[jeff]

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

[pcunniff]

So I got a question that confused me. The sufficiency of audit evidence is based on

Auditors direct knowledge (inquiry, observation, recalculation, and inspection)
External Evidence (bank confirms, lawyer letters)
Internal – receiving reports
Oral

The question states:

Which of the following types of audit evidence is most reliable?

a) analytical procedures
b) confirmations
c) inquiries made of mgmt
d) review of PY procedures

I chose A because analytical procedures are an auditor's direct knowledge. The answer stated confirmations are the best. I get that it is close, however the response to why analytical procedures is not correct confused me. “Analytical procedures provide the auditor with direct personal knowledge, but these procedures often are based on internal accounting data, the evidence obtained is not as reliable as that obtained from confirmations.

Soooo my question is – what exactly would auditor's direct personal knowledge be since they are recalculating based on the client's actual financial data? Help me out if you can.

[Anonymous]

I think because confirmations are things that the auditors observed or inquired about first hand. Therefore they are better sources of audit evidence. At times Analytical procedures are values produced by management. Also as accountants we need to be skeptical of internal accounting data. Does that make sense?

[Anonymous]

@pcunniff Examples of the auditor's direct personal knowledge & observation are:
Observation of client's year end inventory count.
Recalculation of allowance for doubtful accounts.
Physical inspection of fixed asset additions.

[pcunniff]

@chasincpa

Im going to go with external evidence on all questions for my exam wednesday to be safe. Recalculation of allowance for DA still you would think comes from calculations on the client's data produced.

Thinking about it in another sense. Without the clients data – how would the accountant know what to calculate? The source has to come from somewhere? Therefore, external wins.

[Menage DA NINJAAAAA]

@chasincpa and @pcuniff

Both of you discussed tag question so well and yes external evidence is always safe way to go. And sometimes question can be reversed and will ask you which if the following is considered client generated document.

Purchase order or bill of ladings is a great example.

[Stryker]

Quick complaint:

Anybody else get frustrated with the AUD MCQ on Ninja? There are what, 1500 questions? but I get a lot of repeats despite getting them right every time. It's like I've only seen half the questions available and I've probably done 35-40 sets of 25-40 questions.

If I get the question about, “Who sets the standards for auditors of public companies” A: PCAOB one more time…

[livealittle]

hopefully this will help, @pcunniff

the mneumonic of

A
E
I
O
U
is an easy way to remember the kinds of evidence. It is not a ranking of which is “better” evidence.

Always, an outside verification like a confirmation, bank statement, etc. will carry more weight than a recalculation of the client's numbers, or an inquiry by the auditor of management, or the auditor observing the inventory count.

BEC - 8/8/16
REG - 66, 77
AUD - 81
FAR - 9/8/16

[pcunniff]

@livealittle I got it now thanks. Sorry to see your scores expired. Definitely worst part about the CPA exam as you have already proven yourself

Can SOMEONE please help me understand the concept of service auditors and user auditors? I have been doing problems with this and can't seem to get this concept down. Not exactly sure how heavily tested it is, but this is one area where I constantly struggle.

Thanks in advance! Take the exam on Wednesday 5/31

FAR – Pass
BEC – Pass
REG – took on 5/4
AUD – 5/31

[Mika]

@pcunniff. I'm also taking my exam on 5/31! Good luck!
Here is what I think of when it comes to service auditor vs. user auditor:

I usually assume I am the user auditor, I audit my client who uses ADP to do payrolls. ADP is the service organization, ADP's auditor is the service auditor. Whenever there is a user/service org relationship, one key thing to remember is that the client/company always assumes the the risk of the service org. Which means, if the service org has a weak IC, it's bad on the company too.

As for service auditors, they can generate two reports:
– SOC 1: report on the design/implementation of service org's IC
– SOC 2: report on the design/implementation of internal control AND operating effectiveness of IC.

Now, I am the user auditor, I need to assess the risk of my client's service organization (ADP). It's quite unreasonable（too much work) for me to go to ADP and audit all their IC. So usually, I would ask their auditor (the service auditor) to provide me with his reports.
If I get SOC 1 report – helps me understand service org's IC
If I get SOC 2 report – EVEN BETTER!!! I can use it as assurance about the Design/implementation/Op. effectiveness of their IC. (this is what most auditors would want to obtain).

Lastly,
general rule: you don't reference service auditor in your audit report, unless you use it to explain any modification of your audit opinion. hope it helps 🙂

[dj]

Does anybody have a link to the “Auditing & Attestation Reference Volume” that the NINJA SIMS keeps referring to in their answer explanations? I’ve found 2 forums where this was discussed but nobody was able to answer (links below). Does anybody know? Thank you

https://www.another71.com/cpa-exam-forum/topic/trouble-with-al-tab/

https://www.another71.com/cpa-exam-forum/topic/auditing-attestation-reference-volume-aud-ninja-mcq/

[jeff]

Good question – the reference volumes in the software aren't available. The text explanations in the MCQ are included in the center column in the answer area instead.

[pcunniff]

@mika

You are a lifesaver. This makes a lot more sense now.

Commenting on your last remark. So if you need to modify the opinion (e.g, basis for qualified to explain any modification) you would then reference the service auditor. You need permission from the service auditor, right?

Lastly, can you think of an example on a modification to reference the service auditor? Really close to understanding it now.

Good luck to you as well!

[Anonymous]

@pcunniff @mika I took my audit exam this morning!! I'm kicking myself, because everyone on here mentioned a bond problem and I didn't study up on it…. I hope I got it right. It was definitely more FAR related and not in my study material. I see why all the other adjusting entries were on there, because auditors need to know how to verify that year end entries were made correctly. Oh well, can't do anything about it now. I felt really good on the MCQ sections. I haven't taken Audit before, so I have nothing to compare it to. I had one SIM that I felt a little clueless on, thank goodness there were drop down menus. I was honestly hoping to get one of the Document Review Simulations, because I studied them pretty heavily since everyone was saying they were brutal.

Good Luck to those that are taking it tomorrow!! Now to wait until August for scores.

[brokeonbecker4]

I just finished AUD…got 5 DRS again (just like FAR when I took it earlier this month). Why me? 🙁

On to BEC!

[Anonymous]

@nola-girl5, I didn't get any DRS on my exam today. I got more of the “what audit procedures should you perform in this situation” type of SIMS. I guess you never know what the SIMs will be like! I would have preferred the DRS, myself since I studied them heavily.
I took BEC last month. It was a lot of IT. Most of the IT questions I received weren't covered in the Becker study program.

[Author]

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