Auditing and attestation concepts tested on the CPA AUD exam section.
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- What is audit risk?
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The risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated.- What is the audit risk model formula?
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Audit Risk = Inherent Risk x Control Risk x Detection Risk- What is inherent risk?
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The susceptibility of an assertion to a material misstatement before considering internal controls.- What is control risk?
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The risk that a material misstatement will not be prevented or detected on a timely basis by internal controls.- What is detection risk?
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The risk that the auditor's procedures will not detect a material misstatement that exists.- How does detection risk relate to inherent and control risk?
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It varies inversely; higher inherent and control risk require lower acceptable detection risk.- Define materiality in an audit context.
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The magnitude of an omission or misstatement that could influence the economic decisions of financial statement users.- What type of opinion is issued when financial statements are fairly presented in all material respects?
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An unmodified (unqualified) opinion.- When is a qualified opinion issued?
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When there is a material but not pervasive misstatement, or a scope limitation that is material but not pervasive.- When is an adverse opinion issued?
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When misstatements are both material and pervasive to the financial statements.- When is a disclaimer of opinion issued?
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When the auditor cannot obtain sufficient appropriate evidence and the possible effects are material and pervasive.- Which body sets auditing standards for audits of private (non-issuer) companies in the US?
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The AICPA's Auditing Standards Board (ASB).- Which body sets auditing standards for audits of public companies (issuers) in the US?
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The Public Company Accounting Oversight Board (PCAOB).- What is the difference between independence in fact and independence in appearance?
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Independence in fact is an actual unbiased mental state; independence in appearance is the absence of circumstances that would lead a reasonable person to doubt that independence.- What is the purpose of an engagement letter?
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It documents the understanding between the auditor and client regarding the terms, objectives, and scope of the engagement.
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