ial state me nts comply with

GAAP re quire me nts surround ing the class ificat ion of
Occurrence
i""e st me nt securit ies as current or noncurrent assets .
6. Test the ag;ng of occount s rece ivable . discuss ing
Al locat ion and ""Iuat ion
long-ove rdue occounts wit h the cl ient's credit ma nager
7. Obse",e procedures , includ ing segregat ion of dut ies ,
Rights and obl igat ions
f", awo.,;ng sa les orders .
,"
Troce sh ippi ng documents t o sa les inwices .

Reper/orm check
(}1'1
Unde rstanda bi lity and class ificat ion
occurocy of , endor inwice
Jlf1C '"g
- - - - - - - ------ ----------
10 Troce beginn ing Ila lance for inve ntory to prior ye a ~s
I ""'" I
audit document at ion .
T =Reminder
o;rectioos;,
,-. ,-
Pn",;oo s
Next
1.
Rights and obligations

Kelly would examine consignment agreements to ensure that Janis has legal title or similar rights of ownership to
inventory, and that inventory excludes items owned by others.
2.
Completeness (account balances)

Kelly would examine subsequent cash disbursements to determine whether any such disbursements relate to
liabilities that should have been included in the current period financial statements.
3.
Completeness (presentation and disclosure)

GAAP requires disclosure of noncompliance with restrictive debt covenants.
4.
Existence
The auditor's direct personal observation of assets provides reliable evidence corroborating management's
assertion about the existence of those assets.
5.
Understandability and classification

GAAP requires that investment securities be classified into one of three categories, and as current or noncurrent
assets, depending on the intent of the company.
6.
Allocation and valuation

Overdue accounts should be considered for write-downs or write-offs.
7.
Occurrence
The auditor's direct personal observation regarding the approval of sales orders provides evidence that sales
really occurred.
8.
Completeness (transactions and events)

Tracing from shipping documents to sales invoices tests whether all shipments have been properly recorded in
Janis' Year 2 financial statements.
9.

Reperforming mathematical computations verifies that inventory is properly valued.
10. Allocation and valuation

Agreeing the opening balance of inventory to the prior year's (audited) ending balance provides evidence
regarding valuation of the opening balance.
Time Ela psed
Auditing B 4 _ TrBn..,ction Cycl e.
o hours 0 mi nutes
h.
, I
An audit ass istant encountered tn e f o ll owi n ~ enors
d u r i n ~ an audit. Ide ntity tne nnan"a l st. teme nt asse rtion .ne cled by earn enor by cIo ubie-d icki ng on a
s haded ce ll and se l e cti n ~ the appropri ate option from tn e list prc,.,;ded.
S<-I=! It em
Compieteness (occou nt ba lances )
I. The ass ist ant noted on a cas h confirmat ion from a ba nk

th at th ere was . n outstanding s hort -term loan at Decembe r
31 . whic h was not recorded by th e cl ient
Compieteness (trans octions and ""e nts )
2. The c unent port ion of loog--Iefm deb! was excl uded from
th e c unent li."' liti es sect ion ol th e ba lance s heet. and was
inc luded with long term lia"' lities insteoo.
Compieteness (prese ntation and disclos ure)
3. The ass istant loon<!. numlle; 01 .hipp;ng doc u'"""ts for

wh ic h th ere we re no related sa les invoic e" .
Exist ence
4. Du ri ng th e year th e cl ient pu rc hased. truck from a

private indMd ual. but legal title was not obla ined.
Occ urrence
5. Du ri ng her obs ervation ol the cl ienfs irrve ntory, th e

ass ista nt noted a lew items in the boc k ol the storeroom
th at appeared to be rath er old. UIX'" fu rth er irrve stigation ,
th e items we re deemed to be obs olete and worth less .
AJ locat ion and valuat ion
6. The ass istant se lected seve ral olde r assets from th e

cl ient's asset ledger. but was unable to locate th ose assets
lor pi1ys ical inspection . The occounting manage r indicated
th at th e assets had bee n disposed 01 during th e yea r
P roper pe ri od (c utoff)
Rights and obl igati ons
Acwracv
<><
7. The cl ient bought a "ece 01 prope rty!Ne years "90 lor

