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Auditing& AttestationSimulation Ver.4

Final Review Notes

B ECKER C P A R E V I E W


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Becker Professional Review CPA Course Development Team

Timothy F. Gearty, CPA, MBA, JD ............ Editor in Chief, FARE National Editor, Regulation (Tax) EditorLisa M. Thayer, CPA ................................................. Business Environment & Concepts National EditorTom Cox, CPA, CMA, CHFP .......................................................... FARE (GASB & NFP) National EditorSteve Levin, BA, JD .............................................................................. Regulation (Law) National EditorPeter Olinto, JD, CPA ........................................................................... Regulation (Law) National Editor

Cindy Lawrence, CPA, MBA .................................................................................... Audit National EditorRichard A. Sykes ................................................................................. Director of Education Technology

Anson Miyashiro .................................................................................... Multimedia Production Manager Al Glodan ............................................................................................ Audio / Video Production ManagerJay Garrett ................................................................................................................ Publishing ManagerPete Console ................................................................................................... System Support Manager

PermissionsMaterial from Uniform CPA Examination Questions and Unofficial Answers , 1989, 1990, 1991, 1992,1993, 1994, 1995, 1996, 1997, 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007 and 2008copyright by American Institute of Certified Public Accountants, Inc. is reprinted (or adapted) withpermission.

Contributing Editors

Eric J. Brunner, PhD Mike Potenza, JDRobert A. DeFilippis, CPA, MBA Ray Rigoli, CPA, MBAMike Farrell, JD Karen Tarbet, CPA, JDDennis J.Green, CPA,MBA Jennifer B. Deutsch, CPA, MSLiliana Hickman-Riggs, CPA, CITP, CMA, CIA, DABFA, MS Chris Cocozza, CPA, JD, LLMEdward McTague, CPA, MBA Angeline S.Brown, CPA, MACMichael Meriwether, CPA, MBA

Copyright 2009 by DeVry/Becker Educational Development Corp. All rights reserved.Printed in the United States.Reproduction or translation of any part of this work beyond that permitted by Sections 107 and 108 ofthe United States Copyright Act without the permission of the copyright owner is unlawful. Request forpermission or further information should be addressed to the Permissions Department, DeVry/BeckerEducational Development Corp.DeVry/Becker Educational Development Corp. grants to you the one-time right to use the Becker CPAReview materials as the original user. This license is granted only to you as a first-time user and is non-transferable to anyone else.


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Becker CPA Review Auditing

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AUDITING TABLE OF CONTENTS

Simulations

1. Simulation 1 (2009 AICPA Release) .............................................................................................. 1-1

2. Simulation 2 Planning ..................................................................................................................... 2-1

3. Simulation 3 Transaction cycles .................................................................................................... 3-1

4. Simulation 4 Evidence and Communication ..................................................................................... 4-1

5. Simulation 5 Opinions ................................................................................................................... 5-1

6. Simulation 6 Additional topics (2005 AICPA Release) .................................................................. 6-1

7. Simulation 7 Additional topics (2006 AICPA Release) ..................................................................... 7-1



TOPIC 1: BEFORE THE FIELDWORK

1. Purpose of an Audit ........................................................................................................................ 1-3

2. The Audit Process .......................................................................................................................... 1-3

3. Management Assertions ................................................................................................................. 1-4

4. Ten Generally Accepted Auditing Standards .................................................................................. 1-5

5. Planning the Audit .......................................................................................................................... 1-6

6. Supervision .................................................................................................................................... 1-8

7. Audit Documentation ...................................................................................................................... 1-8

8. Related Party Transactions ............................................................................................................ 1-9

9. Multiple Choice ............................................................................................................................... 1-10

10. Multiple Choice (Solutions) .............................................................................................................. 1-12

TOPIC 2: PLANNING

1. Planning for Risk ........................................................................................................................... 2-3

2. Internal Control ............................................................................................................................... 2-5

3. Auditor's Risk Assessment ............................................................................................................. 2-8

4. Responding to Assessed Risk ........................................................................................................ 2-9

5. Multiple Choice ............................................................................................................................... 2-11

6. Multiple Choice (Solutions) ............................................................................................................ 2-12


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TOPIC 3: TRANSACTION CYCLES

1. Summary of Key Transaction Cycles ............................................................................................. 3-3

2. Expenditure Cycle .......................................................................................................................... 3-3

3. Payroll and Personnel Cycle .......................................................................................................... 3-4

4. Revenue Cycle ............................................................................................................................... 3-5

5. Multiple Choice ............................................................................................................................... 3-11


TOPIC 4: EVIDENCE AND COMMUNICATION

1. Audit Evidence .............................................................................................................................. 4-3

2. Substantive Tests ........................................................................................................................... 4-3

3. Auditing Receivables ...................................................................................................................... 4-4

4. Auditing Cash ................................................................................................................................. 4-5

5. Auditing Inventory .......................................................................................................................... 4-5

6. Required Auditor Communications ................................................................................................. 4-6

7. Multiple Choice ............................................................................................................................... 4-11


