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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

  1. Which assertion is primarily tested when an auditor verifies that all recorded liabilities represent valid obligations of the entity?

    Answer: Existence/occurrence

    The existence/occurrence assertion for liabilities confirms that recorded obligations actually exist and represent real debts of the entity.

  2. What is the auditor's primary concern when a client has a related-party transaction?

    Answer: Whether the transaction was conducted at arm's length and properly disclosed

    Auditors focus on whether related-party transactions were conducted at arm's length and are adequately disclosed in the financial statements per ASC 850.

  3. An auditor uses substantive analytical procedures and expects revenue to be $5 million but the recorded amount is $5.8 million. The difference exceeds the threshold for investigation. What should the auditor do?

    Answer: Obtain corroborating evidence to explain the difference

    When an unexplained difference exceeds the threshold, the auditor must perform additional procedures to obtain corroborating evidence explaining the variance.

  4. Which standard governs the audit of internal control over financial reporting for large accelerated filers?

    Answer: PCAOB AS 2201

    PCAOB Auditing Standard AS 2201 establishes requirements for audits of internal control over financial reporting integrated with audits of financial statements for public companies.

  5. Which of the following best describes 'audit risk'?

    Answer: The risk that the auditor may unknowingly fail to modify an opinion on materially misstated financial statements

    Audit risk is the risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated.

  6. An auditor observes inventory count procedures but does not test the inventory count sheets. Which assertion is least supported?

    Answer: Completeness

    Without testing the count sheets, the auditor cannot confirm that all inventory items were captured, leaving the completeness assertion unsupported.

  7. Which documentation standard requires that audit documentation be sufficient for an experienced auditor with no prior engagement connection to understand the work performed?

    Answer: AU-C 230

    AU-C 230 (Audit Documentation) requires documentation sufficient for an experienced auditor, having no previous connection to the engagement, to understand the nature, timing, and extent of audit procedures.