CPA CFE Audit and Assurance 6

Question 1

What is the auditor's responsibility regarding the 'other information' included in documents containing audited financial statements?

Accepted Answer

To read the other information and consider whether there is a material inconsistency with the financial statements or a material misstatement of fact

Answer

Under CAS 720, the auditor reads other information in the annual report to identify material inconsistencies with the audited financial statements or material misstatements of fact. While the auditor does not audit this information, they must respond if inconsistencies or misstatements are identified.

Question 2

In the context of IT controls, what is the difference between general IT controls and application controls?

Accepted Answer

General IT controls provide a foundation for all IT systems (access security, change management, operations); application controls are specific to individual applications (input validation, processing, output)

Answer

General IT controls (GITCs) are broad controls over IT infrastructure (access, change management, disaster recovery, operations) that support the effective functioning of application controls. Application controls are embedded in specific programs to ensure completeness, accuracy, and validity of transactions.

Question 3

Under CAS 530, what factors affect the sample size in an audit?

Accepted Answer

The acceptable level of sampling risk, expected misstatement rate, population characteristics, and the tolerable misstatement

Answer

Sample size is influenced by the acceptable level of sampling risk (confidence level desired), the tolerable misstatement or rate of deviation, the expected misstatement or error rate in the population, and the characteristics and size of the population being tested.

Question 4

What is a management letter (internal control deficiency report), and when is it issued?

Accepted Answer

A communication to management and those charged with governance identifying deficiencies in internal control observed during the audit

Answer

A management letter communicates internal control deficiencies and other observations noted during the audit that the auditor believes should be brought to management's attention. Significant deficiencies must be communicated in writing to those charged with governance under CAS 265.

Question 5

What is the concept of professional skepticism in auditing?

Accepted Answer

An attitude that includes a questioning mind, being alert to conditions that may indicate possible misstatement, and a critical assessment of audit evidence

Answer

Professional skepticism (CAS 200) requires auditors to maintain a questioning mind, be alert to contradictory evidence, critically assess the sufficiency and appropriateness of evidence, and recognize that management may have motivations to misstate financial statements, without assuming dishonesty.

CPA CFE Practice Test

CPA CFE Practice Test

CPA CFE Audit and Assurance 6