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Analytical procedures performed in the overall review stage of an audit suggest that several accounts have unexpected relationships. The results of these procedures most likely would indicate that:
Choice 'c' is correct. If analytical procedures suggest unexpected relationships, the auditor would perform additional tests of details of the accounts involved.
Choice 'a' is incorrect. The identification of unexpected relationships as a result of analytical procedures does not necessarily mean that irregularities exist in the relevant account balances, although this is a possible Explanation: .
Choice 'b' is incorrect. The identification of unexpected relationships as a result of analytical procedures does not necessarily mean that internal control activities are not operating effectively, although this is a possible Explanation: .
Choice 'd' is incorrect. The identification of unexpected relationships as a result of analytical procedures does not necessarily mean that communication with those charged with governance should be revised, although this is a possible consequence.
A report on a nonissuer's internal control should include a statement limiting the use of the report when:
Choice 'c' is correct. When management's assertion is presented based on criteria that are only appropriate for or available to specific parties, the report should contain a statement limiting its use. Examples include reports based on criteria specified by a regulatory agency and reports based on criteria agreed to by management and some other specified party.
Choice 'a' is incorrect. There is no requirement to limit the use of the report when management's assertion accompanies the CPA's report.
Choice 'b' is incorrect. When management's assertion is presented as a representation letter to the CPA, the report should include a statement of management's assertion, but there is no requirement to limit the use of the report.
Choice 'd' is incorrect. Management is required to present its written assertion about the effectiveness of the entity's internal control as a condition of engagement performance.
The auditor's report on internal controls and compliance with laws and regulations in accordance with Government Auditing Standards (the Yellow Book), is required to include:
i. The scope of the auditor's testing of internal controls.
ii. Uncorrected misstatements that were determined by management to be immaterial.
Choice 'a' is correct. The scope of the auditor's testing of internal controls is required to be included in the auditor's report on internal controls and compliance with laws and regulations in accordance with Government Auditing Standards (the Yellow Book).
Choices 'b' and 'c' are incorrect. Immaterial uncorrected misstatements are not included in the auditor's report on internal controls and compliance with laws and regulations.
Choice 'd' is incorrect. The scope of the auditor's testing of internal controls is required to be included in the auditor's report on internal controls and compliance with laws and regulations in accordance with Government Auditing Standards (the Yellow Book).
An auditor of a nonpublic company must conduct the audit in accordance with:
i. ASB standards.
ii. PCAOB standards.
Choice 'a' is correct. An auditor of a nonpublic company must conduct the audit in accordance with ASB standards.
Choice 'b' is incorrect. An auditor of a nonpublic company is not required to conduct the audit in accordance with PCAOB standards.
Choice 'c' is incorrect. While an auditor is only required to conduct the audit in accordance with ASB standards, the auditor may choose to follow PCAOB standards as well.
Choice 'd' is incorrect. An auditor of a nonpublic company is not required to conduct the audit in accordance with PCAOB standards.
An accountant had begun to audit the financial statements of a nonissuer. Which of the following circumstances most likely would be considered a reasonable basis for agreeing to the entity's request to change the engagement to a compilation?
Choice 'c' is correct. An audit may be changed to a compilation or review due to a change in client requirements. Since the creditors no longer require audited financial statements, this is a valid reason for requesting a change.
Choices 'a', 'b', and 'd' are incorrect. Client-imposed scope limitations, such as refusing to provide a signed representation letter, prohibiting correspondence with legal counsel, or refusing to allow examination of board minutes, are indicative of a lack of cooperation by management. Such limitations would not be a valid basis for changing an engagement from an audit to a compilation.