inve stme nt pu rposes . The prope rty has quooru pled in va lue
s ince th at time , so th e cl ient has writt en up th e inve stme nt
to more cl ose ly reflect its c unent ma rket va lue. The cl ient
uses U.s GAAP.
I ""'" I
8. The as s istant noted th at th e occounts receivable

s ubs idiary ledge r does not reconc ile with the control
occou nt due to a tra nspos ition enor. In posting to th e
s ubs idiary ledger. $4.293 was ina<tve rt ently posted as
$4.239.
" =Reminde r
o;rectioos
,,
Time Elapsed
Auditing 6 4 _ TrBn..,ction Cycl e .
o hours
1 mi nutes
DElITl ! D Ej IO
5F>i11
Horiz 5F>i11 Vertical :
5~e_h....t ~~"~t", I
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,
An audit ass istant encou ntered tne f o ll owin~ enors d ur i n ~ an aud;t Ide ntity the nnan"a l st. teme nt assertion ane cled by earn enor by
s h.ded ce ll and se l ecti n ~ the appropriate option fro m tne list prc,.,;ded.
double-d i cki n ~
on a
~ltem
I. The ass istant noted 00 a cash confirmat ioo from a ba nk
Completeness (pre sentation and d isclosu re)
that th ere was an outst anding short -term loan at Decembe r

31 , which was not recorded by th e cl ient
Existence
ml
2. The cu nent port ion 01 Iong--Iefm debt was excluded from

th e cu nent lial> lities sect ioo ol th e ba lance sheet. and wa s
includ ed with long term lial> liti es insteoo.
Occ une nce
3. The ass istant loond a n"mlle.- 01 sh ipping docu me-nts IOf

wh ich there we re no related sales invoic es .
Al locat ioo ood valuat ion
4. During th e ye. r the cl ient purchased a truck from a

private ind;";dual. but lega l title wa s not obta ined.
Rights and obl igat ioos
5. During her observation olthe cl ienfs irrventory, th e

ass istant noted a lew items in the boc k olthe store room
that appe ared to be rather old. Upon fu rther ifflest igation ,
th e ~ems we re deemed to be obsolete and worth less .
Proper period (c utoff)
Acc urocy
Understand al> lity and class ific at ion
6. The ass istant se lected s eve ral o lder assets fro m th e

cl ienfs asset ledger. but was un able to locate those assets
lor pi1ys ical inspect ion . The occount ing manager ind icated
th at th e assets had bee n d ispos ed of d uring t he yea r.
1-------- --- -- --~
7. The cl ient bought a piece of prope rty five ye ars "9" for
OK
[ Cane..
j l
inve st me nt pu rposes . The prope rty has quooru pled in value

s ince that time , so th e cl ient has writte n up th e inve st me nt
to more cl ose ly reflect its cunent ma rket value . The cl ient
uses U.S . GAAP.
8. The ass istant noted that the occou nts receivable
su bs id iary ledge r does not reconc ile with t he contro l
occount d ue to a t ra nspos ition eno,- In posting to th e
su bs id iary ledger. $.4.293 was inadvertent ly posted as
$.4.239.
T =Re minde r
I [);rections
,,
Pr..,;oos
1.
Completeness (account balances)

Failure to record a loan means that payables are incomplete.
2.
Understandability and classification

GAAP requires that the current portion of long-term debt be included in the current liabilities section of the balance
sheet.
3.
Completeness (transactions and events)

Shipping documents that lack corresponding sales invoices may be indicative of a situation where goods were
shipped but not billed. Sales would therefore be incomplete.
4.
Rights and obligations

If legal title for the truck was not transferred to the client, then the client does not technically have ownership rights
to that asset.
5.

Obsolete or worthless assets should be written down to net realizable value or written off, as appropriate.
6.
Existence
Assets which are included in the client's books and records, but which have actually been retired, are not
considered to "exist" for financial statement purposes as of year-end.
7.

