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 of the following situations would require an auditor to add an emphasis-of-matter paragraph to an otherwise unmodified report?
Answer: Adoption of a new accounting principle with a material effect
An emphasis-of-matter paragraph is required when there is a material change in accounting principle to draw readers' attention to the change and its effect.
Under the COSO framework, which component of internal control addresses the entity's integrity and ethical values?
Answer: Control environment
The control environment is the foundation of the COSO framework and includes the entity's tone at the top, integrity, ethical values, and management's commitment to competence.
An auditor determines that a client's financial statements contain a pervasive material misstatement. The appropriate report is:
Answer: Adverse opinion
When misstatements are both material and pervasive, the auditor must issue an adverse opinion stating the financial statements are not fairly presented.
Which of the following is NOT a component of the fraud triangle?
Answer: Concealment
The fraud triangle consists of three elements: pressure/incentive, opportunity, and rationalization — concealment is a method of executing fraud, not a fraud triangle component.
In a review engagement, the primary procedure used by the accountant is:
Answer: Inquiry and analytical procedures
A review engagement (SSARS) is based primarily on inquiry of management and analytical procedures, providing limited assurance rather than reasonable assurance.
Which of the following best describes the purpose of a Type 2 SOC 1 report?
Answer: Reports on the design and operating effectiveness of controls at a service organization over a specified period
A Type 2 SOC 1 report covers both the design suitability and operating effectiveness of controls over a review period (typically 6–12 months), unlike Type 1 which covers only design.
When evaluating whether an identified misstatement is material, the auditor considers:
Answer: Both quantitative magnitude and qualitative factors
Materiality evaluation requires considering both quantitative factors (dollar amount) and qualitative factors (e.g., masking a trend, regulatory violations, management intent).