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CPA Exam – AUD |Questions with 100% Verified Answers
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CPA Exam – AUD |Questions with 100% Verified Answers
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CPA Exam – AUD |Questions with100% Verified Answers
Management's responsibilities - ✔ ✔ 1. The entity's financial statements as well
as the selection and application of accounting policies.
2. Establishing and maintaining effective internal control over financial reporting.
3. Designing and implementing programs and controls to prevent and
detect fraud
4. Identifying and ensurng compliance with applicable laws and regulations
5. Making all financial records and related information available to the auditor.
6. Providing the auditor with a letter at the conclusion of the engagement that
confirms certain representations made during the audit.
7. Adjusting the financial statements to correct material misstatements.
8. Affirming to the auditor in the representation letter that the effects of any
uncorrected misstatements aggregated by the auditor during the current
engagement and pertaining to the latest period presented are immaterial, both
individually and in the aggregate, to the financial statements taken as a whole.
Auditor Responsibilities - ✔ ✔ 1. Responsible for conducting the audit
in accordance with GAAS
2. Responsible for obtaining an understanding of the entity and it
environment, including its internal control, sufficient to assess the risks of
material misstatement of the financial statements and to design the nature,
extent, and timing of future audit procedures
3. Not required to search for significant deficiencies in internal control, however,
the auditor is resposible for ensuring that those charged with governance are
aware of any significant deficiencies that come to the auditor's attention.
,Nature of an Audit - ✔ ✔ 1. GAAS require the auditor to obtain reasonable
rather than absolute assurance about whether the financial statements are free
of material misstatement
2. An audit is not designed to detect error or fraud that is immaterial to the
financial statements
3. An audit is not designed to provide assurance on internal control or to
identify significant deficiencies in internal control.
4. If, for any reason, the auditor is unable to complete the audit or is unable to
form an opinion, the auditor may decline to express an opinion or issue a report.
Audit plan - ✔ ✔ Audit Plan
Set of audit programs that addresses the matters identified in the audit
strategy (specific audit objectives)
Audit plan should include: - ✔ ✔ 1. Risk assessment procedures
2. Further audit procedures
3. Other procedures
Audit Risk - ✔ ✔ Audit risk is the risk that an auditor may unknowingly fail
to appropriately modify the opinion on financial statements that are
materially misstated.
Risk/Materiality Relationship - ✔ ✔ There is usually an inverse
relationship between audit risk and materiality considerations at the
individual account balance level.
Audit Risk Model - ✔ ✔ AR = RMM x DR
, AR-Audit Risk
RMM-Risk of Material Misstatement
DR-Detection Risk
Audit Risk Model 2 - ✔ ✔ AR = (IR x CR) x (AP x TD)
IR - Inherent Risk
CR - Control Risk
AP - Substantive Analytical Procedures Risk
TD - Test of Details Risk
Inherent Risk - ✔ ✔ Inherent risk is the susceptibility of a relevant assertion to
a material misstatement, assuming htere are no related controls.
Control Risk - ✔ ✔ Control risk is the risk that a material misstatement that
could occur in a relevant assertion will not be prevented or detected on a
timely basis by the entity's internal controls.
Detection Risk - ✔ ✔ Detection risk is the risk that the auditor will not detect
a material misstatement that exists in a relevant assertion.
Risk Relationships - ✔ ✔ IR & CR - I - D
DR-D-I
ST - I - D (Substantive Tests)
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