GAAP requires that land held for investment purposes be shown at historical cost.
8.
Accuracy
The transposition error means that the amount posted to the subsidiary ledger was not recorded appropriately.
Auditing 64 _TrBn..,ction Cyd".
Time El apsed
o hoo rs
1 mi nut es
,
Wl1at \1U idance is pfCMded by Alep" Profess iona l Standards re gard;n g tne five compooents of interna l cootrol?
Choose a@efro m the ust
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AR
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BL
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" =RerrOnde r
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Time Elapsed
o homs 1 mi nutes
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,
Wl1 . t \1U idance is p",;ded by Al CPA Profess iona l Stan dards re gard; ng tn. live compooen!. of interna l contr'" ?
Choose a@efromthe list
_ __
_ _~ V S
CS
QC
PR
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" =Re minder
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p,.,.;oos
I 11l'~1

AU 314.41
Keyword: Internal control
,.
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Auditing B 5 _ S t a t i . tic~1
S~mpling
Split H<>riz
St at ist ica l Sampl ing AlIll>afiIaliw liI...-atlife
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--
He lp
Time Elapsed
o hoors 0 mi nut es
'i
i
Split V. rtoool
Spr~ od . heet
Calcu~ t or
".
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I .Q Copy I ia Past e I
In discuss ing his des ire t o make use of st at ist ic al sampl ing meth ods . a neYAy-l1 ired st aff accountant made th e foll owi ng state me nt s t o t he sen iOf on th e job_
Wh ic h of t hese state me nt s are correct ? Check all that apply
I"'J 1_ St at ist ic al sampl ing wi ll
alway s res ult in a sma ll er sample size
t han nonst at istic al sampl ing.
D2
Stat istic al sa mpl ing all ows a gre ater qua nt ificat ioo of f isk and
re liabi lity than does noost<Jt ist ic," sa mpl ing_
I"'J 3
St at ist ical sampl ing is requ ired by ge nerally accepted audit ing
standards
D 4
Stat istical sampl ing elimi nates subJectMty in ""aluat ing sa mple
resu lts
I""J 5_ St at ist ic al sa mpl ing requ ires th e us e of mat he mat ic al formu las
and/or t ables _
D6
Stat ist ical sa mpl ing shou ld not be us ed when th ere is a

sign ifica nt amount of popu lat i"" varia bi lity
or =Re miflder
,,
1. False
Statistical sampling will always result in a smaller sample size than nonstatistical sampling.
While statistical sampling methods can aid the auditor in finding the smallest sample size that achieves the
desired level of risk, there is no guarantee that statistical sampling will result in a smaller sample size than
nonstatistical sampling.
2. True
Statistical sampling allows a greater quantification of risk and reliability than does nonstatistical sampling.
With statistical sampling, auditors specify the sampling risk they are willing to accept and then calculate
the sample size that provides that degree of reliability. Nonstatistical methods use qualitative rather than
quantitative judgments of risk and reliability.
3. False
Statistical sampling is required by generally accepted auditing standards.
Either statistical or nonstatistical sampling methods are acceptable under generally accepted auditing
standards.
4. False
Statistical sampling eliminates subjectivity in evaluating sample results.
Statistical sampling does not eliminate subjectivity in evaluating sample results. For example, the auditor
must still use judgment to evaluate the appropriateness of audit evidence, determine whether a given
situation constitutes a deviation, etc.
5. True
Statistical sampling requires the use of mathematical formulas and/or tables.
Statistical sampling involves the use of mathematical formulas and/or tables to determine the sample size
that achieves an acceptable level of risk, to evaluate results, etc.
6. False
Statistical sampling should not be used when there is a significant amount of population variability.
Statistical sampling may be used when there is a significant amount of population variability, although the
auditor may choose to stratify the population in such cases. Population variability may also affect the
determination of sample size.
~--------
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~-
---- - - -
~-~
- - - -- ---------
Help
Time Elapse<J
Auditing B 5 _ S t ati . tic~ 1 Sampling
o hou rs O"" " utes

Sokltion
'( Aitri ixJt e Sampl ing AutIIofitative litefatUf&
10
Cut
~"'
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Split 'hrtOo.1
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'"
_________________________________________
I i.Q Copy Ib. Pa ste

