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8/10/2019 Audit Program CPA Exam OOFs
1/11
8/10/2019 Audit Program CPA Exam OOFs
2/11
276
Problem5
MODULE
3
EVIDENCE
,/,,o*^u
(15
o
25 minutes)
Analytical
proceduresonsist
f evaluations
f finan-
cial
nformation
madeby
a studyof
plausible
elationships
among
oth inancial
and
nonfinancial ata.
They
ange
from simple omparisons
o
theuseof complex
models n-
volving many
elationships
ndelements
f data.
They n-
volve
comparisons
f recorded
mounts,
r ratiosdeveloped
from recorded
mounts,o
expectations
eveloped
y the
auditors.
Required:
a.
Describe
hebroad
purposes
fanalytical
procedures.
b.
Identify he sources
f
information
rom
whichan audi-
tor develops
xpectations.
c.
Describehe
actors hat
nfluence n
auditor's onsid-
eration f the
eliability
of data
or
purposes
f
achieving
auditobiectives.
Problem
9
(15
o
25 minutes)
Cole
& Cole,
CPAs,are
auditing he
inancial
tate-
ments f Consolidated
ndustries
o.
or
the
year
ended
December
1,
2001. On
April 2,2002,
an
nquiry etter o
J.
J. Young,
Consolidated's
utside
ttorney,
as
drafted o
corroborate
he
nformation
urnished
o Cole
by manage-
mentconcerning
ending
nd
hreatened
itigation, laims,
and
assessments,
ndunasserted
laims
and
assessments'
On
May 6,2002,C. R. Brown,Consolidated's hiefFinan-
cial Officer,
gave
Colea draft
ofthe
inquiry
etterbelow
or
Cole's
eview
before
mailing t to
Young.
Required:
Describe
he omissions,
mbiguities,
nd
nappropriate
statements
nd
erminology
n
Brown's
etterbelow.
J. J.
Young.
Attorney t
La w
123Main
Street
Anytown,
US A
Dear .J.
Young:
In connection
ith
an
auditof our
flnancial
tatements
at
December
,
200
,
and
or the
year
henended,
man-
agement
f the
Company
as
prepared,
nd
umished o
our
auditors,
ole
& Cole,CPAs,456
Broadway,
nytown,
USA,
a description
ndevaluation
f
certain ontingencies,
including
hose
et orth below
nvolving
matters
ith
re-
spect
o
which
you
havebeenengaged
nd
o
which
you
havedevoted
ubstantive
ttention
n
behalf
of the Com-
pany
n the
orm of legalconsultation
r representation.
Your
response
hould nclude
mattershat
existed t
De-
cember
,
200 . Because
f theconfidentiality
f all these
matters,
our
response
ay be
imited.
In November
001,an action
wasbrought
against
he
Company
y
an outside
alesman lleging
breach
f con-
tract
or sales
ommissions
nd
pleading second ause
f
action
or an
accounting
ith respecto claims or feesand
commissions.
hecauses
f action laim
damages
f
$300,000,
ut
the Company
elieves
t has
meritorious
e-
fenseso the
claims.
The
possible
xposure
f the Company
to
a successfut
udgment
on behalf
of the
plaintiff
s slight.
In July
199'7, n action
wasbroughtagainst
he Cont-
pany
by Industrial
Manufacturing
o.
(Industrial)
lleging
patent nfringement
ndseeking
amages
f
$20,000,000.
The
action
n US
DistrictCourt
esulted
n
a
decision n
October
16,2001,
holding
hat he Company
nfringed
seven
ndustrial
atents
nd
awarded
amages
f
$14,000,000.
he Company
igorously enies
hese
lle-
gations
nd
has
iled an appeal
with the US
Courtof
Ap-
peals or theFederalCircuit. The appeal rocesss ex-
pected
o take
approximately
wo
years,
but
there
s
some
chance
hat
ndustrial
may ultimately
revail.
Please
urnish o our
auditors
uchexplanation,
f
any,
that
you
consider
ecessary
o supplement
he
oregoing
information,
ncluding
an explanation
f those
matters
as o
which
your
views
may differ
from those
statedand an
den-
tification
of
the omission
of any
pending
or
threatened
iti-
gation,
laims,
and
assessments
r a statement
hat he
ist of
such
matters
s complete.
Your
response
aybe
quoted
r
referred
o in the
financial statements
ithout
further corre-
spondence
ith
you.
