Auditing & Assurance Services Flashcards
7 cards from real CA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Auditing & Assurance Services flashcards as text
Which type of audit opinion is issued when the auditor concludes that financial statements are presented fairly but with a matter the auditor wishes to draw attention to without modifying the opinion?
Answer: Unmodified opinion with emphasis-of-matter paragraph
An unmodified opinion with an emphasis-of-matter paragraph is used when the auditor wants to highlight a matter without modifying the overall opinion.
Under PCAOB standards, what is the auditor's responsibility regarding a company's internal control over financial reporting for public companies?
Answer: Express an opinion on internal controls as part of the integrated audit
PCAOB AS 2201 requires auditors of public companies to perform an integrated audit expressing an opinion on both financial statements and ICFR.
What distinguishes a 'significant deficiency' from a 'material weakness' in internal controls?
Answer: A material weakness has a reasonable possibility of material misstatement; a significant deficiency is less severe but warrants attention
A material weakness indicates a reasonable possibility of material misstatement in financial statements, while a significant deficiency is less severe but still important enough to communicate to those charged with governance.
Which analytical procedure would be most useful for detecting an overstatement of accounts receivable?
Answer: Calculating the days sales outstanding ratio and comparing to prior periods
Days sales outstanding (DSO) measures how long it takes to collect receivables; an unusual increase could signal overstated or fictitious receivables.
An auditor discovers that the client's CFO has both authorization authority and custody of cash. This represents which type of internal control deficiency?
Answer: Inadequate segregation of duties
Combining authorization and custody functions in one person violates segregation of duties, creating an opportunity for misappropriation without detection.
Under SAS No. 99 (AU-C 240), which of the following best describes the auditor's responsibility for detecting fraud?
Answer: Reasonable assurance that material misstatements due to fraud are detected
Auditors are required to obtain reasonable assurance that material misstatements—whether from error or fraud—are detected, but not absolute assurance.
What is the primary purpose of a 'letter of inquiry' sent to a client's legal counsel during an audit?
Answer: To obtain information about pending litigation, claims, and assessments
A legal letter (letter of inquiry) asks the client's attorneys to corroborate management's assertions about pending or threatened litigation and unasserted claims.