[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).

[Forem004]

But how does it get filled in? I'm at that point but can't get past it and I've completed questions over 3000 times, three practice exams and four rounds of most simulations.

[pharaoh]

I don't think it gets filled in

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

[Forem004]

I have completed the questions over 3200 times now and still get some wrong. I'm so concerned I'm going to get all of those questions on my exam.

[Forem004]

Why is the quick ratio in the following simulation not expressed as a percentage? It's #16

The ratios are calculated as follows:

Debt Ratio = Total liabilities ÷ Total assets
= $3,042,000 ÷ $6,042,000
= 0.50347
= 50.35%

Quick Ratio = Current assets less inventories and prepaid assets ÷ Current liabilities
= (Cash + Receivables) ÷ (Total liabilities – LT Debt)
= ($2,400,000 + $1,623,800) ÷ ($3,042,000 – $1,000,000)
= 1.97

Rate of Return
on Assets = (Net income + Interest expense) ÷ Average total assets
= ($600,000 + $250,000) ÷ ($6,042,000)
= 0.1407, or 14.07%

[KaliKingz]

@forem004 the quick ration is 1.97 or 1.97 to 1. As a percentage it would be 197%.
Typically, you will not see the quick ratio or current ratio at less than 100%, unless the corp is in trouble. SO, the quick ratio isn't stated as a percentage, because it doesn't convey the Dara's relevancy.

[Forem004]

I don't like that in the problem it specifically asks for the “Quick Ratio %” and then does not grade like that.

[Anonymous]

Here's the last paragraph in Becker's page 28 of Chapter 3.

•Inverse Relationship Between Audit Risk and Materiality
There's an inverse relationship between audit risk and materiality. The risk of a very large misstatement may be low, whereas the risk of a small misstatement may be high. Also, the more material a misstatement is, the less likely it is that the auditor will not detect it.

Tim Gearty jumped to the next page without explaining it.
Can someone explain it in simpler words? Thanks.

[Forem004]

I believe it's just saying inverse between large and small. For example, audit risk of large misstatement (high materiality) is small, while the audit risk of a small misstatement (low materiality) is large. Does that make sense?

Also, the more material a misstatement is, the less likely the auditor will not detect it. — You're more likely to detect a problem with $200,000 error than a $500 error.

[Anonymous]

I am still confused.

Please help me with these examples:
Big-Corp ——> $100,000 is material
Small-Corp—–> $1,000 is material

So if the misstatement for Small-Corp involves a $1,800-error, is it less likely the auditor will not detect it? Why oh why?

Edited:
I think, I got this statement understood now: You’re more likely to detect a problem with $200,000 error than a $500 error.

The more material misstatement it is, the less detection risk it will be.

[Forem004]

Well, it's material since for Small-Corp, materiality is $1000, so it should be more likely that the auditor will detect it rather than not. But since it's still overall small, I'm not positive on that one.

For example, the last audit I performed, materiality was $5,500. However, I could not look at every disbursement over $5,500 in my test of controls because that would be inefficient for the audit. A disbursement over materiality $5,500 would have been more likely to be found if made in error, but like I said, not ALL were reviewed.

[Anonymous]

Thanks, Forem. And good luck on your test on Monday. I have a great feeling you'll pass this test this month!

[Forem004]

Thanks! Good luck to you when you test!

[pharaoh]

I hate these questions more than Internal Control

Section 402 of SOX Title IV, “Enhanced Conflict of Interest Provisions,” dictates that:

A.it is unlawful for any issuer to extend or maintain credit in the form of a personal loan to or for any director or executive officer of that issuer.

B.any person who is directly or indirectly the beneficial owner of more than 10% of any class of any equity security or is a director or an officer of the issuer must file statements required by SOX and the SEC.

C.each annual report filed with the SEC must contain an internal control report.

D.each issuer must disclose whether or not they have adopted a code of ethics for senior financial officers.

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

[Anonymous]

According to my notes, test of details is synonymous with substantive tests. But one of the items in my HW practice test says that “Test of details, such as observation of inventory, is generally more persuasive than substantive analytical procedures when obtaining evidence regarding existence of the inventory.”

Now I am confused with the similarity and/or differences, if any, of substantive tests and substantive analytical procedures.

[pharaoh]

Substantive Tests= Tests of details= Substantive Test of details, they are different names for the same thing

With test of details, you get more than convincing (Persuasive) evidence. You go count the inventory yourself to make sure it exists and accurate, this is the best sort of evidence, you see it with your own eyes.
The other way is that you make some analysis like Days of Inventory or Inventory turn over or whatever financial and non-financial comparisons, does it give an evidence? Yes. Is it as persuasive as when you see it with your own eyes? No

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

[Author]

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