Course Name: Advanced External Auditing
Module: Exam Review
Module Title: Exam review for 2007-2008
Handout and lecture prepared by
Chuck Campbell
Structure of the exam review
The review consists of six parts in which we
will highlight the main learning objectives
and go over the questions from the Practice
Examination and June 2007 course exam.
Please print out a copy of these exams so that
you will be able to refer to the questions as
they are discussed.
AU2 2007-08 Exam Review Part 1 Slide 2
Advanced External Auditing
Examination Review
Part 1
Part 2
Part 3
Part 4
Part 5
Part 6
Multiple Choice Questions
“Agree” or “Disagree” Questions
Modules 1, 2 and 3
Modules 4 and 5
Modules 6 and 7
Modules 8, 9 and 10
AU2 2007-08 Exam Review Part 1 Slide 3
1
Answering multiple choice questions



Select one, and only one, answer for each part; if
you choose more than one, your answer will not be
marked.
Answer every question; there is no penalty for
wrong answers.
You must select the best answer; often more than
one will be true (at least to some extent).
AU2 2007-08 Exam Review Part 1 Slide 4
Answering multiple choice questions



Write your answers in the examination booklet;
question papers are stripped from the exam
booklets prior to marking.
Write only the question part and your answer (e.g.,
a) 1); marks are not awarded for explanations.
If you are uncertain, your first attempt is more likely
to be correct than subsequent attempts; do not
change your answer unless you are certain that you
got it wrong.
AU2 2007-08 Exam Review Part 1 Slide 5
Multiple choice questions
CGA-CANADA PRACTICE EXAMINATION
Updated to the 2007/2008 Module Notes
Question 1 (30 marks)
AU2 2007-08 Exam Review Part 1 Slide 6
2
Multiple choice questions
CGA-CANADA
Advanced External Auditing Course Examination
June 2007
Question 1 (30 marks)
AU2 2007-08 Exam Review Part 1 Slide 7
Advanced External Auditing
Examination Review
Part 2
“Agree” or “Disagree” Questions
AU2 2007-08 Exam Review Part 2 Slide 1
“Agree” or “Disagree” questions


This part will address two types of questions. In
one, you are asked to agree or disagree with a
statement on auditing. In the other, you are asked
to state whether or not there has been a violation
of auditing standards, ethical guidelines, etc.
These types of questions accounted for
approximately 30 marks on the March and June
exams in 2007 and on the Practice Examination.
AU2 2007-08 Exam Review Part 2 Slide 2
3
“Agree” or “Disagree” questions



Most of the marks are awarded for the explanation
although you must also state whether you agree or
disagree with the statement (or whether you think
there has been a violation of standards or ethics).
If you disagree with any part of the statement, or
think there has been any violation, you should
answer “Disagree” or “Violation.”
You should try to make one point for each mark
offered – so you should come up with two or three
points per question, wherever possible.
Where a number of items are listed, it is important
to state your agreement or disagreement with each
item.
AU2 2007-08 Exam Review Part 2 Slide 3
“Agree” or “Disagree” questions
CGA-CANADA PRACTICE EXAMINATION
Updated to the 2007/2008 Module Notes
Question 2 (15 marks)
AU2 2007-08 Exam Review Part 2 Slide 4
“Agree” or “Disagree” questions
CGA-CANADA PRACTICE EXAMINATION
Updated to the 2007/2008 Module Notes
Question 3 (16 marks)
AU2 2007-08 Exam Review Part 2 Slide 5
4
“Agree” or “Disagree” questions
CGA-CANADA
Advanced External Auditing Course Examination
June 2007
Question 2 (15 marks)
AU2 2007-08 Exam Review Part 2 Slide 6
“Agree” or “Disagree” questions
CGA-CANADA
Advanced External Auditing Course Examination
June 2007
Question 3 (14 marks)
AU2 2007-08 Exam Review Part 2 Slide 7
Advanced External Auditing
Examination Review
Part 3
Modules 1, 2 and 3
AU2 2007-08 Exam Review Part 3 Slide 1
5
Advanced External Auditing
Examination Blueprint
Range of marks per module:
Module 1
Module 2
Module 3
Module 4
Module 5
10-15 marks
11-17 marks
11-15 marks
10-14 marks
8-14 marks
Module 6
Module 7
Module 8
Module 9
Module 10
9-14 marks
8-12 marks
4-6 marks
6-8 marks
3-5 marks
Focus your attention on those modules accounting for
most of the examination marks (i.e., Modules 1-7).
