Audit (Final Exam) 2022 Solved Correctly

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Audit (Final Exam) 2022 Solved Correctly What is audit evidence? -Ans- Defining characteristic between positive and negative assurance What are the five assertions when evaluating financial stateme ... nts? -Ans- Existence Completeness Valuation Rights and Obligations Disclosure What are the four steps of audit? -Ans- Assess risks Test internal controls/Planning audit Substantive audit evidence Form conclusions Which provides stronger evidence: Internal or External sources? -Ans- External A lack of external evidence is considered to be...? -Ans- Unfavorable evidence Why do auditors spend a lot of time in balance sheet? Does this detect fraudulent expenditures or unearned revenue? -Ans- -Change(A-L) = Change(OE) -No -Not necessarily, example = gift cards (Liability) Name an account at risk for over/under statement. What population should you select for sample? -Ans- -Accounts Receivable (Test recorded AR balance) -Accounts Payable (Look at companies you'' be paying them to, even if account is at zero) What was the point of the tangled giraffe's heads? -Ans- Looking at heads, down to the bodies. What is vouching? Purpose? -Ans- From account to entries to source documents, only validity. What is tracing? Purpose? -Ans- From source documents to account entries, tests completion. Name the seven types of audit evidence. -Ans- Observation Physical examination Inquires and interviews Confirmations Recalculations Inspecting supporting documents (Vouching/Tracing) Analytical proceduresGoing through the motions is pointless, unless exercising what three character traits? - Ans- Judgement Common sense Professional Skepticism What is appropriateness? Example? -Ans- Doing the right thing Vouching vs. Tracing What is sufficiency? Example? -Ans- Doing enough Sample size MUST KNOW AUDITING ESTIMATES. Chapter 14. -AnsWhat factors should be considered when making auditing estimates. (3) -AnsReasonableness of assumptions Consistency with industry standards Consistency with actual experience over time is often the most reliable indicator Current standards permit auditors to use one of these two estimate approaches. Which is less biased? -Ans- 1. Test processes, inputs, and assumptions supporting the company's estimate. 2. Develop an independent estimate or range and compare it to company's estimate. 2 - Because 1 anchors our judgement, and 2 is less susceptible to anchoring base. Example a company that used intentionally poor estimates to cook books. -Ans- -Waste Management increased the useful life's on trucks and garbage steel containers. -Used odd discount rates for expenses on landfill SEC sued for 7 million Five examples of related parties -Ans- -Subsidiaries -Special Purpose Entities/Variable Interest Entities (SPG) -Immediate family -Majority Shareholder -Managers/Executives What is the most basic internal control of all? -Ans- Arm's length transactions because affiliations with related parties can remove this natural discipline -Example - Enron and Special Purpose Entities Buy/sell things for whatever price Explain the Shady real estate sales made by Lincoln Savings and Loan. -Ans- - Lincoln had a real estate subsidiary, whom had a related party. Lincoln would give them cash, in return for a note payable. That related party gave a big loan and cash to the subsidiary, in return for real estate. [Show More]

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