[jeff]

Welcome to the Q2 2017 CPA Exam Study Group for AUD. 🙂

[pcunniff]

@monicasanta – yes it applies to single audits as well.

[pcunniff]

@nola-girl5 – not sure if anyone responded to you about this. I guess my way of hitting this home is really getting an understanding of what is going on. Why would you be testing for existence over receivables instead of completion? Well, companies have more of an incentive to OVERSTATE sales. Why? BECAUSE NI is derived from this. Higher sales less COGS = Gross profit. Gross profit less expenses give you NI. Higher NI makes shareholders want to invest in the company.

Other side – Completeness is more relevant for payables. Why? Companies have the incentive to UNDERSTATE. Why again? Because understanding your liabilities shows you have less debt and a more delectable balance sheet (though a true CPA/investor knows that holding debt and showing that you have debt is a reason to possible invest in the company). The company is trying to expand and may want to look for more ways to do this quicker (taking out a loan on a building to expand business elsewhere). This is a little outside of the scope and can probably confuse you, but just try to think of the reasons on why a company would do this.

If you write out the process flows a few times – it sinks in a little easier. When it comes down to rights and obligations – they generally test the same thing. Is there a lien on the asset? Has it been factored or pledged?

Valuation/allocation/accuracy. Think about it in each cycle. For example, Property plant and equipment is on the balance sheet at cost less accumulated dep. (you'll learn that in far if you took it). This is quite possibly one of the bigger issues I've seen when I worked at PwC. Why? PP&E is generally very costly. How can we test this? Recalculate A/D for reasonableness. Did the company user accelerated or SL Depreciation? Many ways in which the depreciation can seem misleading when it in fact, is not. If the asset is impaired, you would want to know that. Again, recalculate to see if the asset is truly impaired by the undiscounted cash flows less the carrying value (cost less AD).

Read the footnotes. Not sure if this last part is correct – but i would assume as an educated guess that you would also review the board minutes to see if an asset related to PP&E is possibly impaired or disposed of. This will help you determine if the information is accurate because you will be able to trace to this. They don't match? Ugh oh… looks like the BOD has some explaining to do.

Makes sense?

[pcunniff]

@drumstick – back to your response about credit memos.
I am still confused with this. Becker says that Credit memos should not be prepared by someone who collects or receives payments on AR. To do so would be inadequate seg of duties.

Makes sense to me because the person who receives cash could say 50 came in the door when really 100 came in. That individual would issue a credit memo for 50 to cover the amount pocketed.

So if collections doesn't issue or approve credit memos, who actually does? I'm stuck..

[IwannabeaCPA2017]

Should I re-read the becker book for AUD these next few days? Tomorrow is possibly my last day to prep since My exam is early saturday and would like to take Friday off after work.

How do you guys do your final review?

[maverick87]

@IwannabeaCPA2017 – Maybe only read the sections you know you have trouble with. I would definitely read the various reports and modifications over again. Do some sims and mcq as well. If you have plenty of notes from mcq I would read those as well. Know the ratios. Do you have flash cards? Do some of those for review. Write down all your mnemonics again. Best I can give you. Good luck.

[pcunniff]

Can someone help me understand in thorough the different opinions? I am seeing some questions on Becker that confuse me.

For example, if you have a disclaimer as a whole, you cant have an unmodified for a single statement.

However, I saw a problem out there that said the following:

An auditor who is unable to form an opinion or a new claim's opening inventory balance may issue an unmodified opinion on the current year's:

a) IS only
b) statement of SE only
c) balance sheet only
d) SCF only

The answer is c. If the auditor is unable to form an opinion on a new clients opening inventory balances, the auditor will issue an opinion on the closing balance sheet only and will issue a disclaimer on the statements of income, RE, and SCF.

I thought you cant have a disclaimer and an unqualified (unmodified) opinion as that would be misleading? Can someone help me out?

[nlroache]

Hello all,

Does anyone have the BISK videos for AUD? What is your experience with them?

[pcunniff]

To confirm what I mentioned earlier:

In which of the following circumstances would an auditor be most likely to express an adverse opinion?

A) Test of controls show that an entity's IC is so poor that it cant be relied upon.
B) The FS are not in conformity with GAAP rules regarding capitalization of leases.
C) Info comes to the auditors addition that raises doubt about the entity's ability to continue as a going concern
D) The CEO refuses the auditor to access to minutes of the BOD meetings.

Answer: B

I chose D. Becker says that D is a disclaimer. One of my biggest issues is understanding the differences between a disclaimer and an adverse opinion. Can someone help with this?

[IwannabeaCPA2017]

@pcunniff, Adverse opinions deals with GAAP issues so as mentioned in your second question (post above) since the FS are not in conformity with GAAP adverse is the best option. Disclaimer on the other hand deals with GAAS issues this is most likely (at least questions I've seen) are scope limitation questions. Hence, if CEO refuses to give auditor access to any info or refuses to sign a management rep letter than this would be a disclaimer. That means auditors would not give an opinion.

As far as the first question goes, you could still issue an opinion on BS because thats only your A+L=SE. Opening balances would have little bearing if you could have the ending. But this will affect your I/S and R/E because not knowing opening balance affects the COGS which affects the I/S and it flows into R/E so theres too much missing info here..

Good Luck! Now my question is which section is Transaction cycle in for the Ninja Audit MCQ lol

[IwannabeaCPA2017]

Based on the understanding of how management developed the estimate, the auditor would not use which of the following approaches in evaluating reasonableness?

Incorrect A.
Review subsequent events or transactions

B.
Review the process used by management to develop the estimate

C.
Review and test the process used by management to develop the estimate

D.
Develop an independent expectation of the estimate to corroborate the reasonableness of management's estimate

Does this question sound a bitt off?? I dont get why A is NOT the right answer. Heres the explanation.

In evaluating reasonableness, the auditor should obtain an understanding of how management developed the estimate. Based on that understanding, the auditor should use one or a combination of the following approaches:

Review and test the process used by management to develop the estimate.
Develop an independent expectation of the estimate to corroborate the reasonableness of management's estimate.
Review subsequent events or transactions occurring prior to the date of the auditor's report.

Back to work. look forward to response. Thanks!

[miss z MAMA]

i feel that my audit exam is more about far than audit… am i alone here?

[Navy2CPA]

Just finished AUD and feel really terrible about it. Only several of my Roger “IPQ's” helped me, everything else seemed was different. I felt really prepared going in, but the test materials were different then whats in the Roger's study material.

[IwannabeaCPA2017]

Ok.. those 2 comments are scaring the CRAP out of me now. 🙁

[pcunniff]

@iwannabeacpa2017

First, don't stress. Focus on yourself. The test isn't meant to be easy. If it was – everyone including my mother would be a CPA.

If you think about the main topics of subsequent events – these are relating to events that occurred at the balance sheet date, but before they are issued. These are recognized if they deal with losses on uncollectible receivables and litigation settlements arising from the prior year.

Non-recognized events are:
-sale of bond or stock
-business combination
-changes in FV of assets, liabilities, capital stock

If you think about the auditor's responsibilities – think of “PRIME”

Post balance sheet transactions
Rep Letter
Inquiry if management and client's legal counsel
Minutes
Examine lastest interim financial statements

Now understanding that foundation should clear up your question. How and in what way would a subsequent event help with management's estimates? If you think about it logically – a subsequent event really has absolutely nothing to do with estimates. Let me know if you have questions or want me to elaborate further.

[distracted]

Took the exam yesterday and I also feel terrible. It seems you can leave nothing to chance. All the topics were tested some way or the other. Had 1 DRS on inventory which was not long but vague.

[Author]

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