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Auditing Standards 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 Standards flashcards as text

  1. Which standard requires the auditor to obtain written representations from management at the conclusion of the audit?

    Answer: AU-C 580

    AU-C 580 requires the auditor to obtain a management representation letter confirming certain matters disclosed or not disclosed in the financial statements.

  2. When the auditor concludes that a material weakness exists in ICFR for a public company, which type of opinion must be issued on internal control?

    Answer: Adverse opinion

    Under AS 2201, a material weakness requires the auditor to issue an adverse opinion on the effectiveness of ICFR.

  3. Which of the following best describes 'tolerable misstatement' in audit sampling?

    Answer: The maximum monetary misstatement in an account that would still allow an unmodified opinion

    Tolerable misstatement is the maximum error the auditor is willing to accept in an account balance while still concluding the balance is fairly stated.

  4. An auditor is required to perform 'dual-purpose tests' when:

    Answer: A single test simultaneously provides evidence for both control testing and substantive purposes

    Dual-purpose tests are procedures designed to test the operating effectiveness of a control and provide substantive evidence about a financial statement assertion at the same time.

  5. Which of the following situations would most likely require the auditor to add an emphasis-of-matter paragraph to an otherwise unmodified report?

    Answer: Adoption of a new accounting principle that has a material effect on the financial statements

    A material change in accounting principle requires an emphasis-of-matter paragraph to draw users' attention to the change, even when the auditor concurs.

  6. Under the Sarbanes-Oxley Act, who is responsible for appointing, compensating, and overseeing the external auditor of a public company?

    Answer: The audit committee

    SOX Section 301 requires the audit committee — composed of independent directors — to be directly responsible for the appointment, compensation, and oversight of the external auditor.

  7. Which type of evidence is generally considered most reliable under auditing standards?

    Answer: Evidence obtained from third parties externally and independently of the client

    Evidence obtained from independent external sources is generally more reliable than evidence generated internally by the client.