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7.
Based on an understanding of internal control completed at an interim date, the auditor assessed the risks of material misstatement at the relevant assertion level and performed interim substantive procedures. The records will most likely be tested again at year end if
A. Tests of controls were not performed by the internal auditor during the remaining period.
B. Internal control provides a basis for limiting the extent of substantive testing.
C. The auditor used nonstatistical sampling during the interim period testing of controls.
D. The remaining period is long.
Answer (D) is correct. (CPA, adapted)
REQUIRED: The reason for retesting records at year end.
DISCUSSION: The auditor should test controls throughout the period for which (s)he intends to rely on the controls. If the auditor obtains audit evidence about effectiveness during an interim period, (s)he should (1) obtain evidence about significant changes in the controls and (2) determine the other evidence needed for the remaining period. Relevant factors to consider in obtaining other evidence include (1) the significance of the assessed RMMs, (2) the controls tested and the results, (3) the length of the remaining period, (4) the extent of the intended reduction of further substantive procedures because of reliance on the controls, (5) the degree to which evidence about operating evidence effectiveness was obtained, and (6) the effectiveness of the control environment.
Answer (A) is incorrect. By itself, the failure of the internal auditor to test controls during the remaining period does not require a change in audit strategy. Answer (B) is incorrect.
Lower assessed RMMs increase the acceptable level of audit risk and decrease the necessary extent of substantive procedures. Answer (C) is incorrect. Use of nonstatistical methods at the interim date does not necessitate retesting if sufficient appropriate evidence has been obtained.
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16.
Which of the following procedures concerning accounts receivable is an auditor most likely to perform when the assessment of the risks of material misstatement includes an expectation that controls are operating effectively?
A. Observing an entity’s employee prepare the schedule of past due accounts receivable.
B. Sending confirmation requests to an entity’s principal customers to verify the existence of accounts receivable.
C. Inspecting an entity’s analysis of accounts receivable for unusual balances.
D. Comparing an entity’s uncollectible accounts expense with actual uncollectible accounts receivable.
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Answer (A) is correct. (CPA, adapted)
REQUIRED: The procedure used when the assessment of the RMMs includes an expectation that controls are operating effectively.
DISCUSSION: When the assessment of the RMMs includes an expectation that controls are operating effectively, the auditor should perform tests of controls. Tests of controls include
(1) inquiry, combined with (2) observation, (3) inspection, and
(4) recalculation, or (5) reperformance of a control by the auditor.
Thus, observing an entity’s employee prepare the schedule of past-due accounts receivable provides evidence of the operating effectiveness of certain controls over accounts receivable.
Answer (B) is incorrect. Sending confirmation requests to verify the existence of accounts receivable is a test of the details of balances (a substantive procedure). Answer (C) is incorrect.
Inspecting an entity’s analysis of accounts receivable for unusual balances is a test of the details of balances (a substantive procedure). Answer (D) is incorrect. Comparing uncollectible accounts expense with actual uncollectible accounts receivable is a form of analytical procedure. It is used to determine whether the auditor’s expectation is supported by client data.
5.
The extent to which the procedures for a review of interim financial information are to be applied depends on each of the following considerations except
A. The auditor’s time budget allotted for the tests.
B. Conditions indicating the possible inability of the entity to continue as a going concern.
C. Litigation, claims, and assessments.
D. Questions raised in performing other procedures.
Answer (A) is correct. (Publisher, adapted)
REQUIRED: The matter not considered in determining the extent of procedures applied.
DISCUSSION: The procedures in a review of IFI include
(1) analytical procedures; (2) reading the minutes of meetings;
(3) reading the IFI to consider whether it is in accordance with the applicable reporting framework; (4) obtaining reports of other auditors who have reviewed interim information of components of the entity; (5) inquiries of management; (6) reconciling the IFI with the accounting records; (7) obtaining written representations from management; (8) reading other information accompanying the IFI; and (9) obtaining an understanding of the entity and its environment, including its internal control (AU-C 930). IFI is not in accordance with the framework. However, the auditor’s time budget should not be a determining factor. The matter of the difficulty, time, or cost involved in performing such procedures is not in itself a valid basis to omit a procedure for which there is no alternative (AU-C 200).
