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Gleim Exam Questions and Explanations
Updates to Auditing and Systems
18th Edition, 2nd Printing
May 2014
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Study Unit 14 – Evidence -- Key Considerations
Page 322, Subunit 14.2, Question #24: These edits were made to correct confusion
between subsequent events and subsequently discovered facts.
24. Wilson, CPA, obtained sufficient appropriate audit
evidence on which to base the opinion on Abco’s
December 31, Year 1, financial statements on March 6,
Year 2, the date of the auditor’s report. A subsequently
discovered fact event requiring revision of the Year 1
financial statements occurred on April 10, Year 2, and
came to Wilson’s attention on April 24, Year 2. If the fact
became known prior to the report release date and the
revision is made, Wilson’s report ordinarily should be
dated
A.
March 6, Year 2.
B.
April 10, Year 2.
C.
April 24, Year 2.
D.
Using dual dating.
Answer (D) is correct. (CPA , adapted)
REQUIRED: The date of the report if the statements are
adjusted for a subsequently discovered fact event.
DISCUSSION: A subsequently discovered fact
(1) becomes known to the auditor after the report date and
(2) may cause the auditor to revise the report. The report date
is no earlier than the date when sufficient appropriate
evidence is obtained. If such a fact becomes known to the
auditor before the report release date, the auditor should
(1) discuss the matter with management and (2) determine
whether the statements need revision (adjustment or
disclosure). If management revises the statements, the auditor
should perform the necessary procedures on the revision. The
auditor also (1) dates the report as of a later date or (2) dualdates the report. Dual-dating indicates that the procedures
performed subsequent to the original date are limited to the
revision. Unless the auditor extends subsequent events
procedures to a new date (one presumably later than April 24,
Year 2, the date when the subsequently discovered fact
became known), the auditor should dual-date the report.
Answer (A) is incorrect. March 6, Year 2, is the original
report date. Answer (B) is incorrect. April 10, Year 2, is
inappropriate because the discovery of a fact requiring
revision of the report did not occur until later. Answer (C) is
incorrect. The new (or additional) date is presumably later
than April 24, Year 2, the date when the subsequently
discovered fact became known.
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Study Unit 15 – Evidence -- Sampling
Page 335, Outline: These edits reflect changes due to clarified standards.
The following symbols and abbreviations are used in this study unit:
P
C
σ
s
p
q
n
N
μ
x
-----------
required precision interval
confidence coefficient
(sigma) population standard deviation
sample standard deviation
deviation rate
100% minus p
sample size
population size
(mu) population mean or average
an observed value
x
FPC
Σ
AR
CR
TD
-------
AP
--
IR
--
mean of a sample
finite population correction factor
(Sigma) summation symbol
allowable audit risk
control risk
allowable risk of incorrect acceptance
for a test of details
detection risk for analytical procedures
and other relevant substantive tests of
details
Inherent risk
Page 338, Subunit 15.1, Question #11: These edits were made because the risk of incorrect
acceptance and the acceptable risk of incorrect acceptance are different concepts.
11. As lower acceptable levels of the risk of incorrect
acceptance and performance materiality are established,
the auditor should plan more work on individual accounts
to
A.
Find smaller misstatements.
B.
Find larger misstatements.
C.
Increase the tolerable misstatement in the
accounts.
D.
Decrease the risk of overreliance.
Answer (A) is correct. (CPA, adapted)
REQUIRED: The result of lowering the risk of incorrect
acceptance and performance materiality.
DISCUSSION: A lower performance materiality means
that the tolerable misstatement in an account is smaller. As
a result, the auditor must plan for a larger sample size and
more audit work on the accounts to discover smaller
misstatements. For substantive tests of details, the sample
size depends on the auditor’s desired assurance (1.0  the
risk of incorrect acceptance) that tolerable misstatement is
not less than actual misstatement in the population. The
desired assurance may be based on, among other things,
the following: (1) the assessed RMM risk of material
misstatement, (2) the assurance provided by other
substantive procedures related to the same assertion,
(3) tolerable misstatement, and (4) expected misstatement
for the population. Accordingly, as the acceptable risk of
incorrect acceptance decreases, the desired assurance
increases, and the auditor decreases the tolerable
misstatement.