TOPIC 5: EFFECT OF IT ON THE AUDIT

1. The Effect of Information Technology (IT) on the Audit .................................................................. 5-3

2. Quality Control Standards .............................................................................................................. 5-5

3. Ratio Analysis Analytical Procedures .......................................................................................... 5-6

4. Multiple Choice ............................................................................................................................... 5-9


TOPIC 6: STATISTICAL SAMPLING

1. Audit Sampling ............................................................................................................................... 6-3

2. Statistical Sampling ........................................................................................................................ 6-3

3. Sampling Risk ................................................................................................................................ 6-3

4. Attribute Sampling ........................................................................................................................... 6-3

5. Variables Sampling ........................................................................................................................ 6-4

6. PPS Sampling ................................................................................................................................ 6-6


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7. Dual Purpose Samples ................................................................................................................... 6-7

8. Multiple Choice ............................................................................................................................... 6-9


TOPIC 7: OPINIONS

1. Opinion Types ................................................................................................................................ 7-4

2. Standard Unqualified Opinion ........................................................................................................ 7-4

3. Modified Unqualified Opinion ......................................................................................................... 7-5

4. Qualified Opinion ............................................................................................................................ 7-6

5. Adverse Opinion ............................................................................................................................. 7-7

6. Disclaimer of Opinion ..................................................................................................................... 7-77. Comparative Financial Statements ................................................................................................ 7-7

8. Subsequent Events ........................................................................................................................ 7-8

9. Subsequent Discovery of Facts ...................................................................................................... 7-9

10. Omitted Audit Procedures ............................................................................................... ............... 7-9

11. Multiple Choice ............................................................................................................................... 7-10


TOPIC 8: OTHER REPORTS & SERVICES

1. Special Reports .............................................................................................................................. 8-3

2. SSARS ........................................................................................................................................... 8-3

3. Review of Interim Financial Statements ............................................. ............................................ 8-6

4. Attestation Engagements ............................................................................................................... 8-7

5. Assurance Services ........................................................................................................................ 8-10

6. Multiple Choice ............................................................................................................................... 8-11


TOPIC 9: GOVERNMENT AUDITING

1. Government Auditing Standards .................................................................................................... 9-3

2. Management Responsibilities ........................................................................................................ 9-4

3. Reporting Requirements ................................................................................................................ 9-4

4. Sarbanes-Oxley Act ....................................................................................................................... 9-6


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5. Multiple Choice ............................................................................................................................... 9-10


TOPIC 10: ADDITIONAL TOPICS

1. Professional Standards .................................................................................................................. 10-3

2. Service Organizations .................................................................................................................... 10-3

3. Fair Values ..................................................................................................................................... 10-3

4. Reports on the Application of Accounting Principles ...................................................................... 10-4

5. Reporting on Financials for Use in Other Countries ....................................................................... 10-4

6. Long-Term Investments ................................................................................................................. 10-4

7. Condensed Financial Statements .................................................................................................. 10-4

8. Selected Financial Data ................................................................................................................. 10-4

9. Information Accompanying the Basic Financials ............................................................................ 10-5

10. Required Supplementary Information .............................................................................. ............... 10-5

11. Segment Information ...................................................................................................................... 10-5

12. Auditor-Submitted Documents ....................................................................................................... 10-5

13. Additional Examples of Fraud Risk Factors .................................................................................... 10-6

14. Additional Tests of Controls in the Expenditure Cycle .................................................................... 10-7

15. Auditing Other Areas ...................................................................................................................... 10-9

16. Comparisons of SSARS and SAS Engagements ........................................................................... 10-10

17. Prospective Financial Statement Summary .................................................................................... 10-11


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APPENDIX: AUDIT COMMUNICATIONS

1. Examples of Audit Communications

Internal Control Communication ............................................................................... ............... 11-3

Letter of Audit Inquiry .............................................................................................................. 11-4

Management Representation Letter ........................................................................................ 11-5

Standard Unqualified Auditor Report ....................................................................................... 11-7

Combined Audit Report : Issuers ............................................................................................ 11-8

Auditor's Report that Refers to Another Auditor's Work .......................................................... 11-10

Going Concern Paragraph ...................................................................................................... 11-11

Qualified Opinion: GAAP Problem .......................................................................................... 11-12

Qualified Opinion: GAAS Problem .......................................................................................... 11-13

Adverse Opinion ...................................................................................................................... 11-14

Disclaimer of Opinion .............................................................................................................. 11-15

Comparative Financial Statements: Change in Opinion .......................................................... 11-16

Comparative Financial Statements: Different Opinions ........................................................... 11-17

Special Report OCBOA ........................................................................................................ 11-18

SSARS Review Report ........................................................................................................... 11-19

SSARS Compilation Report .................................................................................................... 11-20

Review of Interim Financial Statements .................................................................................. 11-21

Attestation Report on Internal Control ..................................................................................... 11-22

Compilation of Financial Forecast ........................................................................................... 11-24

Examination of Financial Forecast .......................................................................................... 11-25