Auditing & Assurance Services Flashcards
7 cards from real CPA 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 procedure provides the highest level of assurance about the existence of accounts receivable?
Answer: Sending positive confirmation requests to customers
Positive confirmations require the recipient to respond whether or not they agree, providing direct external evidence about existence.
What is the auditor's responsibility regarding fraud under AU-C 240?
Answer: Obtain reasonable assurance that financial statements are free of material misstatement due to fraud or error
AU-C 240 requires auditors to obtain reasonable assurance that financial statements are free from material misstatement due to fraud or error, not to guarantee detection.
Which element of the fraud triangle refers to the perpetrator's ability to rationalize the fraudulent act?
Answer: Rationalization
Rationalization is the third element of the fraud triangle, where the perpetrator justifies the fraudulent behavior to themselves.
An auditor is evaluating going concern issues. 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 cash flows from operations are classic indicators that raise substantial doubt about going concern.
What type of assurance engagement provides a conclusion in the form 'nothing has come to our attention' (negative assurance)?
Answer: Review engagement
A review engagement results in negative (limited) assurance, expressed as nothing coming to the accountant's attention indicating material modifications are needed.
Which internal control activity involves assigning different employees to authorize transactions, record them, and maintain custody of assets?
Answer: Segregation of duties
Segregation of duties separates the functions of authorization, recordkeeping, and asset custody to reduce the risk of undetected errors or fraud.
Under the COSO framework, which component addresses the entity's values, ethical standards, and the tone set by management?
Answer: Control environment
The control environment is the foundation of internal control under COSO, encompassing the entity's ethical values and management's tone at the top.