Core Sections
Three mandatory CPA Exam sections for all candidates.
Getting Started: How the AUD Exam Works
Free knowledge base
CPA Exam — AUD — key terms, tricks & tips
Everything from the course in one searchable place: 233 entries. Use it to review before a practice test or look up a word you forgot.
233 results
Discipline Sections
One chosen CPA Exam section allowing specialization.
Getting Started: How the AUD Exam Works
AUD
Auditing and Attestation, a Core CPA Exam section.
Getting Started: How the AUD Exam Works
MCQs
Multiple-Choice Questions, one format on the exam.
Getting Started: How the AUD Exam Works
TBSs
Task-Based Simulations, complex problems on the exam.
Getting Started: How the AUD Exam Works
18-Month Window
Timeframe to pass all four CPA Exam sections.
Getting Started: How the AUD Exam Works
Passing Score
Minimum score of 75 required for each section.
Getting Started: How the AUD Exam Works
CPA Exam Structure & AUD Section Overview
To remember the Core sections: A-F-R (AUD, FAR, REG) – 'Always For Real' CPA.
Getting Started: How the AUD Exam Works
CPA Exam Structure & AUD Section Overview
For the AUD section, be prepared to differentiate between the various types of attestation engagements (e.g., audits, reviews, agreed-upon procedures) and their respective levels of assurance. Keywords to spot include 'reasonable assurance,' 'limited assurance,' and 'no assurance.'
Getting Started: How the AUD Exam Works
CPA Exam Structure & AUD Section Overview
Underestimating the 18-month rolling window and letting a passed section expire.
Getting Started: How the AUD Exam Works
CPA Exam Structure & AUD Section Overview
Not understanding the weighting of MCQs vs. TBSs for each section, leading to unbalanced study.
Getting Started: How the AUD Exam Works
CPA Exam Structure & AUD Section Overview
Choosing a Discipline section without considering personal career interests or strengths.
Getting Started: How the AUD Exam Works
Active Learning
Engaging with material through summarizing, teaching, and practice.
Getting Started: How the AUD Exam Works
Spaced Repetition
Reviewing material at increasing intervals for better retention.
Getting Started: How the AUD Exam Works
Task-Based Simulations (TBSs)
Exam questions requiring application of knowledge to realistic scenarios.
Getting Started: How the AUD Exam Works
Authoritative Literature
Official professional standards accessible during the exam.
Getting Started: How the AUD Exam Works
Notice to Schedule (NTS)
Official document required to sit for the CPA Exam.
Getting Started: How the AUD Exam Works
Mock Exam
A full-length practice exam simulating actual testing conditions.
Getting Started: How the AUD Exam Works
Time Management
Strategically allocating time to complete all exam sections.
Getting Started: How the AUD Exam Works
Study Strategies & Exam Day Preparation
To remember exam day essentials, think 'NICE DAY': NTS & ID, Intake food, Calm mindset, Early arrival, Deep breaths, And Your plan.
Getting Started: How the AUD Exam Works
Study Strategies & Exam Day Preparation
On the AUD exam, expect questions that test your ability to apply auditing standards to specific situations, often requiring you to interpret professional judgment. Pay close attention to keywords like 'most appropriate,' 'least likely,' or 'primary objective' in MCQs. For TBSs, practice navigating the authoritative literature efficiently and accurately, as some questions may require precise citation or wording from the standards.
Getting Started: How the AUD Exam Works
Study Strategies & Exam Day Preparation
Passive reading without active engagement or practice questions.
Getting Started: How the AUD Exam Works
Study Strategies & Exam Day Preparation
Neglecting to practice Task-Based Simulations (TBSs) or utilize the authoritative literature tool.
Getting Started: How the AUD Exam Works
Study Strategies & Exam Day Preparation
Cramming all material at the last minute instead of consistent, spaced review.
Getting Started: How the AUD Exam Works
Study Strategies & Exam Day Preparation
Not simulating exam conditions (time limits, software) during practice.
Getting Started: How the AUD Exam Works
Independence in Fact
CPA's state of mind, actual objectivity.
Ethics, Independence, and Quality Control
Independence in Appearance
Perception of objectivity by third parties.
Ethics, Independence, and Quality Control
Attest Services
Audits, reviews, and other engagements requiring independence.
Ethics, Independence, and Quality Control
Conceptual Framework
Identify, evaluate, and safeguard against threats.
Ethics, Independence, and Quality Control
Safeguards
Actions to eliminate or reduce threats.
Ethics, Independence, and Quality Control
Self-Review Threat
Reviewing one's own work.
Ethics, Independence, and Quality Control
Advocacy Threat
Promoting a client's interests.
Ethics, Independence, and Quality Control
Due Care
Competence and diligence in performing services.
Ethics, Independence, and Quality Control
AICPA Code of Professional Conduct & Independence
P.I.I.D.S.O.R. for Principles: Public Interest, Integrity, Independence, Due Care, Scope of Services, Objectivity, Responsibilities. (It's a bit of a stretch, but memorable!)
