CCA Audit & Assurance Flashcards

What is the difference between a Type I and Type II subsequent event?

Answer: Type I provides evidence of conditions existing at year-end and requires adjustment; Type II reveals conditions arising after year-end and requires disclosure only

Type I subsequent events reflect conditions existing at the balance sheet date and require adjustment to the financial statements; Type II events arise after year-end and require disclosure but not adjustment.

What is the purpose of an engagement letter in an audit?

Answer: To formally define the scope, responsibilities, and terms of the audit engagement

An engagement letter documents the agreed terms between auditor and client, including audit scope, management and auditor responsibilities, and the basis for fees.

Which assertion addresses whether transactions are recorded in the correct accounting period?

Answer: Cutoff

The cutoff assertion ensures that transactions and events are recorded in the proper accounting period, preventing premature or delayed revenue and expense recognition.

What is a significant deficiency in internal controls?

Answer: A less severe deficiency than a material weakness, yet important enough to warrant attention by those charged with governance

A significant deficiency is less severe than a material weakness but still important enough to be communicated to those charged with governance (e.g., the audit committee).

What is the auditor's responsibility regarding fraud under US GAAS?

Answer: To plan and perform the audit to obtain reasonable assurance about whether financial statements are materially misstated due to fraud or error

Under AU-C 240, auditors must maintain professional skepticism and design procedures to detect material misstatements from fraud, but are not guarantors of fraud detection.

What is the purpose of analytical procedures in an audit?

Answer: To identify unusual fluctuations or relationships that may indicate misstatements requiring further investigation

Analytical procedures evaluate financial data by comparing relationships and trends, highlighting anomalies that may signal errors, fraud, or areas requiring more audit attention.