Auditing Principles & Procedures Flashcards
7 cards from real GAP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Auditing Principles & Procedures flashcards as text
In GAP auditing, what is the primary risk associated with 'concentration' in a dealer's GAP enrollment portfolio?
Answer: A high proportion of high-LTV or long-term loans increases aggregate claim exposure and regulatory risk
Concentration in high-risk loan characteristics amplifies potential claim payouts and may attract regulatory scrutiny, making it a key risk area for GAP program auditors.
An auditor discovers that a dealer's GAP enrollment rate is 95% of all finance contracts. What audit concern does this raise?
Answer: Potential packing — adding GAP to contracts without proper customer consent
An unusually high enrollment rate raises the possibility of packing, where GAP is added to contracts without adequate disclosure or genuine customer consent.
Which of the following is the best example of a 'preventive control' in a GAP program?
Answer: A system that blocks certificate issuance when the loan term exceeds the program maximum
Preventive controls stop errors or violations before they occur; a system block preventing issuance outside program parameters is a classic preventive control.
What is the auditor's role in evaluating the adequacy of a GAP administrator's reserve calculations?
Answer: To assess whether the methodology and assumptions are reasonable and consistent with program loss experience
Auditors evaluate whether the reserve methodology and assumptions are reasonable and supported by actual loss data, not to calculate reserves themselves.
A GAP audit uncovers that cancellation refunds were consistently calculated incorrectly, shortchanging customers. Under which regulatory framework would this most likely be a reportable violation?
Answer: State insurance regulations governing unearned premium refunds and consumer protection
Incorrect cancellation refund calculations violate state insurance regulations governing unearned premium refunds, which protect consumers' right to pro-rata or actuarial refunds.
Which audit technique is most effective for detecting systematic errors in GAP claims payment amounts across a large population of settled claims?
Answer: Computer-assisted audit techniques (CAATs) to recalculate and compare claim payments against correct amounts at scale
CAATs enable auditors to programmatically recalculate and compare payment amounts across hundreds or thousands of claims simultaneously, efficiently identifying systematic errors.
After issuing a GAP audit report with findings, what is the auditor's responsibility regarding corrective action plans submitted by the dealer?
Answer: Evaluate the plans for adequacy and perform follow-up testing to confirm remediation was actually implemented
The audit cycle is not complete until the auditor evaluates the corrective action plans and performs follow-up testing to verify that identified deficiencies have been genuinely remediated.