(15
o
25minutes)
Bell, CPA,
wasengagedo audit he inancial tate-
mentsof Kent
Company,
continuing
uditclient.
Bell
is
about o audit
Kent's
payroll
ransactions.
ent uses
n n-
house
ayroll
department
o compute
ayroll
dataand
pre-
pare
anddistribute
ayroll
checks.
During he
planning
rocess, ell determinedhat
he
inherent isk
of overstatement
f
payroll
expense
s high.
In
addition,
Bell obtained
n understanding
f
internal ontrol
and
assessedontrol
isk
at
he
maximum evel
or
payroll-
related ssertions.
Required:
Describeheaudit
procedures
ell
should onsider
er-
forming n the auditof Kent'spayroll ransactionso ad-
dress he
risk of overstatement.
o not discuss
ent's n-
ternal
ontrol.
Problem
7
appears
n the
ollowing
page.
Problem E
(15
o
25 minutes)
Green,
CPA,
s auditing he
inancial tatements
f
TaylorCorporation
or the
year
ended
December 1,
2001.
Green
lans
o complete
he ieldwork
andsign he
auditor's
report aboutMay 10, 2002. Greens concerned bout
events nd ransactions
ccurring
fter
December 1,
2001,
that
may affect he
2002 inancial
statements.
Required:
a.
What
are
he
general
ypesof
subsequent vents
hat
requireGreen' consideration
ndevaluation?
b. What are
he auditing
proceduresGreenshould
con-
sider
performing
o
gather
evidence
oncerning ubsequent
events?
8/10/2019 Audit Program CPA Exam OOFs
3/11
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8/10/2019 Audit Program CPA Exam OOFs
4/11
.
OTHEROBJECTIVEOUESTIONS
[/( T
'
Problem
I
262
F
nancal s atement
s e tion
A.
Completeness
B.
Existence
r Occurrence
C. Presentation
nd
Disclosure
D.
Rights
andObligations
E.
Valuation
r Allocation
MODULE
3 EVIDENCE
(15
o 25 minures)
Audit
procedure
F.
Examine
urrent endors'
price
ists.
G. Review
drafts
of the inancial tatements.
H.
Select
sample f items
during he
physical
nventory
ountanddetermine
that heyhave
been
ncluded
n count
sheets.
L
Select sample
f recordedtems
andexamine upporting
endors'
nvoices
andcontracts.
J.
Select sample
frecorded tems
on countsheets
uring he
physical
nven-
tory count
anddetermine
hat
tems
are
on
hand.
K.
Test easonableness
f
direct
abor
ates.
In
obtaining videntialmatter
n support
ffinancial
statement
ssertions,he auditor
develops
pecific udit
objectivesn
light
ofthoseassertions.
udit
procedures
re hen
selectedo
accomplish udit
objectives.
Required:
Your
client s Hillmart,
a retaildepartment
tore
hatdoesno
production.
For
each pecific nventory
uditobjectiveisted
below
select he most
closely elated
inancial
tatement
ssertion nd he most
appropriate
udit
procedure.
inancial
tate-
ment
assertions
ndaudit
procedures
ay
be selected
nce,more
hanonce,or not at
all.
Specificaudit obiective
1.
The entityhas
egal
itle o
inventories.
2. Recorded
nventory
uantities
nclude
all
products
n hand.
3. Inventories
re educed,
henappropriate,
o replacement
cost
or net ealizable
alue.
4.
Costof inventories
s
properly
alculated.
5. The major
categories
f inventories
nd heirbasis
of
valua-
tion
areadequatelyeported
n the inancial
tatements.
Problem
2
(15
o 25 minutes)
To
support inancial
tatement
ssertions,
n auditordevelops
pecific udit
objectives. he
auditor hen
designs ubstan-
tive tests
o
satisfy
or accomplish
achobjective.
Required:
Items
I through
10 represent
uditobjectives
or
the
nvestments,
ccountseceivable,
nd
property
ndequipment
c-
counts.
To the ight
of each et
of audit
objectivess
a
listing
of
possible
udit
procedures
or that
account.For
eachauditob-
jective,
select he
audit
procedure
hat would
primarily
espond
o the objective.
Select nly
one
procedure
or
each
auditob-
jective.
A
procedure
maybe selected
nly
once,or not
at all.
Items
to be answered
l .
Audit
obiectives
br
investments
Investments
re
properly
described
nd
classifiedn
the inancial tatements.
