Auditing and attestation concepts tested on the CPA AUD exam section.
45 cards · basic cards · AI-written, checked twice. Edit anything.
- What is audit risk?
- The risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated.
- What is the audit risk model formula?
- Audit Risk = Inherent Risk x Control Risk x Detection Risk
- What is inherent risk?
- The susceptibility of an assertion to a material misstatement before considering internal controls.
- What is control risk?
- The risk that a material misstatement will not be prevented or detected on a timely basis by internal controls.
- What is detection risk?
- 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?
- It varies inversely; higher inherent and control risk require lower acceptable detection risk.
- Define materiality in an audit context.
- 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?
- An unmodified (unqualified) opinion.
- When is a qualified opinion issued?
- 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?
- When misstatements are both material and pervasive to the financial statements.
- When is a disclaimer of opinion issued?
- 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?
- The AICPA's Auditing Standards Board (ASB).
- Which body sets auditing standards for audits of public companies (issuers) in the US?
- The Public Company Accounting Oversight Board (PCAOB).
- What is the difference between independence in fact and independence in appearance?
- 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?
- It documents the understanding between the auditor and client regarding the terms, objectives, and scope of the engagement.