Audit Exam

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EXAM 1
1.Deutsch & Thayer, CPAs' communications on significant deficiencies in internal control. Failure to safeguard inventory from loss, damage, and misappropriation is a significant deficiency in the design or operation of internal control that could adversely affect the fairness of the financial statements.

2.Management representation letter.
Management's discussion regarding the temporary nature of a decline in the value of equity securities provides information regarding recognition, measurement, and disclosure, and would be included in the management representation letter.

3.Partner's engagement review notes.
The engagement partner has ultimate responsibility for the performance of the audit and the preparation of the report. He or she would therefore want to ensure that any differences of opinion between engagement personnel and a specialist were resolved in accordance with firm policy and were appropriately documented.

4.Deutsch & Thayer's engagement letter.
An understanding with the client should be established, and this understanding should be documented through an engagement letter. The understanding, and the letter, should include the auditor's responsibilities, including the fact that an audit is designed to provide only reasonable assurance of detecting material misstatements, and therefore may not necessarily detect all misstatements that exist.

5.Management representation letter.
Management's statement that there have been no communications from regulatory agencies concerning noncompliance with or deficiencies in financial reporting practices provides information regarding the completeness of information, and would be included in the management representation letter.

6.Letter for underwriters.
In a comfort letter, negative assurance is provided with respect to changes in selected financial statement items during a period subsequent to the date and period of the latest financial statements included in the registration statement.

7.Lawyer's response to audit inquiry letter.
In response to an audit inquiry letter, a lawyer would provide corroboration regarding the likelihood of an unfavorable outcome to pending litigation and an estimate of any potential loss.

8.Explanatory paragraph of Deutsch & Thayer, CPAs' report on financial statements. When there is substantial doubt about an entity's ability to continue as a going concern, the auditor would state his or her concerns in an explanatory paragraph of the auditor's report.

9.Deutsch & Thayer, CPAs' communication to those charged with governance (other than with respect to significant deficiencies). Unless all of those charged with governance are also involved with managing the entity, the auditor should discuss with those charged with governance significant accounting or auditing matters that were the subject of outside consultation.

10.Management representation letter.
Management's discussion of its belief that all material expenditures that have been deferred to future periods will be recoverable provides information regarding recognition, measurement, and disclosure, and would be included in the management representation letter.

11.Predecessor auditor’s communication with Deutsch & Thayer, CPAs. An audit of a new client may be facilitated by review of the predecessor auditor's documentation. The predecessor should make it clear that they are not responsible for the sufficiency or appropriateness of the information in their audit documentation for the successor auditor's purposes.

12.Accounts receivable confirmation request.
Receivable confirmations request customers of the client to confirm balances and identify discrepancies.

13.Deutsch & Thayer, CPAs' communications on significant deficiencies in internal control. Failure to lock blank checks and the check-signing machine in separate locations is a significant deficiency in the design or...
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