Auditing Principles & Procedures 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 Principles & Procedures flashcards as text
Which engagement letter provision is considered most critical for defining the auditor-client relationship?
Answer: The scope of services and responsibilities of each party
The engagement letter must clearly define the scope of the audit and the responsibilities of both the auditor and management to avoid misunderstandings.
A walk-through test is primarily performed to:
Answer: Confirm the auditor's understanding of the flow of transactions and related controls
Walk-through tests follow a transaction from origination through processing to confirm the auditor's documented understanding of transaction flows and controls.
If control risk is assessed as low, the auditor should:
Answer: Reduce the extent of substantive tests
When controls are deemed effective (low control risk), the auditor can reduce substantive testing because fewer misstatements are expected to pass through controls.
Which of the following best describes 'professional skepticism' in an audit?
Answer: Maintaining a questioning mind and critically assessing audit evidence
Professional skepticism requires auditors to maintain a questioning mind and critically assess evidence without assuming either honesty or dishonesty.
An auditor selects 50 invoices for testing and finds 3 errors. Using attributes sampling, what does the auditor compute?
Answer: The sample deviation rate
In attributes sampling, the auditor calculates the sample deviation rate (errors found / sample size) to evaluate the rate of control deviations.
Which assertion is most relevant when testing accounts receivable for overstatement?
Answer: Existence
The existence assertion addresses whether recorded assets actually exist, making it the primary concern when testing for overstatement of receivables.
The term 'management's specialist' in an audit context refers to:
Answer: An expert engaged by management to assist in preparing financial information
A management's specialist is an individual or organization with expertise in a field other than accounting engaged by management to help prepare financial statement information.