Answer (B) is incorrect. The auditor should plan to
find smaller misstatements. Answer (C) is incorrect. As the
size of performance materiality decreases, tolerable
misstatement decreases. Answer (D) is incorrect. During
substantive testing of an account balance, the auditor is
ultimately concerned with decreasing the risk of incorrectly
accepting the balance. Tests of controls, not substantive
tests, are designed to decrease the risk of overreliance.
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Page 355, Subunit 15.2, Question #70: These edits were made to provide a clearer, simpler
expression of the concept.
70. Which of the following statements is true concerning
statistical sampling in tests of controls?
A.
As the population size increases, the sample
size should increase proportionately.
B.
Deviations from specific controls at a given
rate ordinarily result in misstatements at a
lower rate.
C. The relationship between the expected
population deviation rate and the sample size
is inverse.
D.
In determining the tolerable rate, an auditor
considers detection risk and the sample size.
Answer (B) is correct. (CPA, adapted)
REQUIRED: The true statement concerning statistical
sampling and tests of controls.
DISCUSSION: Deviations from a specific control
increase the risk of misstatements in the accounting
records. However, deviations do not always result in
misstatements. Thus, deviations from a specific control at
a given rate ordinarily result in misstatements at the
financial statement level at a lower rate.
Answer (A) is incorrect. As population size increases,
the required sample size increases at a decreasing rate.
Answer (C) is incorrect. The relationship between the
expected population deviation rate and the required
sample size is direct. Answer (D) is incorrect. The tolerable
rate depends on the auditor’s desired level of assurance
that the deviation rate set by the auditor is set by the
auditor. The auditor seeks to obtain appropriate assurance
that this rate is not greater than exceeded by the actual
rate.
Study Unit 16 – Reports -- Opinions and Disclaimers
Page 385, Subunit 16.3, Question #35: These edits were made to correct confusion between
subsequent events and subsequently discovered facts.
35. An audit report was dual dated for a subsequently
discovered fact event disclosed in the financial statements
that occurred after the completion of the evidence collection
process (the original report date) but before release of the
audit report. The auditor’s responsibility for events occurring
subsequent to the original report date completion of the
evidence collection process was
A.
Limited to include only events occurring before the
date of the last subsequent event referred to.
B.
Limited to the specific event fact referred to.
C.
Extended to subsequent events occurring through
the date of issuance of the financial statements.
D.
Extended to include all events occurring since the
completion of the evidence collection process.
Answer (B) is correct. (CPA, adapted)
REQUIRED: The auditor’s responsibility for events
occurring subsequent to the completion of the evidence
collection process original report date when the report is
dual dated.
DISCUSSION: Subsequent to the completion of the
evidence collection process original report date, the
auditor is responsible only for the specific subsequently
discovered fact. event. (S)he is responsible for other
subsequent events only up to the date of the completion of
the evidence collection process. However, if the report is
not dual dated, it is dated as of the subsequently
discovered fact event. If procedures are extended, the
auditor's responsibility is extended to the later report date.
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Page 387, Subunit 16.3, Questions #40 and #41: These edits were made to correct confusion
between subsequent events and subsequently discovered facts.
40. If a subsequently discovered fact becomes known to
the auditor before event requiring only disclosure occurs
after the collection of sufficient appropriate evidence but
prior to the release of the audit report, the auditor should
A.
Modify the opinion and dual date the audit
report. No additional audit procedures are
required.
B.
Date the audit report as of the original date of
the auditor’s report collection of sufficient
appropriate evidence and caption the note
disclosing the subsequent event as being
subsequent to the completion of the audit
procedures.
C. Not modify the audit opinion if the event is
properly disclosed and date the audit report as
of the original date of the auditor’s report
collection of sufficient appropriate evidence.
D.
Either dual date the audit report or date the
audit report as of the time of the completion of
the extended audit procedures.
41. An auditor dated the audit report for a client on
February 15. The related financial statements were issued
on March 10. On April 8, the client suffered the loss of a
significant portion of its plant facilities by fire. The client
requested additional copies of the previously issued report
on May 5. Assuming no additional audit work has been or
will be performed, the auditor should
A.
Disregard the casualty and reissue the original
report with no change in date.
B.
Have the client disclose the event in a separate
note to the statements identified as “Event
(Unaudited) Subsequent to the Date of the Report
of the Independent Auditor.”