Ethics, Independence, and Quality Control
AICPA Code of Professional Conduct & Independence
Memorize the six fundamental principles: Responsibilities, Public Interest, Integrity, Objectivity and Independence, Due Care, and Scope and Nature of Services. The exam often tests your ability to identify which principle is violated in a given scenario.
Ethics, Independence, and Quality Control
AICPA Code of Professional Conduct & Independence
Confusing independence in fact with independence in appearance; both are equally important.
Ethics, Independence, and Quality Control
AICPA Code of Professional Conduct & Independence
Failing to apply the conceptual framework when a specific rule doesn't directly address a situation.
Ethics, Independence, and Quality Control
AICPA Code of Professional Conduct & Independence
Underestimating the impact of non-financial relationships (e.g., close friendships) on independence.
Ethics, Independence, and Quality Control
Professional Skepticism
Questioning mind, critical assessment of audit evidence.
Ethics, Independence, and Quality Control
Professional Judgment
Application of expertise to make informed audit decisions.
Ethics, Independence, and Quality Control
Quality Control
Firm policies ensuring compliance with professional standards.
Ethics, Independence, and Quality Control
Engagement Quality Review
Independent review of an audit before report issuance.
Ethics, Independence, and Quality Control
Monitoring
Ongoing assessment of a firm's quality control system.
Ethics, Independence, and Quality Control
Reasonable Assurance
High, but not absolute, level of assurance in an audit.
Ethics, Independence, and Quality Control
Professional Skepticism, Judgment & Quality Control
Skepticism is 'Show Me the Evidence!' Judgment is 'Think It Through.' Quality Control is 'Keep It Consistent.'
Ethics, Independence, and Quality Control
Professional Skepticism, Judgment & Quality Control
California CPA candidates should pay close attention to the specific elements of quality control systems as defined by both AICPA (SAS) and PCAOB (AS) standards, as the exam may distinguish between them or ask for a comprehensive understanding.
Ethics, Independence, and Quality Control
Professional Skepticism, Judgment & Quality Control
Confusing professional skepticism with a cynical or distrustful attitude; it's about objective inquiry, not assuming dishonesty.
Ethics, Independence, and Quality Control
Professional Skepticism, Judgment & Quality Control
Believing professional judgment allows for arbitrary decisions; it must be informed by standards and evidence.
Ethics, Independence, and Quality Control
Professional Skepticism, Judgment & Quality Control
Assuming quality control only applies to large firms; all CPA firms, regardless of size, must have a system of quality control.
Ethics, Independence, and Quality Control
Engagement Letter
Formal agreement outlining audit objectives, responsibilities, and scope.
Ethics, Independence, and Quality Control
Predecessor Auditor
The auditor who previously audited the client's financial statements.
Ethics, Independence, and Quality Control
Audit Strategy
Overall approach to the audit, considering engagement characteristics and reporting.
Ethics, Independence, and Quality Control
Audit Plan
Detailed outline of nature, timing, and extent of audit procedures.
Ethics, Independence, and Quality Control
Materiality
Magnitude of misstatement that could influence users' economic decisions.
Ethics, Independence, and Quality Control
Audit Risk
Risk of expressing an inappropriate opinion on materially misstated financials.
Ethics, Independence, and Quality Control
Inherent Risk
Susceptibility of an assertion to misstatement, absent internal controls.
Ethics, Independence, and Quality Control
Detection Risk
Risk that auditor's procedures fail to detect a material misstatement.
Ethics, Independence, and Quality Control
Engagement Acceptance & Planning Essentials
To remember the key elements of an engagement letter, think 'SCOPE': Scope of services, Objectives of engagement, Client responsibilities, Our responsibilities, and Expected reports.
Ethics, Independence, and Quality Control
Engagement Acceptance & Planning Essentials
CPA Exam Tip: For California, remember that the engagement letter is mandatory for all attest engagements. Also, be precise about the required inquiries to the predecessor auditor, which include reasons for auditor change, integrity of management, and disagreements over accounting principles.
Ethics, Independence, and Quality Control
Engagement Acceptance & Planning Essentials
Failing to adequately communicate with a predecessor auditor, potentially missing critical information about management's integrity.
Ethics, Independence, and Quality Control
Engagement Acceptance & Planning Essentials
Not clearly defining management's responsibilities for internal controls in the engagement letter, leading to scope creep or disputes.
Ethics, Independence, and Quality Control
Engagement Acceptance & Planning Essentials
Ignoring qualitative factors when determining materiality, focusing only on quantitative thresholds, which can lead to overlooking significant misstatements.
Ethics, Independence, and Quality Control
Audit Documentation
Record of audit procedures, evidence, and conclusions.
Ethics, Independence, and Quality Control
Working Papers
Another term for audit documentation.
Ethics, Independence, and Quality Control
Documentation Completion Date
Deadline for assembling final audit file.
Ethics, Independence, and Quality Control
Retention Period
Minimum time audit documentation must be kept.