Recorded
nvestments
epresentnvestments
ctually
owned
at hebalance heet
ate.
Trading nvestments reproperlyvaluedat fair market
valueat
thebalance heet
ate.
Audit
n
oc
edure
fo
investment
Traceopening
alancesn
the subsidiaryedger
o
prior
year's
auditworking
papers.
Determine
hatemployees
ho are
authorizedo sell
investments
o not
haveaccess
o cash.
Examine
upporting
ocumentsor
a sample
f
invest-
ment ransactionso verifv thatorenumbered ocu-
ments
areused.
Determine
hat
any
mpairments
n
the
price
of
invest-
ments
havebeen
properly
ecorded.
Verify that transfers
rom the
current o the noncurrent
investment
ortfolio
have
been
properly
recorded.
Obtain
positive
onfirmations
sof
thebalance heet
dateof investments
eld
by independent
ustodians.
Trace nvestment
ransactions
o
minutes
f theBoard
of Directorsmeetings
o determine
hat ransactions
were
properly
authorized.
)
3.
8/10/2019 Audit Program CPA Exam OOFs
5/11
MODALE
3
EVIDENCE
263
4.
Audit objectives
or
accounts
eceivable
Accounts
eceivable
epresent ll
amounts
owed o the
entityat
he balance
heet ate.
The entity
has egal
right to all accounts
eceivable t
the balance
heet ate.
Accounts
eceivable restated
t
net ealizable
alue.
Accounts eceivable reproperlydescribed ndpre-
sented
n the inanci al
tatements.
Audit obiectives.for
ropertv
& equipment
The entity
has egal
ight o
property
ndequipment
acquired
uring
he
year.
Recorded
roperty
nd
equipment
epresent ssets
hat
actually
xist
at hebalance
heet ate.
Net
property
nd
equipment re
properly
aluedat he
balance heet
ate.
Audit
Drocedures
or
accounts
eceivable
A.
Analyze he
relationship
of accounts
eceivable
nd
sales nd
compare
t
with relationships
or
preceding
periods.
B. Perform
sales utoff
tests
o obtain assurance
hat
sales
transactions
ndcorresponding
ntries
or inventories
andcostofgoods
sold
are
ecordedn the
same nd
properperiod.
C. Review he aged rial balanceor significant astdue
accounts.
D. Obtainan
understanding
fthe
business
urpose
f
transactions
hat
esulted
n accounts
eceivable al-
ances.
E. Review
oanagreements
or indications
f
whether
accounts
eceivable
avebeen actored
r
pledged.
F.
Review he
accounts
eceivable
rial balance
br
amounts ue
rom officers
and
employees.
G.
Analyze
unusual
elationships
etween
monthly
ac-
counts
eceivable
alances
nd
monthlyaccounts
ay-
ablebalances.
C .
D.
E.
F.
G.
Audit
procedures
for
propert!
&
eauipment
Traceopening
alances
n the summary
chedules
o
the
prior year's
audit
working
papers.
Review he
provision
or depreciation
xpense
nd
determine
hat
depreciable
ives
and
methods
sed
n
thecurrent
ear
areconsistent
ith those sed
n the
prior
year.
Determine
hat he
esponsibility
or
maintaininghe
property
and
equipment
ecords
s segregated
rom
the
responsibility
br custody
f
property
ndequipment.
Examine
eeds
nd itle
nsurance ertificates.
Perform
cutofftests
to
verify that
property
and equip-
mentadditions
re
ecorded
n the
proper
period.
Determine
hat
property
nd
equipment
s adequately
insured.
Physically
xamine
ll
major
property
nd
equipment
additions.
6.
8.
9.
10.
(15
o
25 minutes)
Analytical
procedures
rean
mportant
art
ofthe audit
process. hey
consist
fevaluations
ffinancial
nformation
made
studyof
plausible
elationships
mong
oth
inancialand
nonfinancial ata.
Analytical
procedures
aybe
performed
planning,
sa substantive
est,
or asa
part
ofthe overall
eviewofan audit'
For
tems through
10, select
he stage
f the audit
or which he
statement
s mostaccurate
sing
he
ollowing
eplies:
he audit.
eview.
s not correct oncerning
nalytical
rocedures.
may be selected
nce,
more han
once,or not at
all.
be answered oncerning
analytical
procedures
required o
be
performed
during
this stage.
ocuson enhancing
he
auditor's nderstanding
fthe client's
business
nd he
ransactions
ndevents
hat
have
occurred
ince he as taudit
date.
ocus on
identifying areas
hat
may represent pecific
isks relevant o
the audit.
