CPA Exam: Auditing & Attestation

What type of audit opinion is issued when the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework?

An unmodified opinion (or unqualified opinion for issuers).

Define 'Inherent Risk' within the context of the audit risk model.

Inherent risk is the susceptibility of an assertion to a material misstatement, assuming there are no related internal controls.

What are the five components of internal control according to the COSO framework?

1. Control Environment, 2. Risk Assessment, 3. Control Activities, 4. Information and Communication, 5. Monitoring Activities.

Which financial statement assertion is primarily tested when an auditor 'vouches' from the accounting records back to source documents?

The Existence or Occurrence assertion.

Which financial statement assertion is primarily tested when an auditor 'traces' from source documents forward to the accounting records?

The Completeness assertion.

What is the primary difference between an audit and a review in terms of the level of assurance provided?

An audit provides high (reasonable) assurance, while a review provides limited (negative) assurance.

Is independence required for a compilation engagement under SSARS?

No, independence is not required for a compilation, but the lack of independence must be disclosed in the report.

What does 'Control Risk' represent in the audit risk model?

The risk that a material misstatement will not be prevented, or detected and corrected, on a timely basis by the entity's internal control.

How is Detection Risk (DR) calculated using the Audit Risk (AR) model?

DR = AR / (Inherent Risk x Control Risk).

When should an auditor issue an adverse opinion?

When the auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements are both material and pervasive to the financial statements.