AU2 2007-08 Exam Review Part 1 Slide 2
Module 1: The assurance process
1.
2.
3.
Explain how information risk arises and why
assurance services are considered to be a valueadded service.
Describe the “expectation gap” and explain how the
profession is trying to bridge the gap. (Level 2)
Describe the meaning and importance of auditor
independence, the threats to it, and the safeguards
available to eliminate these threats or reduce them to
an acceptable level. (Levels 1 and 2)
AU2 2007-08 Exam Review Part 3 Slide 3
Module 1: The assurance process
4.
5.
6.
Describe in detail the assurance engagement,
including how the assurance framework is applied.
Explain and apply the ethical principles, codes and
rules relating to association with information and
professional conduct.
Describe the audit risk model and how it is used to
guide auditors in determining the nature, extent and
timing of substantive audit procedures.
AU2 2007-08 Exam Review Part 3 Slide 4
6
Module 2: Engagement planning
1.
2.
3.
4.
Describe the issues that must be considered before
accepting an audit engagement, and outline the content of
the engagement letter for audits, reviews and compilations.
Explain the importance to the auditor of understanding the
entity and its environment, including the type of knowledge
required, its sources and how the auditor obtains it.
Describe the quantitative and qualitative factors in the
calculation of materiality and establish a preliminary
materiality level for an audit.
Explain the risk of material misstatement and its
components -- inherent risk and control risk – and outline
the auditor's responsibility at the planning stage regarding
possible fraud and illegal acts. (Levels 1 and 2)
AU2 2007-08 Exam Review Part 3 Slide 5
Module 2: Engagement planning
5.
6.
7.
Explain why analytical procedures are used in
engagement planning, the steps to follow in applying
them and their effect on the audit plan.
Describe the overall audit strategy and audit plan, and
outline the considerations in developing each.
For first-time audits, identify and describe the basic
areas of concern and appropriate actions that may be
taken to address these concerns.
AU2 2007-08 Exam Review Part 3 Slide 6
Module 3: Internal controls
1.
2.
3.
Outline the fundamental internal control concepts
including definition, components, limitations, and
characteristics in manual and automated environments.
Explain the meaning of the entity’s control environment
(including its elements) and risk assessment processes,
and how the auditor evaluates these when assessing
the risk of material misstatement. (Levels 1 and 2)
Outline the elements of the information system relevant
to financial reporting and describe how the auditor can
gain an understanding of the client’s information
system, including business processes.
AU2 2007-08 Exam Review Part 3 Slide 7
7
Module 3: Internal controls
4.
5.
6.
Describe the auditor’s responsibilities when gaining an
understanding of the entity’s control activities and methods
of monitoring controls, and outline the five areas of control
activities related to the client’s financial reporting.
Identify the situations in which an auditor will test the
operating effectiveness of internal controls, and describe the
nature as well as the factors affecting the timing and the
extent of testing performed. (Levels 1 and 2)
Describe the control objectives and procedures associated
with the main categories of general controls in an IT
environment, as well as those used to evaluate the
effectiveness of the general controls relating to system
changes. (Levels 1 and 2)
AU2 2007-08 Exam Review Part 3 Slide 8
Module 3: Internal controls
Describe the control objectives and associated audit
procedures for the application controls over inputs,
processing, storage, and outputs.
8.
Describe the advantages and disadvantages of
computer assisted audit techniques (CAATs), as well as
the steps to take when using them, and distinguish
between system-oriented and data-oriented CAATs.
9.
Discuss the audit evidence considerations when an
entity uses a service organization. (Level 2)
10. Outline an auditor’s responsibilities when using the
work of the client’s internal audit function, as well as the
appropriate circumstances for doing so. (Level 2)
7.
AU2 2007-08 Exam Review Part 3 Slide 9
Essay questions: Modules 1, 2 & 3
CGA-CANADA
Advanced External Auditing Course Examination
June 2007
Question 4, part a (6 marks)
AU2 2007-08 Exam Review Part 3 Slide 10
8
Advanced External Auditing
Examination Review
Part 4
Modules 4 and 5
AU2 2007-08 Exam Review Part 4 Slide 1
Module 4: Audit sampling
1.
2.
3.
