[jeff]

Welcome to the Q4 2016 CPA Exam Study Group for AUD.

If this is your first post in the study group – please post your target exam date (just the time frame to preserve your anonymity), and your past history with this exam (optional, of course).

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

[HoosierCPA]

Based on the assessed risk of material misstatement at the relevant assertion level, the auditor should consider which of the following matters in designing further audit procedures?

A.Results of analytical procedures

B.Sampling results

C.Tolerable misstatement

D.The characteristics of the class of transactions, account balance, or disclosure involved — CORRECT

I chose A, however I struggle with sampling questions. I thought you use analytical procedures to decide where to further focus your testing on?

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[HoosierCPA]

Which of the following circumstances most likely would cause an auditor to consider whether material misstatements exist in an entity's financial statements?

A.Management places little emphasis on meeting earnings projections.

B.The board of directors makes all major financing decisions.

C.Material weaknesses previously communicated to management are not corrected.

D.Transactions selected for testing are not supported by proper documentation — CORRECT

This is the perfect example of the type of questions that make me want to throw my computer across the room. I chose C — The explanation for Ninja:

“The previously communicated material weaknesses that are not corrected may be an example of a conscious business decision made by the client—the cost to correct the condition may exceed the benefits. As long as management acknowledges the existence of the weakness and accepts the risk, the auditor need only compensate for the weakness when planning the audit.”

It kills me when they give these type of explanations–its almost like yeah you are correct but there MAY be this one type of situation that can happen where you are incorrect. So for D there is absolutely no instances where D can be incorrect? Because if there is then D is no more correct then C…to me there is legitimate reasons for not having proper documentation so that's why I would say D and C are equals…but what do I know!

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[pharaoh]

If there is a material weakness, it doesn't mean the statements are misstated. No proper segregation of duties, doesn't mean that they are committing fraud, but there is a HIGHER risk there and that's why you as auditor, you communicate it with management. Then you will set the control risk at max, skip the test of controls and jump to test of details/substantive testing and no mistakes.

So if you find a material weakness in year 1 and you find they are still following same procedures in year 2, you are going to communicate it again in year 2.

FAR 8/2016
AUD 1/2017
REG TBD
BEC TBD

[HoosierCPA]

Yeah shortly after I posted that I remembered material weakness refers to internal controls not financials. When I was writing up this vent I had the mindset it was an actual misstatement on the financials! Thanks for getting me back on track. Makes total sense now–of the options D would clearly be the best.

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[Josh]

Hi, AUD group. I hope I'm not too odd? or that you won't hold it against me at least. It's my 4th attempt. Ninja's been good to me, although I believe my lack of discipline and poor planning decisions have held me back. I probably can only say good things about Gleim as well except I wish I would have investigated everything I could for free before committing. There's just so much out there I didn't know about back then. Hopefully, this is my last attempt at AUD no matter how many times I've said it. lol. I'm shooting for December 5th; and since I've already registered with Prometric and got time off approved at Wal-Mart (my work), I imagine this deadline is set; and I have no choice but to study hard. Get it done folks!

[Josh]

@Pharoah – I'll have to look into it, but how far into December is the testing window open?

[pharaoh]

@jalls – I have my exam on the 12/10, I think that is the last day available

FAR 8/2016
AUD 1/2017
REG TBD
BEC TBD

[HoosierCPA]

If the objective of an auditor's test of details is to detect a possible understatement of sales, the auditor most likely would trace transactions from the:

A.sales invoices to the shipping documents.

B.cash receipts journal to the sales journal.

C.shipping documents to the sales invoices. — CORRECT

D.sales journal to the cash receipts journal.

I've seen a couple transaction cycle questions with these answers. Why is it assumed that a sales invoice is the same as your accounting ledger? I miss them every time because I look at them as separate items…example: you can create a sales invoice that never hits the accounting ledger. To me the only real possible answer was B because it was the only test that looked at an item and tried to tie it to the accounting ledger.

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[HoosierCPA]

Another one:

In an audit in accordance with Government Auditing Standards, an auditor is required to report on the auditor’s tests of the entity’s compliance with applicable laws and regulations. This requirement is satis­fied by designing the audit to provide:

A.positive assurance that the internal control policies and procedures tested by the auditor are operating as prescribed.

B.reasonable assurance of detecting misstatements that are material to the financial statements.– CORRECT

C.negative assurance that significant deficiencies communicated during the audit do not prevent the auditor from expressing an opinion.

D.limited assurance that the internal controls designed by management will prevent or detect errors, fraud, and illegal acts.

I can't remember if I've posted this question before–if so I apologize. I thought GAGAS Audits (that do not qualify as single audits) provide positive assurance on the financial statements and negative assurance on the internal controls and compliance. I suppose I don't even know what “reasonable assurance” means. I know negative and limited assurance can be used interchangeably….little help anyone?!

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[pharaoh]

@dtatham10 – For the first question, I see your point, most softwares now that create invoices they auto-populate the JV. I usually assume that's the case. The other thing in this question, it is asking about understatement or completeness which is supposed to be from source document to ledger. Cash receipts is not a source document (Your idea might be right in real life).

Second question, the main purpose of the audit is to express an opinion on the financials and you test controls as part of the overall goal. In Government rules, they ask that you express an opinion on the controls you tested in your audit in addition to the regular opinion.

If you test every single transaction that happened during the year, that will be “Absolute” assurance but because you have materiality level and you only test samples, it is called “reasonable” assurance. In other words, we are 80% confident not 100% confident in the financials.

FAR 8/2016
AUD 1/2017
REG TBD
BEC TBD

[Josh]

What do you think? I have my text, but I believe this requires a little discernment?
Fly-By-Night is an airline company and is worried about volatility in jet fuel prices. In order to plan for all possibilities, Fly-By-Night prepares their PFS based on a range of jet fuel prices.
A. Financial Forecast or
B. Financial Projection?

[Anonymous]

Is the answer Financial Projection?

[pharaoh]

I would say projection since it sounds that they are having “What if” scenarios

FAR 8/2016
AUD 1/2017
REG TBD
BEC TBD

[Trele6]

How long can a non-managing partner stay on an audit? I am thinking it is seven years and the managing partners have to rotate off after 5 years correct?

First go at the CPA! Only using Becker
Reg / Nov 2015 - 87
Far / Apr 2016 - 79
Bec / May 2016 - 80
Aud / Aug 2016

[HoosierCPA]

@jalls I would say projection as well.

@pharaoh thanks. Still a bit foggy on both questions. Most of the transaction cycles dealing with the existence and completeness assertion are pretty straight forward. There are a handful that trip me up–this being one of them. I knew right after reading it we were dealing with existence, so yes my instant thought was Source–>Ledger. For the items qualifying as a “source” I thought D for sure but also was on the fence about B..cash receipts I suppose are like an inventory receipt in the system so looking back, you're right B may be explaining a “Source –> Source” observation. D, as a mentioned got ruled out because I thought it was a “Source –> Source” as well — but I need to start training my head to think invoice as a ledger document!

Ok so to clarify on the GAGAS, putting it as simply as possible.

GAGAS expresses reasonable assurance on the financial statements and limited assurance on the effectiveness of IC????

I have some major fine tuning to do with my government knowledge!

FAR - 78
REG - 72,74,71...please just go away REG nobody likes you!
BEC - 82
AUD - Aug 16

[Author]

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