Auditing Principles & Procedures 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 Principles & Procedures flashcards as text
Under the AICPA standards, what is the primary purpose of an engagement quality review?
Answer: To provide an objective evaluation of significant judgments made by the engagement team
An engagement quality review provides an objective evaluation of the significant judgments and conclusions reached by the engagement team before the report is issued.
Which type of audit opinion is issued when financial statements are fairly presented except for a specific material matter?
Answer: Qualified opinion
A qualified opinion uses 'except for' language to indicate the financial statements are fairly presented except for the specified matter.
The risk that an auditor's procedures will not detect a material misstatement that exists is called:
Answer: Detection risk
Detection risk is the risk that audit procedures will fail to detect a material misstatement that actually exists in the financial statements.
When assessing going concern, which condition would most likely raise substantial doubt about an entity's ability to continue as a going concern?
Answer: Recurring operating losses and negative cash flows from operations
Recurring operating losses combined with negative operating cash flows are classic indicators of going concern doubt as they suggest the business cannot sustain itself.
In a test of controls, the auditor finds that 3 out of 60 sampled items deviate from the prescribed control. The tolerable deviation rate is 5%. The auditor should:
Answer: Assess whether the actual deviation rate exceeds the tolerable rate
The auditor must evaluate the sample deviation rate (5%) against the tolerable rate and consider whether the control can be relied upon.
Which assertion is most directly tested by confirming accounts receivable with customers?
Answer: Existence
Confirming receivables with customers primarily tests existence — verifying that the recorded receivables actually exist at the balance sheet date.
Under ISA 600, when auditing group financial statements, the group auditor's responsibilities include:
Answer: Understanding the work of component auditors and evaluating its sufficiency
ISA 600 requires the group auditor to understand, evaluate, and take responsibility for the work performed by component auditors on significant components.