[jeff]

I’ve had a few requests for April/May Study Groups…March will be here before you know it.

In order to take an early April exam, you should begin studying…now. 🙂

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[JamesBJames]

Today marks the first day that I've fallen asleep studying for the CPA exam. It never happened with FAR, but A3 is… really, really boring.

FAR: May 1st, 2014 - 91
AUD: May 29th, 2014 - 97!
BEC: July 16th, 2014 - 91
REG: August 29th, 2014 - 88

Licensed December 2015

Feel free to add me on LinkedIn by clicking my username!

[Anonymous]

Hey can someone clarify my understanding for internal control.

First: Understand the entity's internal control by determining whether controls are designed and implemented by using TEST OF CONTROLS (i.e, flowcharts, observations, inquiries, inspections, re-perform).

Second: Determine whether controls are operating effectively by using SUBSTANTIVE TESTING/ TEST OF DETAILS?

If my understanding is correct then why does this question not make sense to me:

Which of the following is LEAST likely to be evidence the auditor examines to determine whether controls are operating effectively?

a) Records documenting usage of computer programs

b) Canceled supporting documents

c) Confirmations of accounts receivable

d) Signatures on authorization forms

Answer: C is correct because confirmation of accounts receivable is a substantive test, not a test of a control.

I thought the question is asking which evidence would not determine whether controls are operating effectively. Since I thought, substantive tests evaluates controls operating effectively then confirmations of A/R would be the MOST likely evidence to determine whether controls are operating effectively.

[NYCaccountant]

That answer has to be correct. I have not even read that chapter, but what does AR confirmations have to do with internal controls? AR confirmations are basically documents sent to debtors of the firm affirming the financial assertion by the company that they owe them money. Basically the confirms are used to confirm the existence of the receivables, it's being validated by an third party (Debtor), so how can this be a test of internal controls? Testing the flow of documentation from sale to receiving payment would be a better test of internal controls for AR than sending confirmations. Let me know if anyone disagrees, but of the choices, C stands out as the one I will def not choose to use as a test of internal control.

That explanation just sucks in my opinion. Which review material are you using? Based on your understanding, internal controls can be tested by testing controls, and then by performing substantive tests.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[Gabe]

Agree with NYC. Look at the answers: A, B and D are all things done within the company while C is the only one that is sent to an external party.

CPA, CFE
CISA- Experience will be completed by August 2016

[Gabe]

@JamesBJames re: Becker notes that one attest engagement is to issue a compilation of a financial forecast. Is the auditor still required to be independent here, even though it's a compilation?

Look at A2-81. Compilation= no assurance, so you don't have to be independent. However, if you are issuing an examination engagement, you are issuing an opinion, thus, you must be independent.

Hope this helps. If I am wrong, someone let me know 🙂

CPA, CFE
CISA- Experience will be completed by August 2016

[Gabe]

Any help with this one?

Holding all other factors constant, decreasing the extent of substantive audit procedures for accounts payable ordinarily has what effect on audit risk?

A. Increases

B. Decreases.

C. No effect.

D. Indeterminate.

(Answer is A, just need a walkthrough of why)

CPA, CFE
CISA- Experience will be completed by August 2016

[Anonymous]

@gabequinn – I'm not sure I get that one. I just took AUD friday, and probably failed, so take this with a grain of salt. Decrease in substantive is usually an increase in detection. That would be my explanation for that question.

[NYCaccountant]

Ok, Gabe I've read 80% of this chapter so I can help.

3 kinds of risk equate to audit risk, inherent, control, and detection risk.

So the formula = Audit risk = Inherent * Control * Detection

Say audit risk is 15% and it's structured like this = Inherent risk 5% * Control risk 3%* detection risk 1%.

Substantive procedures is used for detection risk and the problem states “all other factors remaining constant”, which means inherent risk and control risk don't change, but detection risk (the likelyhood the auditors will fail to detect to a material mistatement) would increase because you be doing less testing of accounts payable.

So we do the formula again, but now detection risk increased to 2%.

Inherent risk 5%* Control risk 3%* Detection risk 2%= Audit risk =30%

Audit risk increased as a result. Usually if you increase detection risk, you would increase internal control testing, which would decrease control risk to maintain that 15% audit risk. But the question states “all other factors remaining constant”, which means audit risk will change and in this case increase. Audit risk increasing means there is a greater chance of there being a material mistatement within the financials.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[Gabe]

@NYC thanks! So, essentially…

AR= RMM * DR

If substantive procedures (work performed) decreased and RMM remained the same, DR is going to increase, which would, in turn, increase AR.

I must have read over the “all other factors remaining constant”

Thanks again!

CPA, CFE
CISA- Experience will be completed by August 2016

[NYCaccountant]

I've been working the Audit questions by eliminating two choices off the bat, then I compare two choices, reread the question and I've been picking the correct answer. 87% through first two chapters, although I've been guessing on some because I did not finish reading the second chapter. When I get it wrong, I don't even bother looking for the correct answer I just move on. I read every choice in multiple choice question and form a reason why 3 are wrong and one is correct. It's been working so far.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[YORKER]

I know test of controls and substantive tests are used for evidence but are they also used as risk assessment procedures?

[Gabe]

@NYC same here. You using Wiley?

CPA, CFE
CISA- Experience will be completed by August 2016

[Gabe]

@Yorker, in short, no…risk assessment procedures consist of inquiry, analytical procedures (e.g. ratio analysis), observation and inspection.

Does that help? If you're using Becker, it begins on page A3-41- 42

CPA, CFE
CISA- Experience will be completed by August 2016

[NYCaccountant]

Yes, I am using Wiley. I'm guessing you are way ahead of me in the review materials. I've just really started, got like a week and a couple days in. Just hard to study with NBA playoffs, baseball, and parties lol, but it will get done.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[Gabe]

Yeah, I am an auditor so I've been blowing through the “boring chapters” that describe the differences between all the types of engagements because I've done comps, reviews, audits, etc…so I know what to look for. The hardest part for me is overthinking. The book answer isn't necessarily what happens in real life, as well all know. However, the IT section on Wiley is tripping me up..it's only 35 questions but jeez.

I totally agree about the playoffs distraction though!

CPA, CFE
CISA- Experience will be completed by August 2016

[Author]

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