8/10/2019 Audit Program CPA Exam OOFs
6/11
MODULE 3
EVIDENCE
Statements,
uestions,
xcerpts, nd
comments
We have
no
plans
or
intentions hat
may materiallyaffect
he canying
value or
classification
f assets nd
iabilities.
As
discussed
n Note
14 o the
inancial tatements,
he Company
ashad
numerous ealings
with businesses
ontrolled y,
and
people
who are
elated
to, the
officersof the
Company.
There
were unreasonable elays
by
management
n
permitting
he commence-
mentof the auditand n providingneedednformation.
If this statement
s not correct,
lease
write
promptly,
using
heenclosed
nve-
lope,and
give
details f
anydifferences
irectly
o our auditors.
The Company
as
suff'eredecurring
osses
rom
operations
nd
hasa net
capitaldeficiency
hat
aises ubstantial
oubtabout
ts ability o continue
sa
going
concern.
(15
o 25 minutes)
Items
I through 15
represent
series f unrelated
rocedures
hatan accountant
ay consider
erformingn
separate
n-
o
review he
lnancial tatements
f a
nonpublic ntity
a
review)and o
compile
he
inancial tatements
f a non-
entity acompilation).Select, s hebestansweror each tem,whether heprocedures required&l or not required
,
for
both
eviewand
compilation
ngagements.
ake wo
selections
or
each
tem.
Procedures
accountant
hould
stablishn
understanding
ith
9.
theentity
egardinghe
nature nd
imitations f the
ser-
vices o be
perfbrmed.
10.
The accountant
hould
make
nquiries oncerning
ctions
takenat he board
of directors'
meetings.
The accountant,
s he
entity's
successorccountant,
ll .
should
ommunicate
ith the
predecessor
ccountant
o
obtain
accesso the
predecessor'sorking
papers.
The accountanthouldobtaina evelof knowledge f the 12.
accounting
rinciples
nd
practices
f
theentity's
ndus-
try.
The accountant
hould
obtainan understanding
fthe
13.
entity's
nternal ontrol.
The accountant
hould
perform
analytical
rocedures
designed
o
identify elationships
hatappear
o be un-
14.
usual.
The accountant
houldmakean
assessment
fcontrol
risk.
The accountant
hould end
a letterofinquiry
to theen-
15'
tity's attomey o corroboratehe nformationurnished y
managementoncerning
itigation.
269
.
.
The accountant
hould
obtaina
management
epresenta-
tion
etter
rom the entity
The accountant
hould
study he
elationshipsf
the i-
nancial tatement
lements
hatwould be expected
o
conform
o a
predictable
attern.
The accountant
hould
ommunicate
o the
entity'ssen-
ior management
llegalemployee
ctsdiscovered
y
the
accountant
hatare
clearly
nconsequential.
The accountanthouldmake nquiries boutevents ub-
sequento the
dateof
the
inancial tatements
hat
would
have
a
material ffect
on the
inancial tatements.
The accountant
hould
modify he
accountant's
eport
f
there s a change
n
accounting
rinciples
hat
s ade-
quately
isclosed.
The
accountant
hould
ubmita hardcopy
of the
inan-
cial statements
nd
accountant's
eport
when he
inan-
cial
statements
ndaccountant's
eportaresubmitted
n
a computer
isk.
The accountant
hould
perfbrm
specific
procedures
o
evaluate
hether here
s substantial
oubtabout
heen-
tity'sabil ity
o continue
sa going oncern.
/
(15
o 25 minutes)
Items
I through
L2 represent
ossible
errorsand
rregularities
hat an auditor
suspects
re
present.
The accompanying
lsl
Procedures
epresents
rocedures
hat
the auditor
would consider
performing o
gather
evidence
oncerning
ossi-
and
rregularities.
For each tem,
selectone or two
procedures,
s
ndicated,
hat the
auditor most
ikely
would
per-
gather
evidence
n support
ofthat
item. The
procedures
n the
ist may be selected
nce,
more han
once,or
not at all.
