[jeff]

Free Study Planner, Notes, Audio, Flashcards: https://www.another71.com/cpa-exam-study-plan/

Free CPA Exam Survival Guide: https://www.another71.com/cpa-exam-survival-guide/

[mariam almas]

correct 🙂

1) Statistical sampling helps the auditor to measure the sufficiency of the audit evidence because the auditor can quantify the audit risk, thus assisting in limiting it to an acceptable level.

AUD: 81 (Done)
REG: Currently studying
FAR: TBD
BEC: TBD

NH

[Anonymous]

I am looking for clarification related to the required sample size and the level of risk of incorrect acceptance. Becker says that “A decrease in population variability and an increase in the risk of incorrect acceptance both result in a decrease in the required sample size.”

I understand that a decrease in population variability will result in a decreased sample size, but I do not understand why an increase in the risk of incorrect acceptance would result in a decreased sample size.

Please help…

[mariam almas]

i know the reason but ummmmm i admit that im bad in explanation(LOOOL) , hope the others will explain it for u, at the moment just memorize that there is a negative relation (always) between incorrect acceptance and the sample size.

understanding is batter than memorizing, but some AUD topics are better to memorize them, dont waste ur time, memorize the relationshipe and go a head later I'm sure it will be more clear for u

AUD: 81 (Done)
REG: Currently studying
FAR: TBD
BEC: TBD

NH

[rzrbkfaith]

@dks11 – sometimes its easiest to put it in concrete terms. Say there are 100 different products in inventory. If I have a lower tolerance for risk (meaning I, as the auditor don't want to assume more risk), then I would want to check more of those products in inventory than if I had a higher tolerance for risk. So if my tolerance was high, then I would sample maybe 20 items and get 20% coverage. That means the likelihood that I missed a misstatement (large or small) is greater because I only sampled a few items – meaning I, as the auditor, am assuming more risk that I didn't catch a misstatement. If my tolerance was low, then I might want to sample 60 items (60% coverage). Then the likelihood that I missed a misstatement of some kind is much lower because I checked more items – meaning I am assuming less risk that I didn't catch a misstatement.

I hope this helps! With AUD its important to understand the concepts because there are so many different ways they can ask you the question.

AUD - 99
BEC - 97
REG - 91
FAR - 1/8/16

[kappa1032]

I've seen a question recently where if the the auditor can't observe opening inventory, the auditor can still issue a modified opinion on the balance sheet, but disclaim the rest of the F/S. I thought you couldn't do that because it would be a piecemeal opinion? So confused on this one..

FAR - 81
REG - 74, 87
AUD - 88
BEC - 88

Finally.

“The only guarantee for failure is to stop trying”
― John C. Maxwell

[Qlad]

@kappa…this is what I found on the web about piecemeal opinion…go all the way down…

https://www.investopedia.com/terms/p/piecemeal-opinion.asp

FAR 72,71,81 🙂
AUD 64,71, 72, 75 🙂 I'm done !!!
REG 73, 74, 74, 84 🙂
BEC 76 🙂

[Qlad]

Which of the following characteristics most likely would heighten an auditor’s concern about the risk of material misstatement arising from fraudulent financial reporting?

A. Management had frequent disputes with the auditor on accounting matters.

B. There is a lack of interest by management in maintaining an earnings trend.

C. Monthly bank reconciliations usually include several large checks outstanding.

D. Computer hardware is usually sold at a loss before being fully depreciated.

help me understand this question please….I know c and D is out…can't think logically between A and B

FAR 72,71,81 🙂
AUD 64,71, 72, 75 🙂 I'm done !!!
REG 73, 74, 74, 84 🙂
BEC 76 🙂

[Anonymous]

I'm pretty sure it would be A. I think B is wrong because there is more likely to be fraudulent financial reporting when management is MORE concerned with meeting earnings goals (they'd have to keep making up false info to keep it up every quarter if they don't meet their earnings goals).

[kappa1032]

Agreed with Dante – aggressive financial reporting is a sign of fraudulent financial reporting – this one seems to be the other way around

FAR - 81
REG - 74, 87
AUD - 88
BEC - 88

Finally.

“The only guarantee for failure is to stop trying”
― John C. Maxwell

[CSmith242]

@ Kappa

From my understanding, the reason why you are able to provide an unmodified opinion on the balance sheet is because, of course the balance sheet only looks at balances as at a particular date. So as long as the scope of the engagement isn't limited and you have access to all the accounting information you are able to provide an opinion. In a case like this the engagement now becomes a single reporting engagement (Not sure how to word that). What i'm trying to say is at this point you would only be reporting on the balance sheet and not the income statement.

The reason why you wouldn't be able to express an opinion on the income statement is because the opening balance of inventory is required to calculate gross profit which is then used to calculate net income. Long story short you need opening inventory in order for you income statement to complete and not be misleading.

Not sure if I'm right someone correct me if not.

[kappa1032]

I understand why you wouldn't be able to express an opinion on the I/S, SCF, and Statement of changes in equity – For some reason I guess it just doesn't make sense to me how it is ok to issued an unmodified on the balance sheet and disclaim all the others. Guess I'll have to look at the AL.

FAR - 81
REG - 74, 87
AUD - 88
BEC - 88

Finally.

“The only guarantee for failure is to stop trying”
― John C. Maxwell

[kappa1032]

Here's the answer that Ninja MCQ provided:

If the auditor is unable to form an opinion on a new client's opening inventory balances, the auditor will issue an opinion on the closing balance sheet only. This scope limitation affects the income, retained earnings, and cash flow statements, but not the balance sheet. This is because cost of goods sold cannot be verified. The auditor should issue a disclaimer of opinion on the income statement, statement of cash flows, and statement of shareholder's equity if the auditor is unable to form an opinion regarding opening inventory balances.

FAR - 81
REG - 74, 87
AUD - 88
BEC - 88

Finally.

“The only guarantee for failure is to stop trying”
― John C. Maxwell

[Future Ninja]

question of Qlad:

Which of the following characteristics most likely would heighten an auditor’s concern about the risk of material misstatement arising from fraudulent financial reporting?

A. Management had frequent disputes with the auditor on accounting matters.

B. There is a lack of interest by management in maintaining an earnings trend.

C. Monthly bank reconciliations usually include several large checks outstanding.

D. Computer hardware is usually sold at a loss before being fully depreciated.

I would go A. RMM composed of IR and CR. To my mind, If mgt had frequent disputes with accounting matters, it means there are reporting discrepancies between what the auditor knows of compared to what the mgt are implementing.

AUD - 79 (expired) retaking July 28,2016
FAR - 76 expiring July 31, 2016
BEC - 85
REG - 74,74,74,74,59,70,

[Future Ninja]

I always remember the knowledge and observation of the auditor are relevant and reliable information to assess risks.

AUD - 79 (expired) retaking July 28,2016
FAR - 76 expiring July 31, 2016
BEC - 85
REG - 74,74,74,74,59,70,

[Future Ninja]

@kappa1032 – I think prohibited piecemeal is like a situation that you have a whole pizza with 8 slices and the auditor rendered opinion on just one slice. Say for the whole pizza which is the whole balance sheet, he rendered opinion on one accounting account title like Accounts receivable only = this is piecemeal and prohibited.

AUD - 79 (expired) retaking July 28,2016
FAR - 76 expiring July 31, 2016
BEC - 85
REG - 74,74,74,74,59,70,

[Author]

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