C.
Use dual dating.
D.
Either have the client disclose the event in a
separate note to the statements identified as “Event
(Unaudited) Subsequent to the Date of the Report
of the Independent Auditor” or use dual dating.
Answer (D) is correct. (Publisher, adapted)
REQUIRED: The action when a subsequently discovered
fact event requiring only disclosure occurs after the
collection of sufficient appropriate evidence date of the
report but prior to the its release of the audit report.
DISCUSSION: The auditor may use dual dating or date
the entire report as of the date of the subsequently
discovered fact event occurring after the date of the
auditor’s report collection of sufficient appropriate
evidence. If the report is dual dated, the auditor’s
responsibility is limited to the specific event. If the date of
the report is the date of that event, responsibility extends
to that date. Accordingly, the auditor should perform the
necessary additional subsequent events procedures
through the new date of the report.
Answer (A) is incorrect. If the client properly notes or
otherwise discloses the item, no opinion modification is
necessary. Answer (B) is incorrect. Captioning the note is
insufficient. Answer (C) is incorrect. The subsequently
discovered fact occurrence of the event must be
acknowledged in dating the report.
Answer (B) is correct. (Publisher, adapted)
REQUIRED: The treatment in a reissued report of a
material event that occurred after the original report date.
DISCUSSION: A major casualty occurring after the
date of the original report requires disclosure in the
financial statements covered by the reissued report. The
reissuance of a report includes furnishing additional copies
of a previously issued report. If the auditor performs
procedures with respect to the casualty, (s)he may use
dual dating. If no audit work is performed relative to this
event, it should be marked unaudited in a note to the
financial statements captioned as described.
Answer (A) is incorrect. The auditor cannot disregard
the casualty. It must be disclosed in the financial
statements. Answer (C) is incorrect. Dual dating is
inappropriate when the subsequently discovered fact event
is unaudited. Answer (D) is incorrect. Dual dating is
inappropriate when the subsequently discovered fact event
is unaudited.
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Study Unit 17 – Reports -- Other Modifications
Page 420, Subunit 17.4, Question #48: These edits were made because the previous version
of the question did not specify whether (1) the service was performed for an issuer or a
nonissuer and (2) the prior-period unaudited statements were reviewed or compiled.
48. A nonissuer’s Uunaudited financial statements for the
prior period are presented in comparative form with
audited financial statements for the subsequent year. If the
prior-period statements were reviewed,current year should
be clearly marked to indicate their status and
I. The report on the unaudited financial statements prior
period should be reissued to accompany the current period
report.
II. The report on the audited financial statements current
period should include an other-matter paragraphas a
separate paragraph a description of the responsibility
assumed for the prior period’s financial statements.
A.
I only.
B.
II only.
C.
Both Neither I and nor II.
D.
Either I or II.
Answer (D) is correct. (CPA, adapted)
REQUIRED: The appropriate reporting when the
prior-period’s unaudited financial statements of a
nonissuer are presented in comparative form with currentperiod audited financial statements.The true statement(s)
about comparative presentation of unaudited prior year’s
statements with audited current year’s statements.
DISCUSSION: The unaudited statements (that may
have been reviewed or compiled) should be clearly
marked to indicate their status, and (1) either the report on
the prior period should be reissued, or (2) the report on the
current period should include an other-matter paragraph
including (a) the service performed in the prior period, (b)
the date of the report on that service, (c) material
modifications noted in that report, and (d) a statement that
the service did not provide a basis for an opinion.A
nonissuer’s audited statements for the current period may
be presented comparatively with the prior period’s
reviewed or compiled statements. If the prior period’s
report is not reissued, the auditor’s current-period report
should include an other-matter paragraph that states
(1) the service performed in the prior period, (2) the date of
the service, (3) a description of material modifications
noted in the report, and (4) that the service was not an
audit and did not provide a basis for an opinion (AU-C
700).
Study Unit 19 – Review, Compilation, and Attestation Engagements
Page 452, Subunit 19.3, Question #27: This question (“When an accountant performs more
than one level . . .”) has been deleted because it was based on Guidance AR 102.02, which
was removed from the AICPA Professional Standards. The remaining questions were
renumbered accordingly.