8/10/2019 Audit Program CPA Exam OOFs
7/11
270
MODULE 3 EVIDENCE
Possible
misstatementsue o errors and
fraud
1. The
auditor
uspects
hat
a kiting scheme
xists ecause n accounting epartmentmployee
ho
can
ssue
and
ecord
checks eemso be eading n unusuallyuxurious ifestyle.
(Select
nly L
procedure)
2. The
auditor
suspects
hat
he controllerwrote
several hecksand recorded he cashdisbursementsjust efore
year-end
ut
did not mail the checksuntil after he first week of
the
subsequent
ear.
(Select
only L
procedure)
3. The entity borrowed unds rom a financial nstitution. Although the transactionwas
properly
ecorded, he auditor sus-
pects
hat
he oan
created
lien
on theentity's
eal
estatehat s not disclosed
n its financial
tatements.
Select
nly
1
procedure)
4. The auditor iscovered n unusuallyarge eceivablerom
oneofthe entity's
new customers. he
auditor
uspects
hat he
receivable
ay be
ictitious
becausehe auditorhasneverheard
f
the customer ndbecausehe auditor's nitial attempt o
confirm he eceivable asbeen gnored
y thecustomer.
Select
nly 2
procedures)
5. The
auditor
uspectshat ictitious
employees
ave
been
placed
n the
payroll
by theentity's
payroll
supervisor,
ho has
accesso
payroll
ecords
nd o the
paychecks.
Select
nly I
procedure)
6. The auditor uspectshatselected mployees
f theentity
eceived
nauthorized
aisesrom
the entity's
payroll
supervisor,
who hasaccesso
payroll
ecords.
Select
nly I
procedure)
7. Theent i ty 'scashreceiptsof thef i rst fewdaysof thesubsequent yearwereproper lydeposi tedin i tsgeneral
perat ingac-
countafter he
year-end.
However,
he auditor uspectshat he
entity
ecordedhecash eceiptsn its booksduring he
lastweekofthe
year
underaudit.
Select
nly
I
procedure)
8. The auditor uspectshatvouchers ereprepared ndprocessedy an accounting epart ment mployeeor merchandise
that
wasneither
rdered
or received
y the entity.
(Select
nly 1
procedure)
9. The
details f
invoices br
equipmentepairswerenot clearly dentified r explainedo the accounting epart ment mploy-
ees.
The
auditor uspectshat hebookkeepernconectly ecordedhe epairs s ixed assets.
Select
nly I
procedure)
10. The
auditor
uspectshata lapping
cheme xistsbecause n accounting epar tmentmployeewho hasaccesso cash e-
ceiptsalsomaintainshe accountseceivableedger
nd
efuses
o take
any vacation r sick
days.
Select
nly
2
proce-
dures)
I l. The
auditor uspectshat heentity s inappropriatelyncreasing
hecash
eported n its balance
heet
y drawing
a check
on
oneaccount nd
not recordingt
asan outstandingheckon thataccount ndsimultaneouslyecordingt asa deposit n
a second ccount.
Select
nly I
procedure)
12. The
auditor
uspects
hat heentity'scontroller asoverstatedales ndaccountseceivable y recordingictitioussales o
regular
ustomers
n
theentity's
books.
Select
nly 2
procedures)
B .
C .
List
of audi
Compare he detailsof the cash eceipts
ournal
entrieswith
the detailsofthe correspon ding aily depositslips.
Scan he debits o the
ixed
asset ccounts nd vouch se-
lected
amounts o
vendors'
nvoicesand manasement's u-
thorization.
Perform analytical
procedures
hat compare
documented
authorized
ay
rates
o the entity's budgetand
orecast.
Obtain the cutoff bank statementand compare
he cleared
checks o the
year-end
ank
reconciliation.
Prepare
bank ransfer chedule.
Inspect
he entity's deeds o
its real
estate.
Make inquiries
of the entity's attorneyconcerning he
de-
tails of
real
estate ransactions.
Confirm the terms
of borrowing arrangementswith the
lender.
Examine selected
equipment
repair
orders and supporting
documentationo determine he
propriety
of the charges.
Send equests o confirm the entity's accounts eceivable
n
a surprise basis at an interim
date.
Send a second equest or confirmation
of the
receivable
o
the customerand make nquiriesof a reputable
redit
concernins he customer's reditworthiness.
res
L. Examine
he
entity's shipping
documents o
verify
that he
merchandise
hat
produced
he
receivablewas
actuallysent o
the customer.
M. Inspect
he
entity's
correspondence
iles for indications
of
customerdisputes
or
evidence hat certainshipmentswere
on consignment.