Answer (B) is incorrect. A review is not intended to identify conditions indicating the possible inability of the entity to continue as a going concern. However, if they existed at the date of the previous statements or if the auditor becomes aware of them,
(s)he should (1) inquire of management about its plans to deal with the conditions and (2) consider the adequacy of disclosure.
Answer (C) is incorrect. Information about litigation, claims, and assessments that raises questions about whether the IFI is in accordance with the framework may come to the auditor’s attention. In these circumstances, the auditor should inquire of legal counsel. Answer (D) is incorrect. A matter that calls into question whether the IFI is in accordance with the framework may come to the auditor’s attention. In this case, the auditor should make additional inquiries or perform other procedures.
Copyright © 2013 Gleim Publications, Inc. and/or Gleim Internet, Inc. All rights reserved. Duplication prohibited. www.gleim.com

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29.
The other information in a document containing audited financial statements and the auditor’s report on them may be relevant to an independent auditor.
With respect to other information, the
A. Auditor’s responsibility is to read the other information to identify any material inconsistencies with the statements.
B. Auditor is obligated to perform auditing procedures to corroborate other information contained in a document.
C. Auditor need not be concerned with the other information.
D. Auditor must include the other information in the report if it needs revision.
30.
When audited financial statements are presented in a document containing other information, the auditor
A. Has an obligation to perform auditing procedures to corroborate the other information.
B. Is required to Should express a qualified opinion if the other information is materially inconsistent with the statements and requires revision.
C. Should be aware of whether the other information contains a material misstatement of fact.
D. Has no responsibility for the other information because it is not part of the basic financial statements.
Answer (A) is correct. (Publisher, adapted)
REQUIRED: The auditor’s responsibility for other information.
DISCUSSION: The auditor’s responsibility is to respond appropriately when the other information may undermine the credibility of the statements and the auditor’s report. Thus, the auditor should read the other information to determine whether it is materially inconsistent with the audited statements. The auditor also must respond when (s)he becomes aware of a material misstatement of fact in the other information.
Answer (B) is incorrect. The auditor need not perform auditing procedures to corroborate other information. Answer (C) is incorrect. The auditor should read the other information and consider whether it is materially inconsistent with the audited financial statements. Answer (D) is incorrect. Such information ordinarily is not included. However, w When the other information is materially inconsistent with the audited statements, management does not revise it and needs revision, the auditor should request that management revise it. If revision is not made, (s)he should communicate the matter to those charged with governance and (1) modify the report to include an othermatter paragraph, (2) withhold use of the report, or (3) withdraw from the engagement.
Answer (C) is correct. (CPA, adapted)
REQUIRED: The auditor’s responsibility for other information.
DISCUSSION: A misstatement of fact is other information that is unrelated to matters in the audited statements and is incorrectly stated or presented. If material, it may undermine the credibility of the document containing the audited statements.
When management refuses to correct a material misstatement of fact, the auditor should notify those charged with governance.
Answer (A) is incorrect. The auditor should read, but need not corroborate, the other information. Answer (B) is incorrect. If the audited information is presented fairly, the opinion should be unmodified. However, assuming if the other information needs revision, the auditor should request the client to that management revise it if it is materially inconsistent. If revision is not made, (s)he should consider communicate the matter to those charged with governance and (1) modifying the report to include an other-matter paragraph, (2) withholding use of the report, or (3) withdrawing from the engagement. Answer (D) is incorrect. The auditor should read the other information to consider whether it is inconsistent with the audited financial statements.
Copyright © 2013 Gleim Publications, Inc. and/or Gleim Internet, Inc. All rights reserved. Duplication prohibited. www.gleim.com