An auditor has aJlPl ie<! stat ist ;,;.1 sampl ing method s in eva luat ing controls 8U "OU"""9 a cl ient's eXJI"nd iture cyc le Th e cl ient's
comJl'lny JIOI icy indicate s that all pure), . s e. ave< $500 require two s ignatu res . tI1at the accounts JI3Y.l>e cl erk matc h th e [lUrc h. s e
o rder. ' e<:e Mng reJlOrt . and ve ndor i"","ce before "w""ng th e i",,"ce!of Jl'lYme nt. and th at voucher Jl"Ckages be c a"celle<l uJlOO
[l3yme nL The auditot'. tole r.!>. d"';at ion rate f<>r all tests of cootrols is 5%. and his all owance f<>r sampl ing risk is 2%
The auditor s el""!s a sample cons isti ng of fifty purc has es exceed ing $500. and notes th at two purc has es h.....
only one aw"",,1 signat ure. Both purc hases occ urred duri ng t he same week. Ma nageme nt st at es th at th e
second signat ure was not obtained due to th e unexpected ill ness of t he awoJll'iat e manage r th at week. but t hat
th e purc hases we re still awoJll'iat e. Whic h of th e followi ng is t ru e?
The audit or may rely on t his controll>eca us e th e two purc hases we re apJII'oJll'iat e. and th erefore th ey shoo ld
not be cons ide red d"';atioos .
The audit or may rely on th is cont roll>eca us e th e sample d"';ati on rate is less than th e t olerable rate
The aud it Of did not s,"ect an 3woJll'iate popu lat ion fOf thi s aLXIit t est.
The audit or shoold not rely on th is control
The audit or select s a sample cons isti ng of forty aw<NOO voucher packages . and not es t hat one is mi ssing t he
ass oc iated pu rcha se orde r. The audit or may concl ude th at
The control is fu nct ioning adequate ly

The purc hase wa s unauthOfized.
The ve ndor has sent and bi ll ed for uns olic it ed good s.
ThirtY-<1 ine of t he sample pu rcha ses we re Jll'oJl" rly recorded
The audit Of select s a sample cons isti ng of one hundred paid inwic es. and note s th at twe nty of th e ass oc iated
vouc her packages are not Jll'oJl" rly cance ll ed aft er payme nt Wh ich of t he following is lea st like ly t o resu lt ?
"
"
"
"
,
The audit Of wi ll Jl"rfOfm more substa nt "e t esti ng in th is area.

The audit Of wi ll pl ac e less reliance on th is control .
The audit Of wi ll qu alify his opin ion on th e fin anci al st atement s
The audit Of wi ll communic at e th is weakne ss t o ma naqeme nt
Wh ich of th e following is tru e about th e audit ""s tolera ble rat e of d"'; atioo?
"
It is det ermi ned usi ng mat hemat ic al fOfllllJ las and ta ble s
~,
It is th e maximum errOf that can ex ist in an accoo nt ba lance

fi nanci al st at ements t o be mate ri ally mi sstat ed.
"
-,
(}I'
cl ass of tra nsact ioo s without c ausing th e
It is used in drawing concl usions about th e oJl" rat ion of int em al controls
It is compa red t o th e sample d"';at ion rat e in f(}l'ming concl usions .
I o; roctioos 1 [l]
, ,3 4
1. Choice 4 is correct (the auditor should not rely on this control)