N. Performedit checksof dataon the
payroll
transaction apes.
O. Inspect
payroll
checkendorsementsor similar handwriting.
P. Observe
payroll
checkdistributionon a surprise asis.
Q.
Vouch data
n the
payroll
register
o documented uthorized
pay
rates n the human esources
epartment's
iles.
R. Reconcile
he
payroll
checkingaccountand determine
f
there
were
unusual ime
lags
between he
ssuance
nd
pay-
ment ofpayroll checks.
S. Inspect the
file
ofprenumbered
vouchers or
consecutive
numbering and
proper
approval by an appropriate employee.
T. Determine that the details
of
selected
prenumbered
vouchers
match he
relatedvendors'
nvoices.
U. Examine he supporting
purchase
rdersand receiving e-
ports
fbr selected
paid
vouchers.
D.
E.
F.
G.
H.
I.
J .
K.
8/10/2019 Audit Program CPA Exam OOFs
8/11
MODALE 3
EVIDENCE
12
(15
o 25 minutes)
This
consists f
19 tems. Select hebestanswer
or
each
tem. Usea No. 2
pencil
o blacken he appropriate
valson the
Answer
Sheet
o indicate
your
answers.
Answer all items. Your
grade
will be basedon the
total numberof correct
Items
I through 19 represent series funrelated
tatements,
uestions,
xcerpts,
ndcommentsaken
rom various
arts
workingpaper ile. On thenextpage heres a listof the ikely sources f thestatements,uestions,xcerpts,
comments.Select, s he
bestanswer or each
tem,
he
most ikely source.Select nly
one source
or
each
tem. A source
be selected
nce,more hanonce,or
not at all.
our auditwe discovered vidence
f thecompany'sailure o safeguard
nventory
rom oss,damage, nd
misap-
propriation.
The company ons idershedecline
n
value
of equity
securities lassified savailable-for-sale
o be emporary.
Was
hedifference
f opinionon the accrued
ension
iabilities hatexisted etween
he engagement
ersonnel
nd he
actuarial
pecialistesolved
n
accordance
ith
firm
policy
andappropriately
ocumented?
Our audit
s designedo
provide
easonablessurancef detecting
misstatementshat,
n our
udgment,
ould
havea mate-
rial effbcton the
inancial tatementsakenasa
whole. Consequently,ur audit
will not necessarilyetect
ll misstate-
ments hatexistdue o efTor,
raudulentinancial eporting, r
misappropriationf assets.
havebeenno communicationsiom regulatory genciesoncerning oncompliance ith or deficienciesn financial
reporting
ractices.
Nothingcame o our attentionhat
caused s o believe hatat October
,
2000, here
wasanychange
n
thecapital
stock,
increasen long-term ebt,
or decrease
n
consolidated
etcurrent ssets r stockholders'
quity
as
compared
ith
the
amounts
hown n the September
0. 2000unaudited ondensed
onsolidatedalance
heet.
our
opinion hat he
possible
iabil ity o thecompany
n
this
proceeding
s
nominaln amount.
As discussed
n Note4 to the
inancial tatements,hecompany xperienced
net
oss or the
year
ended uly 3
,
2000,
andiscurrent ly indefaul tundersubstant ia l lya l l
f i tsdebtagreements.
naddi t ion,onSeptember25,2000, thecompany
filed a
prenegotiated
oluntary
etition
br relief underChapter
I of the US Bankruptcy
Code.
Thesematters aise ub-
stantial oubt bout
hecompany's bil ity
o continue sa
going
oncern.
year
underaudit,
we wereadvised hatmanagementonsulted
ith Better
& Best,CPAs.
The
purpose
f this
consultation as o obtainanotherCPA firm's opinionconcerninghecompany's ecognition f certainevenuehatwe
believe
hould
be deferred
o future
periods.
Better& Best'sopinion
was
consistent
ith our opinion,so management
id
not
recognize
he
revenuen thecurrent
ear.
any elieveshatall
material xpenditureshat
havebeendeferredo
future
periods
will
be
recoverable.
of
professional
udgment
and he assessment
f audit isk andmateriality
or the
purpose
f our auditmean hat
mattersmay haveexisted hat
would havebeenassessedifferently y
you.