Explain the risks involved in audit sampling,
distinguish between statistical and non-statistical
sampling and describe when it is appropriate to
use each.
Describe the underlying concepts of attribute
sampling and how to plan and document an
application used in testing the effectiveness of
controls in a financial statement audit. (Levels 1
and 2)
Develop an attribute sampling plan and evaluate
the results, explaining their impact on the audit.
AU2 2007-08 Exam Review Part 4 Slide 2
Module 4: Audit sampling
4.
5.
6.
Describe the underlying concepts of dollar-unit
sampling and how to plan and document an
application used in substantive testing in a
financial statement audit. (Levels 1 and 2)
Develop a dollar-unit sampling plan and evaluate
the results, explaining their impact on the audit.
Outline the methods, advantages and
disadvantages of statistical sampling, the areas
where judgement is required and how to plan and
carry out a judgemental or non-statistical sample
in a financial statement audit. (Levels 1 and 2)
AU2 2007-08 Exam Review Part 4 Slide 3
9
Module 5: Substantive testing and
evidence
1.
2.
Describe how the auditor responds to the assessed
risks of material misstatement of the financial
statements, the factors that determine the
appropriateness and sufficiency of evidence, the
available evidence-gathering techniques and the
concerns when using management's representations
as evidence.
Identify the three factors making up the fraud triangle
as well as common types of fraud, and describe the
auditor’s response to the risk of fraud during an audit of
financial statements in accordance with GAAS. (Level 2)
AU2 2007-08 Exam Review Part 4 Slide 4
Module 5: Substantive testing and
evidence
3.
4.
Describe five types of data-oriented CAATs and
explain how generalized audit software could be
used to perform specific audit-related testing of
transactions and balances. (Levels 1 and 2)
Describe the considerations and procedures for
auditing accounting estimates, related party
transactions, financial derivatives, segment
disclosures and environmental exposures in the
context of an audit of financial statements in
accordance with GAAS. (Levels 1 and 2)
AU2 2007-08 Exam Review Part 4 Slide 5
Module 5: Substantive testing and
evidence
5.
6.
Explain a public accountant’s responsibilities
when using the services of a specialist in an audit
or review engagement. (Levels 1 and 2)
Describe how the auditor aggregates
misstatements and evaluates the financial
statements at the conclusion of the audit, and
outline the available alternatives if the amount of
misstatement exceeds the amount considered
material for the audit.
AU2 2007-08 Exam Review Part 4 Slide 6
10
Essay questions: Modules 4 & 5
CGA-CANADA
Advanced External Auditing Course Examination
June 2007
Question 4, parts b and c (9 marks)
AU2 2007-08 Exam Review Part 4 Slide 7
Advanced External Auditing
Examination Review
Part 5
Modules 6 and 7
AU2 2007-08 Exam Review Part 5 Slide 1
Module 6: Reporting issues
1.
2.
3.
4.
Describe the different types of audit opinions and their
usage, as well as advanced reporting issues including
uncertainties, going concern problems, use of a basis
of accounting other than GAAP and the use of
differential reporting options.
Explain what an auditor should do if a material
misstatement is discovered in the financial statements
after an opinion has been issued.
Describe the term “comparatives” and explain the
auditor’s related responsibilities and procedures with
respect to comparative figures included in audited
financial statements. (Levels 1 and 2)
Outline the auditor’s responsibilities with respect to
foreign reporting. (Level 2)
AU2 2007-08 Exam Review Part 5 Slide 2
11
Module 6: Reporting issues
5.
6.
7.
Compare and contrast Canadian and U.S. reporting
standards and describe how SEC reporting affects the
Canadian auditor. (Level 2)
Identify the issues that are communicated to
management and those with oversight responsibility for
the financial reporting process, and the forms of
communication including the purpose and use of
management letters.
Describe the contents of the annual report, including
the management discussion and analysis, and the
auditor’s associated responsibilities. (Levels 1 and 2)
AU2 2007-08 Exam Review Part 5 Slide 3
Module 7: Practical considerations
1.
2.
3.
Describe the characteristics of a small business and
their effect on the audit.
Identify the audit team members and their
responsibilities, and describe budgeting and planning,
working paper management and review, and audit
finalization. (Levels 1 and 2)
Explain the methods of communication used to foster a
positive audit team environment and the techniques for
dealing with client personnel and uncomfortable client
situations. (Levels 1 and 2)
AU2 2007-08 Exam Review Part 5 Slide 4
Module 7: Practical considerations
4.