The two purchases that lack appropriate signatures should be considered deviations, despite the fact that
the purchases may have been appropriate. In addition, the allowance for sampling risk (2%) must be added
to the sample deviation rate (4%) before comparing to the tolerable rate (5%). In this case, 4% + 2% > 5%,
so the auditor should not rely on this control. Note that the auditor has selected an appropriate population
(purchases exceeding $500) for this audit test.
2. Choice 1 is correct (the control is functioning adequately)
The sum of the sample deviation rate (one divided by forty, or 2.5%) and the allowance for sampling risk
(2%) is less than the tolerable deviation rate of 5%, so the control is deemed to be functioning adequately.
The lack of a purchase order does not necessarily mean that the purchase was unauthorized, since
authorization can occur even if the appropriate documentation is missing. Similarly, although it is possible
that the vendor sent unsolicited goods, the auditor would need to investigate further to see if this were
actually the case. Finally, although thirty-nine of the voucher packages were complete, this does not
necessarily mean that the associated purchases were properly recorded. Remember that a test of controls
provides information about the functioning of those controls, not about the proper recording of the
associated transactions.
3. Choice 3 is correct (the auditor will qualify his opinion on the financial statements)
The sample deviation rate of 20% clearly represents a control that is not functioning effectively. The auditor
would be unlikely to rely on this control, and might choose to perform additional substantive testing in this
area. In addition, the auditor would probably let management know that this control was not functioning
correctly. However, control deviations do not necessarily result in financial statement misstatements, so
this situation alone would be unlikely to result in a qualification of the audit report.
4. Choice 3 is correct (it is used in drawing conclusions about the effectiveness of controls)
The sum of the sample deviation rate and the allowance for sampling risk is compared to the tolerable
deviation rate in drawing conclusions about the operation of internal controls. Note that the tolerable
deviation rate represents the maximum rate of deviation from prescribed controls that the auditor is willing to
tolerate without modifying planned reliance on internal control. This amount is usually determined based on
auditor judgment (and not by using mathematical formulas and tables), and it is compared to the upper
deviation rate (not the sample deviation rate) in forming conclusions. Note too that the maximum error that
can exist in an account balance or class of transactions without causing the financial statements to be
materially misstated is tolerable error or tolerable misstatement, not tolerable deviation.
R E V I S I O N S TO TH E A / R P L A N
1.
Indeterminate effect on sample size

A reduction in tolerable misstatement causes an increase in sample size, whereas a reduction in expected
misstatement causes a decrease in sample size. The overall effect on sample size is therefore indeterminate.
2.
Decrease in sample size

The assessed risk of material misstatement is directly related to sample size, so a decrease in the assessed
level of risk results in a smaller sample size.
3.
Increase in sample size

Population variability is directly related to sample size, so an increase in population variability causes sample size
to increase.
4.
No effect on sample size

Changing the form of accounts receivable confirmations has no effect on sample size.
R E V I S I O N S TO TH E A / P P L A N
5.

Tolerable misstatement is inversely related to sample size, so an increase in tolerable misstatement results in a
decrease in sample size.
6.

Since both the expected misstatement and the assessed risk of material misstatement vary directly with sample
size, a decrease in these two parameters will result in a decrease in sample size.
7.
No effect on sample size

The number of items in the population has virtually no effect on sample size, unless the population is very small.
(Note: On the CPA exam, if the question doesn't clearly indicate an unusually small population, assume
population size has no effect on sample size.)
8.

Population variability is directly related to sample size, so a decrease in population variability causes sample size
to decrease.
,.
l.,

Auditing B 5 .
[] .-, . x_
- Help
S t ~ t i. t ic ~1
Sampling
Time Elapsed
o hoors 1 min utes
Split H",iz
Split 'hrtoool
Spr~ _heet
".
Calc","!or
,
An auditor has dec ided to apply stat istica l sampl i"9 technjque. to t~e aud~ of purchases . a nd has randomly se lected spec ik pu rchase orde r nu mbe rs lor
furthe r test ing. How",,";. lor some pu rchase orde r nu mbe rs s upport ing doc ume nt at ion ca nn ot be located. Whe re in the AJCPA Proless iOl1a l Standards wi ll
the auditor fi nd gu ida nce appl icable to this s itu at ion?
Choose a We from the 1St
AU
AU -C
PCAOB
AT
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BL
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Auditing B 5 .
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Time Elaps ed
Sampling
o hoors 1 mi nutes
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Split V. rt>OO1
S p r~ _1leet
,
An auditor has dec ided to apply st at istica l s ampl i"9 ted"'que. to the al.'d~ of purc hases . a nd has randomly se le<:t ed spec ik pu rchase orde r nu mbe rs !of
furthe r testing How",,";. !of some pu rchase orde r nu mbe rs s upport ing doc ume nt at ion ca nn ot be located. Wh ere in th e AlCPA Profess iona l Standa rds "'; l1
the auditor fi nd gu ida nce appl icable to this s itu at ion?
Choo se a title from the ist
BL
VS
GS
QG
PR
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PFP
GPE
"f =Re minder
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Source of answer to this question:

