Sample Questions
Question 1
Easy
A positive confirmation request asks the respondent to:
Solution
B is correct.
Under AU-C 505.06, a positive confirmation request asks the respondent to respond directly to the auditor in all cases -- by either confirming the information provided is correct, indicating any differences, or providing the requested information. This provides the auditor with direct evidence regardless of whether the balance is confirmed or disputed.
Under AU-C 505.06, a positive confirmation request asks the respondent to respond directly to the auditor in all cases -- by either confirming the information provided is correct, indicating any differences, or providing the requested information. This provides the auditor with direct evidence regardless of whether the balance is confirmed or disputed.
Question 2
Medium
During fieldwork, management refuses to provide a written representation about the completeness of related-party transactions and relationships. The auditor should:
Solution
B is correct.
Under AU-C 580.19-.20, if management does not provide one or more of the required written representations, the auditor should discuss the matter with management, reevaluate the integrity of management, and determine the effect on the audit opinion. Refusal to provide a required representation is a scope limitation because the auditor is unable to obtain sufficient appropriate audit evidence. Depending on the significance, this may result in a qualified opinion or a disclaimer of opinion.
Under AU-C 580.19-.20, if management does not provide one or more of the required written representations, the auditor should discuss the matter with management, reevaluate the integrity of management, and determine the effect on the audit opinion. Refusal to provide a required representation is a scope limitation because the auditor is unable to obtain sufficient appropriate audit evidence. Depending on the significance, this may result in a qualified opinion or a disclaimer of opinion.
Question 3
Hard
An auditor of a nonissuer has aggregated the factual and projected misstatements identified during substantive testing. The aggregate exceeds performance materiality but is below overall materiality. Which of the following actions should the auditor take?
Solution
C is correct.
Under AU-C 450.07-.11, when the auditor identifies misstatements, the auditor should communicate them to management and request correction. If management refuses to correct some or all misstatements, the auditor evaluates whether uncorrected misstatements are material, individually or in the aggregate. When aggregate misstatements exceed performance materiality but are below overall materiality, the auditor may need to perform additional procedures to reduce the risk that remaining undetected misstatements, combined with uncorrected misstatements, could exceed overall materiality.
Under AU-C 450.07-.11, when the auditor identifies misstatements, the auditor should communicate them to management and request correction. If management refuses to correct some or all misstatements, the auditor evaluates whether uncorrected misstatements are material, individually or in the aggregate. When aggregate misstatements exceed performance materiality but are below overall materiality, the auditor may need to perform additional procedures to reduce the risk that remaining undetected misstatements, combined with uncorrected misstatements, could exceed overall materiality.