We
makeno representations o the
suffi-
ciency
or appropriatenessf the
nformationn our working
papers
br
your purposes.
n
the space
rovided
elow
whether
his
nformation grees
ith
your
ecords.
f
thereare
exceptions,
lease
provide
any nformation hat
will
assist
he auditor n reconciling hedifference.
checks re
maintainedn an unlocked abinet
longwith the check-signing
achine.
Blank
checks
nd he check-
signing
machine houldbe ocked
n
separate
ocationso
prevent
heembezzlement
f
funds.
cannot e
reliedupon o disclose
ignificant eficiencies
n
thedesign
r operation
finternalcontrol.
Neverthe-
less,
we will
communicate
o
you
all
reportable onditions nd
potential
reas
or improvement
hatwe become ware f
during
hecourse f our audit.
imetable etby
managemento complete ur audit
was
unreasonable
onsidering
he ailureof the company's
erson-
nel o complete chedules
n a timely basisand
delays n
providing
necessary
nformation.
mployees avedisabled
he antivirus etection oftware
n theirPCsbecause
he software lows he
processing
of dataand
occasionallyings
alse
alarms.
The company houldobtain
antivirus oftware
hat unscontinuously
t all
system ntry
points
and hatcannot e disable
y unauthorized
ersonnel.
connection
ith an auditof our
inancial tatements, anagement
as
prepared,
nd
urnishedo our auditors,
descrip-
tion andevaluation
f certain ontinsencies.
271
8/10/2019 Audit Program CPA Exam OOFs
9/11
272
MODALE 3
EVIDENCE
18. The company
asno
plans
or
intentions
hat
may materially ffect
hecarrying
alueor classification
f assets nd
iabili-
t ies.
19. In
planning
he sampling
pplication,
as
appropriate
onsideration
iven
o the
elationship f the sample
o the audit
objective
nd o
preliminary
udgments
bout
materialityevels?
A.
B .
C.
D.
E.
F.
List
of
Sources
Practitioner'seporton
management'sssertion
I.
aboutan entity's
compliance
ith
specified
e-
J.
quirements.
K.
Auditor'scommunicationsn
reoortable onditions.
L.
Audit
inquiry etter o legalcounsel.
Lawyer's
esponseo audit
nquiry etter.
Audit
committee's
ommunication
o the auditor.
Auditor'scommunication
o the audit
committee
(other
han
with respecto
reportable onditions).
Reporton the application
faccounting
rinciples.
Auditor'sengagement
etter.
Letter
br underwriters.
Accountseceivable onfirmationequest.
Request
or bankcutoff statement.
Explanatory
aragraph
fan auditor's
eporton fi-
nancial
tatements.
Partner's
ngagement
eview oles.
Management
epresentationetter.
Successor
uditor's ommunication
ith
predecessor
auditor.
Predecessor
uditor's ommunication
ith
successor
auditor.
M .
N.
o.
P.
.
H.
Problem13
(15
o
25 minutes)
Required:
a.
Items I through
10 representick
marks
symbols)
hat ndicate
rocedures
ertbrmed
r comments
ocumented
n
audil
ing the Long-term debt
account f
AmericanManufacturers,
nc.
Select,
rom
the
ist of
procedures/comments
elow, he
procedure/comment
hat heauditor
most ikely
performed/documentedt each
point
of the audit
wherea tick mark
wasmade
on
the
working
papers.
Select
nly one
procedure/comment
or each
tem. A
procedure/comment
ay be selected
nceor
not
at all.
Assume hat he
working
papers
bot andcrossfoot.
b. Items 1 through 18
representick marks
symbols)
hat ndicate
rocedures
ertbrmed
r comments ocumented
n
au-
diting he
Property,
plant,
and equipment
andAccumulated
depreciation
accounts f
AmericanManufacturers,
nc. During
the
year
under
audit,American
Manuf'acturers
urchased
ewcomputers irectly
rom
wholesalersndconstructed
n addition
tooneof i tsbui ld ings.hecompany'semployeesalsorefurbishedthef ixturesofseveralo lderbui ld ings.e lect , f iomthel ist
of
procedures/comments
elow, he
procedure/comment
hat he auditor
most ikely
performed/documentedt each
point
of the
audit
wherea tick mark
wasmadeon the working
papers.
Select
nly one
procedure/commentor each
tem. A
proce-
dure/comment
aybe
selected nceor not at all.
Assume
hat
he working
papers
oot
andcrossfbot.
8/10/2019 Audit Program CPA Exam OOFs
10/11
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