[jeff]

Welcome to the Q1 2017 CPA Exam Study Group for AUD. 🙂

[Cruzer]

Is there anyway to lookup Transaction Cycles in AL?

[Forem004]

I believe anything is possible on which exam you are given. I would just prepare as best as you can.

[Forem004]

I came across another question that referred to an audit as an examination, but that's obviously not the case in this question because A is the answer. Can anyone give me more guidance than is given in this explanation?

When third-party use of prospective financial statements is expected, an accountant may not accept an engagement to:

A. perform a review.

B. perform a compilation.

C. perform an examination.

D. apply agreed-upon procedures.

AT 301.01–.02 specifies that when an auditor is engaged to perform a service in relation to prospective financial statements and his report or the prospective financial statements is expected to be used by a third party or parties, then only an examination, a compilation, or the agreed-upon procedure is appropriate. A review is not mentioned, and thus, “perform a review” is the best answer.

[Forem004]

I'm really confused by all of these questions that say population size is not important to the sample size in a test of controls. My sample size is always designed in part by the population. Thoughts?

This particular question says not “as important.” But there is another that specifically says population has very little to do with the sample size chosen.

The sample size for tests of controls takes into account the tolerable rate of deviation, the likely rate of deviation, and the risk of assessing control risk too low (the reliability level). The number of items in the population is not as important as the number of deviations (based on the attribute defined) expected and likely.

[Forem004]

This is from a question about the change in the current ratio. Why is the proportionate effect of the increase in CL greater?

Purchasing inventory on account increases current assets and current liabilities by the same amount. However, the absolute change is not all you need to consider. Because the current ratio is 4:1, the proportionate effect of an increase in CL will be greater than the effect of an equal increase in CA. Thus, the current ratio will decrease.

[Forem004]

This is from Sim 44.

3. If it were the only situation discovered, the fact that FGH Company’s attorney has refused to respond to the letter of inquiry, either in writing or orally, would cause the auditor to issue which type of opinion? Qualified

A lawyer’s refusal to furnish the information requested in an inquiry letter either in writing or orally would be a limitation on the scope of the audit sufficient to preclude an unmodified opinion. The auditor would issue a qualified opinion or a disclaimer of opinion, depending on the amount of the scope limitation. (AU-C 501.24)

Does anyone know if this type of questions is marked correct if you chose “Disclaimer” since there's not an amount of the scope limitation listed?

[Forem004]

Sim 79 asks for the section and paragraph but then this is the answer:

AU-C 560 describes procedures that should be followed by the auditor who, subsequent to the date of the audit report, becomes aware that facts may have existed at the date of the audit report that might have affected the report if he or she had been aware of those facts.

If the auditor discovers that these facts are reliable, and he or she believes there are people relying on (or likely to rely on) the information, the auditor should advise the client to make appropriate disclosure of these facts. This disclosure could mean revised financial statements, or notification to those relying on (or likely to rely on) the financial statements that they cannot be relied on. The statement indicates that the procedure must be followed “even if the auditor has withdrawn or been discharged.” (AU-C 560.A18)

I answered the full 560.A18. I really hope someone reviews these answers.

[sulaiman]

About your first question, (Review cannot be used for prospective FS)
you have to memorize this to answer such questions correctly:

In examination, you can use it for services including prospective FS, Pro forma FS, Internal control, Compliance, and MD&A.
Review(in SSAE) can be only for pro forma and MD&A.
Agreed upon procedures can be for prospective FS, internal control and compliance.
Compilation (using SSAE) only for prospective FS.

If you write this in your notes, you wouldn't even spend 10 seconds to answer such questions!

–

For your second question, population and sample size. The rules are as long as population is large like 5000, it has no effect on the sample size! The sample size is effected by other factors but population is not one of them, but the only exception is that if population is small which is why it says (has a little or no effect)

–

Not sure about your third question, but for sim 44, it's very simple. If management refuses to let you contact the company's attorney, it's a disclaimer but if the attorney hasn't responded most likely it's a qualified unless you believe management has something to do with their refusal

also not sure what's your question in sim 79

[Forem004]

THanks!

That's what I've done for the review question.

Makes sense about sample size. I work for a smaller firm, so my population size doesn't get that high.

Gotcha on 44! Thanks!

On 79, I put the section and paragraph. It marked it wrong and gave just the section as the answer. But then further explained the exact section number. I just don't want to keep from getting points for something stupid like That!

[Forem004]

Hey JEFF!

Is my audit ten point audio and stuff in Dropbox still good? I'm testing on Monday so I probably should have asked sooner.

[Forem004]

sulamain, when do you test?

Are there any topics you want to discuss?

[sulaiman]

I scheduled my exam on 2/13 but I think I'm going to change it and take earlier (not sure yet) because I just want to be 100% sure that I'm going to pass! Don't want to risk my chances!

I really hate transaction cycle and the assertions but I am planning to review them again and redo their related mcq. I don't have a specific question but how do you feel about them?

[Forem004]

I feel fine about transaction cycles by just relating the questions to work. The assertions are tricky regardless, because there is so much judgement when it comes to an audit. I would like a fill in the blank where I can say, “depending on the circumstances, the engagement partner will use professional skepticism.”

[sulaiman]

That's my big problem, I have little experience in working in the US so I'm really having hard time with it but I know I'll master it as long as I keep reviewing and redo its questions

[Forem004]

I believe so too, because your explanations for my above questions were fabulous! Good luck!

[Author]

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