Auditing & Assurance Services Flashcards

A CPA firm issues a report on controls at a service organization under SSAE 18. Which report type also provides user auditors with tests of controls and results?

Answer: SOC 1 Type 2

A SOC 1 Type 2 report covers a period of time and includes both the description of controls and the service auditor's tests of operating effectiveness and results.

Under the AICPA Code of Professional Conduct, which threat to independence arises when an auditor has a loan from an audit client?

Answer: Self-interest threat

A financial relationship such as a loan from an audit client creates a self-interest threat because the auditor has a personal financial stake in the client's outcome.

Which audit procedure is most effective for detecting a cutoff error in sales revenue?

Answer: Comparing recorded sales to shipping documents around year-end

Comparing recorded sales to shipping documents around year-end directly tests whether revenue was recorded in the correct period.

When an auditor issues a report on prospective financial statements that are intended for general use, which type of prospective financial statement is appropriate?

Answer: Forecast

A financial forecast, based on expected conditions and courses of action, is the only type of prospective financial statement appropriate for general use.

Which of the following is an example of a substantive test of details rather than a substantive analytical procedure?

Answer: Vouching specific fixed asset additions to purchase invoices

Vouching specific transactions to source documents is a test of details, providing direct evidence about individual transactions.

An auditor is considering the work of an internal audit function. Which factor most directly affects the degree to which external auditors can use that work?

Answer: The objectivity and competence of the internal auditors

AU-C 610 directs external auditors to evaluate the objectivity and competence of internal auditors as primary criteria for reliance on their work.

Which of the following represents a 'significant deficiency' in internal control?

Answer: A deficiency less severe than a material weakness but important enough to merit attention by those charged with governance

A significant deficiency is less severe than a material weakness but important enough to warrant the attention of those charged with governance per AU-C 265.