AU 350.25
Keywords: Unexamined items
t.~...:Z
~
--
---
---
-----------------------
[]
l !SeeKer-s rlnal Review
N'''I>
Time Elapsed
Aud iting B 6 _Government Audi ting
o hours 0 min ut es
'( Aud it Standards NlIl>otitat .... lit"'atun' Hel
i.
Cut
I ~ Copy I i& Paste I

Changes t o t he fina nc ial sUJIPOrt of Ka nine Ken nel Dog
She~ " ,.
Inc . may create add i!ioo.1requ irement s fOf Smith . Smyt he & Smat hers as t hey complet e t he ir
audiL For each of th e add iti oo.1c irc umst .",,", Of res[lOns ibi lities deseril>e<l be low. ide ntity the most like ly combination of audit lyres by dooble-d id ing on th e
s haded ce ll s and ,e l""t ing the appropriate opt ions from th e lists Jll'wde<l Ass ume eac h item is indepe nde nt of th e other items and all items are materi al
I. The auditors disc,""" th at Kanine Ke nne l Dog S helter has

<>"Ie ' $500.000 in fe<le ral fi nanc ial ass ist'rK" .
r""e~
2. The audit ors disc"""" t hat Ka nine Kenne l Dog She lt er has eXJI"nded
O"Ier $300,000 in fede ral fina nc ial ass ist"",, ".

3. The auditors are obl igated to eva luate materi ality based uJlOO major
programs
and Single A udit
4. The auditors are obligated to reJlOfl 00 intemal controj O"Ie r

compl iance ai>Jll icabie to eoc h major program.
S. The auditors must reJlOrt on the fair prese nt at ion on the fina nc ial
stateme nt s of Kanine Ke nne l Dog S helter. Inc take n as a whole.
6. The audit",s mu st expa nd the ir reJlOrt to incl ude whether fede ral
fi na nc ial as s istance has been admin istered in occorda nce with laws and
regu lat ioos .
7. Fi rm st anda rds s hould include a mandatory pee r r"';ew every th ree
years .
OK
,. =Remiooef
,,
[ Cancel
Pr"';oo s
2013 (vI3.0.0)
1. GAAS and GAGAS Audit

An entity that receives in excess of $500,000 of federal financial assistance would likely be required to have
an audit in accordance with GAGAS. If the entity spent $500,000 in federal financial assistance, it would
qualify for a single audit.
An entity that spends in excess of $300,000 of federal financial assistance would likely be required to have
an audit in accordance with GAGAS. If the entity spent $500,000 in federal financial assistance, it would
qualify for a single audit. The $300,000 threshold relates to the selection of major grants upon
determination that a single audit is required.
3. GAAS, GAGAS, and Single Audit
Evaluation of materiality for each major program is a characteristic of single audits.
4. GAAS, GAGAS, and Single Audit
Reports on compliance associated with major programs is a characteristic of single audits.
5. GAAS Audit
Reporting on fair presentation of an entity's financial statements taken as a whole is a characteristic of a
GAAS audit.
Expansion of reports to include representations regarding whether federal financial assistance has been
administered in accordance with laws and regulations is a characteristic of a GAGAS audit.
Additional peer review standards are a characteristic of a GAGAS audit. GAGAS sets peer review, CPE,
and independence standards that are in excess of GAAS audits.
. ,.
. _., e
Auditing B 6 . Govom"",m
Audi~ng
_.
Help
Time Elaps ed
o ho urs 0 mi nut es
Re s pon s ib; lities
Wh id 01 th e 101l O'M ng coned ly Kjenti/y th e eX[I"I1ded re spoo. ilW lities that a CPA "rm wi ll lace wilen auditi r.g 9"""'rnme nt " nanc ial ass istance programs
requ iri ng th e appl icat ion 01 gene rally accepte<! gove rn me nt aud it st andards? Check all th at apply
~ I . Identificat ion of appl ica ble laws and regu lat ions with compl iance
requ ire me nts .
~ 2. Obtaining abso lut e as surance that the fin anc ial stateme nts are
completely free 01 any "" sstateme nt re su~ i ng from ";o lat ion s <X laws and
regu lat ions .
~ 3. Obta ining and u nderst anding ", th e pos s ibte effects 00 the
"nanc ial statements 01 laws and regulat ion s that are genera lly
recogn iz ed to h""" a d irect and "",teri al effect on the determination of
th e "nanc ial stat ements .
~ 4. Preparation of s uppleme nt ary "nanc ial report s . includ ing a
' Sc hedu le of Expe nd itures and Fede ra l Awards '
~ 5. Commun Kating to dec is ion "",ke rs of the entity that an aud it in
conlor""ty with GAAS "",y not be s uffic ient to meet th e ent ity's aud it
requ ire me nts if the engageme nt does not addres s 9"""' rn me nt al aud it
requ ire me nts .
~ 6. Obtain s uffic ient ..;de nce to lorm an opi nion on wileth er th e ent ity
compl ied in all mate rial res pects with th e compl iance re que sts
appiKable to their programs
~ 7. Obtain suffic ient ..;de nce to lorm an opi nion on the effective ness
of int ern al controls <>'Ve r compl iance.