5.
Describe how to effectively plan, manage, execute and
follow up a meeting and compare and contrast
planning and debriefing meetings. (Level 2)
Apply your knowledge and judgement in a
comprehensive case study, and prepare appropriate
documentation as you work through the various audit
steps. (Level 2)
AU2 2007-08 Exam Review Part 5 Slide 5
12
Essay questions: Modules 6 & 7
CGA-CANADA PRACTICE EXAMINATION
Updated to the 2007/2008 Module Notes
Question 4 (13 marks)
AU2 2007-08 Exam Review Part 5 Slide 6
Essay questions: Modules 6 & 7
CGA-CANADA
Advanced External Auditing Course Examination
June 2007
Question 5 (26 marks)
AU2 2007-08 Exam Review Part 5 Slide 7
Advanced External Auditing
Examination Review
Part 6
Modules 8, 9 and 10
AU2 2007-08 Exam Review Part 6 Slide 1
13
Module 8: Audits for special
circumstances
1.
2.
Describe the considerations and procedures for auditing
consolidated financial statements, including the standards
required of the primary auditor when relying on the work
of a secondary auditor. (Levels 1 and 2)
Describe the characteristics of not-for-profit organizations
and their audits including planning considerations, audit
evidence areas (including revenue recognition) that
require special consideration, and opinion reporting
considerations. (Level 2)
AU2 2007-08 Exam Review Part 6 Slide 2
Module 8: Audits for special
circumstances
3.
4.
Explain the three types of public sector audits
identified in the assurance standards and outline the
applicable auditing standards for compliance and
value-for-money audits. (Level 2)
Describe the reasons for seeking a second opinion
and outline the procedures a public accountant
follows when asked to provide one. (Level 2)
AU2 2007-08 Exam Review Part 6 Slide 3
Module 9: Other engagements
1.
2.
3.
4.
Explain the level of assurance provided by a review
engagement, the standards that apply when
performing one and the accountant’s role in
performing a review engagement.
Describe the reviewing of interim financial statements
as well as the considerations, standards, and reporting
requirements involved. (Levels 1 and 2)
Describe the considerations and requirements in
issuing a special report on financial information other
than financial statements, or compliance with
agreements, statutes, and regulations. (Level 2)
Explain the role, procedures, requirements, and
communications connected to an auditor’s
involvement with a prospectus. (Level 2)
AU2 2007-08 Exam Review Part 6 Slide 4
14
Module 9: Other engagements
5.
6.
7.
8.
Distinguish between a forecast and a projection, and
explain when an examination of one is required, as
well as the related audit procedures, documentation
and reporting requirements (Level 2)
Describe a a compilation engagement and the public
accountant’s role when performing one.
Describe the considerations involved in applying
specified auditing procedures to financial information
other than financial statements.
List four special reports and briefly describe the
auditor’s responsibilities for each. (Level 2)
AU2 2007-08 Exam Review Part 6 Slide 5
Module 10: Current issues and
future directions
1.
2.
3.
Outline the recent changes to the audit risk model,
including the definition of business risk, and describe
how this may impact audit planning and execution,
and describe the characteristics of a strategic systemsbased audit approach.
Describe the audit committee’s fundamental concepts
and role, and list the areas that external auditors
should discuss with the audit committee. (Level 2)
Compare and contrast continuous and traditional
auditing, and describe the areas that could be subject
to continuous auditing, necessary conditions for its
use, and its associated audit process. (Level 2)
AU2 2007-08 Exam Review Part 6 Slide 6
Module 10: Current issues and
future directions
4.
5.
Describe the basic components of EDI systems, the
advantages of web-based e-Commerce systems over
EDI, the audit considerations unique to e-commerce
applications and digital evidence, and XBRL -- its
issues, risks and related audit procedures. (Level 2)
Describe the AASB project on reporting on internal
control over financial reporting, compilation
engagements, and the expected impact of adoption of
ISAs on the assurance handbook. (Level 2)
AU2 2007-08 Exam Review Part 6 Slide 7
15
Essay questions: Modules 8, 9 and 10
CGA-CANADA PRACTICE EXAMINATION
Updated to the 2007/2008 Module Notes
Question 5
AU2 2007-08 Exam Review Part 6 Slide 8
16