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 of the following best describes the concept of 'performance materiality'?
Answer: An amount set below overall materiality to reduce the risk that aggregate uncorrected misstatements exceed materiality
Performance materiality is set lower than overall materiality to provide a buffer so that the accumulation of individually immaterial misstatements does not exceed overall materiality.
What is the purpose of the 'engagement quality control review' (EQCR) in an audit?
Answer: To provide an objective evaluation of significant judgments made by the engagement team before the report is issued
An EQCR is performed by a qualified reviewer not part of the engagement team to provide an independent check on significant judgments, enhancing audit quality.
Under AU-C 560, what is the auditor's responsibility regarding 'subsequent events' discovered after the audit report date but before the financial statements are issued?
Answer: The auditor must perform additional procedures and, if necessary, require financial statement adjustment or disclosure
Events discovered between the audit report date and issuance of financial statements require the auditor to assess whether the financial statements need revision and to perform additional procedures.
Which assertion is most relevant when the auditor is testing whether all liabilities that should be recorded are included in the financial statements?
Answer: Completeness
The completeness assertion addresses whether all transactions and balances that should be recorded are included, making it critical for liability testing.
A public accounting firm audits a client and also provides internal audit outsourcing services to that same client. Which independence threat does this create?
Answer: Self-review threat
Providing internal audit services and then relying on internal audit work during the external audit creates a self-review threat because the external auditors may evaluate their own work.
Which of the following is an example of a 'substantive analytical procedure' used to test the reasonableness of payroll expense?
Answer: Multiplying average headcount by average salary and comparing to recorded payroll
Developing an independent expectation of payroll by multiplying headcount by average salary and comparing it to the recorded amount is a substantive analytical procedure.
What is the key distinction between 'positive confirmation' and 'negative confirmation' of accounts receivable?
Answer: Positive confirmations request a response whether or not the balance is correct; negative confirmations request a response only if the balance is incorrect
Positive confirmations require a reply in all cases providing stronger evidence, while negative confirmations assume agreement if no response is received, providing weaker evidence.