~ 8 P erform appropriate risk as se ss me nt relative to compl iance to
ensure that detect ion risks are inc rea s ed to meet th e inc reases in risk of
"",teri al noncompl iance to dec rea s e aud it ris k of noncompl iance.
~ 9. Obtain a writt en "", nage me nt repre s entation lett er.
~ 10 P repa re sepa rat e report s on compl iance and int ern al control """ r
compl iance and take appropriate meas ures to ensure they are neve r
c omlW ne<!.
"f =Remindet
Directions
[l]
,
3
2013
1. False
Responsibility for identification of laws and regulations with compliance requirements rests with
management. Management is then charged with designing appropriate controls to ensure compliance.
While the auditor is responsible for obtaining an understanding of laws and regulations generally recognized
to have a direct and material effect on financial statements, the auditor is primarily charged with assessing
if management has properly identified applicable laws and regulations with compliance requirements.
2. False
The auditor is charged with obtaining reasonable (not absolute) assurance that the financial statements are
free of misstatements that have a direct and material effect on the financial statements (not completely free
of any misstatements). This selection overstates the auditor's responsibilities.
3. True
The auditor's responsibilities include obtaining an understanding of the possible effects on the financial
statements of laws and regulations that are generally recognized to have a direct and material effect on the
determination of financial statement amounts.
4. False
Preparation of supplementary financial reports, like the financial statements, is the responsibility of
management, not the auditor.
5. True
Upon discovery that an entity requires the expanded auditing procedures and reporting that result from the
entity's receipt of government financial assistance, the auditor must communicate to management and the
audit committee that an audit in accordance with GAAS may not be sufficient.
6. True
The auditor must obtain sufficient evidence to form an opinion on compliance when performing an audit in
conformity with GAGAS.
7. False
The auditor will not express an opinion regarding the effectiveness of internal control over compliance.
8. False
As risk of material risk of noncompliance increases, the auditor should take measures to reduce, not
increase, detection risk.
9. True
The auditor should obtain a written management representation letter.
10. False
The report on compliance and report on internal control over compliance may be either separate or
combined.
.-
,.

Auditing B 6 . Government Auditing
H elp
Time Elapsed
o hours 0 mi nutes
Spllt H",iz
SplltV< rtc.1
Spr~_~
".
C . lcu~tor
Although th e scope and report ing requ ireme nts re lated to an . udit of a rec ipient of federal ~""nc i al ass ist.""e may vary. these audits ge nera lly have ce rt ain
eleme nts in common Wh at gu ida nce in the AlCPA Profess ional Sloodafds i<j""t ine. these common elemoots?
Choose a@efrom the
~st
ET
... =RemiOOet
Di rectioos 1
21lll
Pr.,,;,oo s
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,.
. - .Le
o hours 0 mi nutes
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Although the score and report ing requ irements re lated to an audit of a rec ipient of fede ral ~""nc i al ass istanc e may vary. the s e audits ge nera lly have ce rt ain
eleme nts in common Wh at gu idance in th e AlCPA Profes s iona l SI<>fl<ia<ds ide nti~e" the s e common elemoots?
Choose a @e from the
I
_ _ __ __
.-
,VS
CS
QC
PR
TS
~
Help
Time Elaps ed
Auditing B 6 . Government Auditing
_ _ _ _ _ _ _ :P FP
-"---'
... =Reminder
Directioo s
112 1[1]
~st
C .lc u ~ tor
".

