CPA CFE Audit and Assurance 4

Question 1

Under CAS 550, what are the auditor's responsibilities regarding related party transactions?

Accepted Answer

To identify related party relationships and transactions, evaluate whether they have been properly accounted for and disclosed, and assess the risk of material misstatement

Answer

CAS 550 requires auditors to perform procedures to identify related parties and related party transactions, assess the risks of material misstatement associated with them, and evaluate whether they have been properly accounted for and adequately disclosed in accordance with the applicable framework.

Question 2

What is the purpose of performing audit procedures on accounting estimates?

Accepted Answer

To evaluate whether accounting estimates are reasonable and properly disclosed, as they are inherently subject to estimation uncertainty and management bias

Answer

CAS 540 requires auditors to evaluate accounting estimates because they involve significant judgment and are susceptible to management bias. The auditor assesses reasonableness, evaluates the assumptions and methods used, and considers whether disclosures about estimation uncertainty are adequate.

Question 3

What is the auditor's responsibility when using the work of an expert?

Accepted Answer

The auditor must evaluate the competence, capabilities, and objectivity of the expert, and assess whether the expert's work is adequate for audit purposes

Answer

Under CAS 620, when using an auditor's expert, the auditor must evaluate the expert's competence, capabilities, and objectivity; obtain an understanding of the expert's field; agree on terms; and evaluate whether the expert's work is adequate. The auditor remains responsible for the opinion.

Question 4

In the context of internal control, what is the concept of segregation of duties?

Accepted Answer

Dividing responsibilities among different individuals so that no single person controls all aspects of a transaction, reducing the risk of errors or fraud

Answer

Segregation of duties is a key internal control principle that separates authorization, custody, and recording functions among different individuals. This creates checks and balances, making it more difficult for errors or fraud to occur without detection.

Question 5

Under CAS 330, what is the auditor's response to assessed risks of material misstatement at the financial statement level?

Accepted Answer

Designing and implementing overall responses such as assigning more experienced staff, increasing supervision, incorporating additional unpredictability, and making general changes to the nature, timing, or extent of procedures

Answer

Financial statement level risks (such as management override, pervasive control weaknesses) require overall responses that affect the audit as a whole. These include emphasis on professional skepticism, assigning experienced staff, increased supervision, and incorporating unpredictability.

CPA CFE Practice Test

CPA CFE Practice Test

CPA CFE Audit and Assurance 4