Effect of IT on the Audit
Using computers in Auditing may affect the Methods used to review the work of staff assistants because of why?
Audit documentation may not contain readily observable details of calculations - When using computers in an auditing task, audit documentation may not contain readily observable details of calculations (e.g., present value calculations). In order to review assistants' work, a supervisor may have to examine the formulas used on the computer rather than simply examining the audit documentation.
The primary objective of an auditor when considering the acceptance of an initial audit engagement of a nonissuer is what?
Establish whether the preconditions for an audit are present.
In which circumstance can an auditor rely on an internal auditors work?
When the auditor can make a positive assessment of the internal audit departments' objectivity and competence.
Audit documentation should be prepared in enough detail so that, what?
An auditor who wishes to capture an entity's data as transactions transactions are processed and continuously test the entity's computerized information system most likely would use which technique?
Embedded Audit Module - Embedded Audit Modules are sections of an application program code that collect transaction data for the auditor. Such modules allow the auditor to capture specific data as transactions are being processed.
A successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor's 1) Engagement Letter and/or 2) Working Papers (i.e. 1, 2, neither, or both)
#2 only - It is not appropriate for the auditor to request a review of the predecessor auditor's engagement letter. This is a business matter between the client and the predecessor auditor that has no impact on the current period audit. Conversely, review of the predecessor auditor's working paper (audit documentation) is appropriate and customary to facilitate the auditor's audit.
Assess the competency of both the internal auditor and the specialist.
Based on PCAOB standards, what best describes the documentation completion date?
Forty-five days from the report release date.
What computer-assisted audit technique permits an auditor to insert the auditor's version of a client's program to process data and compare the output with the client's output?
Parallel simulation - The client's input data is processed through both the auditor's version of the client's program and the client's program and the output is compared.
Hill, CPA, has been retained to audit the financial statements of Monday Co. Monday's predecessor auditor was Post, CPA, who has been notified by Monday that Pot's services have been terminated. Under these circumstances, which party should initiate the communications between Hill and Post?
Hill, the successor auditor - The initiative to communicate with the predecessor auditor rests with the successor auditor. Note, however, that the successor auditor must first receive permission from the client.
What factor would most likely assist an independent auditor in assessing the objectivity of the internal auditor?
The organizational status of the director of internal audit. (i.e. to whom does the director report)
Copies of debt agreements would most likely be kept in what part of the audit file?
The permanent (continuing) file, which includes items with continuing audit significance.
As part of a fraud Audit, a CPA wishes to identify employees with invalid Social Security numbers in the client's payroll-transaction data. What audit test of controls using computer-assisted audit techniques would best meet the objective.
Comparing Social Security numbers paid in the payroll transaction file to a file of government-authorized Social Security Numbers.
Which auditor concern most likely could be so serious that the auditor concludes that the financial statement audit cannot be performed?
There is a substantial risk of the intentional misapplication of accounting principles.
During a financial statement audit an internal auditor may provide direct assistance to the independent CPA in performing which? (i.e. either, neither, or both)
1) Test of controls and/or; 2) Substantive tests
Both - The work of an internal auditor may aid the external auditor in obtaining an understanding of internal control, assessing risk, and performing substantive tests, including tests of controls.
An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but contains columns for what?
Reclassifications and adjustments