AU 801.10
Keywords: Federal financial assistance

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Time Elapse<!

1 The Kope of the audrtor's eu ... natron rs all'ected by conditrons

2 The auditor decides to m.J1te ff*.nce to the report

statements .... ;ifecttd by an aIIem3liw accountrng

tffatmentthal 15 depallUfe from GAAP. The us o of GAM> WOIJId

""' , " ~ "" ,, .

or C;sc laime r of opiniOl1

5 Doubt aboot th , companys abi lity to continue as a going c once rn

S The financ ial stSlements are s ubJlCt to an uncertainty that wi ll

7 The company changed ~s method of ""I"'ng i,..."m<><y, but

8 A pledKtSSor audt1or's unqualified opln,on lor a prior yeaf' report

9 Requ,red supplementary onformallOll os ommed from Ihe financ,al

1. Qualified opinion or disclaimer of opinion

Becker's Final Review

R"";ew Notos hltIIonI.MM Lit ... .....

I .Q Copy I (ft P asl' I

~ 1 The refer&nce to the subsidiary. Newtoo. and Ihe magn ~ ooe of

2 Th' other .ndependem avdit",s. Karl & Kalla. s hould be nafllO'd

1M refer....:t .. the scOpt paragraph 10 "the linanc....

[] 6 Th. requIre<! referenc. In the .cope paragraph to "muallng the

[] e Th . refere nce in th e . xplanato-ry pa ragraph (betwee n th e scope

12 Th. referenc, 10 th, unctOalnty .. the OpInloo paragraph IS

~ t J Th Xj)ianatory paragraph follOWIng the opinion paragraph

14 Th. uplanalory paragra ph follOWIng th e o pinion paragraph

Becker's Fina l Review

Thl mlOf has no aclOVl! responsibilily 10

3 On February 2. Year 3. th e audilor fin alized his

5 On January 1 Ve .. 3. lhe auditor drK""",ed that for

6 On January l . Yearl . Ihelludrtor drscowred Ihal Ihe

Becker's Final Review

market pnces had materially

sch.me 'rmMRg hud at Ihe hrghesl

chent was recaltrng on. of ft. pmducts due 10 ~

elemen1. of the audilOf" pOII?

Choose a title from the list

Source of answer for this question:

Becker's Final Review

Auditing B 2 Other ReporU & Service.

Spec ial Report s AlItl>o<i!a!Ne UNa ur.. Help

Ll 1. Fort ier & Yarrow may not

pr"",de assu rance with

o 2. Fort ier & Yarrow mu st perform add itioo al

Ll 3. Fort ier & Ya rrow may pr"",de

pos itrve . ssu ra nce

reg<l rd ing compl i. nce.

Ll 5. Fort ier & Yarrow may. within the . ud it

o 6. II Fort ier & Yarrow h""e iss ued a qu a l i~ ed opin ioo

o... rl and"s ~ nanc i al stat eme nt s . th ey may not report

Becker's Final Review

Auditing B 2 _ Other Reports & Services

Brown & Lawrence . CPA, . have !>ee n engaged to

'-., Send acc ounts ' e<:"""ble confirmat ions .

Calc ulate acc ounts r"".""III. tum """ ,.

3_ W it h re sJlOCt t o int emal c ont roL Brown & Lawrence:

4_ Brown & Lawrence's r"';ew reJlOrt sh ould include:

An opi nion on t he fin anc ial st at eme nts _

1. Choice 4 is correct Calculate accounts receivable turnover

Altest Engagements AutllOOtat;'" litefaill(&

Audi ting B 2 _ Other Reports & Services

I .oil Copy I i& Paste I

"Best Est imate Financ ial St atements ' on ly

Thaye r & Cox may examine the financ ia l state me nts .

Ne ither set of fi nanc ial stat ements

Becker's Final Review