Ethics, Independence, and Quality Control
Those Charged with Governance
Persons responsible for overseeing the entity.
Ethics, Independence, and Quality Control
Significant Deficiency
Internal control weakness less severe than material weakness.
Ethics, Independence, and Quality Control
Critical Audit Matters (CAMs)
Matters involving challenging auditor judgment for public companies.
Ethics, Independence, and Quality Control
Report Release Date
Date the auditor's report is issued.
Ethics, Independence, and Quality Control
Documentation & Communication with Governance
DOC-COMM: **D**ocument **O**utcomes **C**ompletely; **C**ommunicate **O**ften to **M**anagement & **M**onitors.
Ethics, Independence, and Quality Control
Documentation & Communication with Governance
For California CPA candidates, remember the specific retention periods: 5 years for non-issuers and 7 years for issuers. The completion period is 60 days for non-issuers and 45 days for issuers. These precise numbers are frequently tested.
Ethics, Independence, and Quality Control
Documentation & Communication with Governance
Not documenting sufficient detail to support conclusions, especially for complex judgments.
Ethics, Independence, and Quality Control
Documentation & Communication with Governance
Failing to meet the documentation completion and retention deadlines.
Ethics, Independence, and Quality Control
Documentation & Communication with Governance
Not communicating significant findings or internal control deficiencies to those charged with governance in a timely and appropriate manner.
Ethics, Independence, and Quality Control
Entity
The client organization being audited.
Understanding the Entity & Risk Assessment
Entity's Environment
External factors impacting the entity.
Understanding the Entity & Risk Assessment
Business Model
How an entity creates, delivers, and captures value.
Understanding the Entity & Risk Assessment
Internal Controls
Policies and procedures safeguarding assets and data.
Understanding the Entity & Risk Assessment
Risk Assessment
Identifying and evaluating potential misstatements.
Understanding the Entity & Risk Assessment
Analytical Procedures
Evaluating financial data for unusual trends.
Understanding the Entity & Risk Assessment
Inquiry
Seeking information from knowledgeable persons.
Understanding the Entity & Risk Assessment
Understanding the Entity & Its Environment
To 'UNDERSTAND' an entity, remember: U-N-D-E-R-S-T-A-N-D: **U**nderstand **N**ature of business, **D**iscuss with management, **E**xamine internal controls, **R**eview prior audits, **S**can industry trends, **T**ake note of regulations, **A**nalyze financial data, **N**ote external factors, **D**ocument everything!
Understanding the Entity & Risk Assessment
Understanding the Entity & Its Environment
The CPA Exam often tests your ability to connect specific aspects of an entity's business (e.g., industry, operations, financing) to potential audit risks or necessary audit procedures. Look for keywords like 'significant transactions,' 'unusual events,' or 'new accounting standards' when analyzing scenarios.
Understanding the Entity & Risk Assessment
Understanding the Entity & Its Environment
Failing to adequately document the understanding of the entity and its environment, which is crucial for supporting audit conclusions.
Understanding the Entity & Risk Assessment
Understanding the Entity & Its Environment
Focusing too much on internal controls without considering the broader external factors impacting the entity.
Understanding the Entity & Risk Assessment
Understanding the Entity & Its Environment
Not updating the understanding of the entity throughout the audit, especially if significant changes occur.
Understanding the Entity & Risk Assessment
Control Risk
Risk controls fail to prevent/detect a material misstatement.
Understanding the Entity & Risk Assessment
Risk of Material Misstatement (RMM)
The risk that the financial statements are materially misstated.
Understanding the Entity & Risk Assessment
Substantive Procedures
Audit procedures to detect material misstatements at the assertion level.
Understanding the Entity & Risk Assessment
Reliance Strategy
Audit strategy relying on effective internal controls.
Understanding the Entity & Risk Assessment
Substantive Approach
Audit strategy focusing heavily on substantive testing.
Understanding the Entity & Risk Assessment
Assessing Inherent & Control Risks
IR + CR = RMM. Imagine 'I'nherent 'R'isk and 'C'ontrol 'R'isk are 'R'eally 'M'isleading 'M'onsters. The bigger they are, the more careful you need to be!
Understanding the Entity & Risk Assessment
Assessing Inherent & Control Risks
The CPA Exam frequently tests the inverse relationship between the assessed RMM (IR x CR) and the acceptable level of detection risk. Remember: higher RMM means lower acceptable DR, requiring more substantive testing.
Understanding the Entity & Risk Assessment
Assessing Inherent & Control Risks
Confusing inherent risk with control risk; remember inherent risk is *before* controls, control risk is *about* controls.
Understanding the Entity & Risk Assessment
Assessing Inherent & Control Risks
Believing auditors can directly control inherent or control risk; auditors only *assess* these risks.
Understanding the Entity & Risk Assessment
Assessing Inherent & Control Risks
Not understanding the inverse relationship between RMM and detection risk; a higher RMM always means more substantive work.
Understanding the Entity & Risk Assessment
Overall Materiality
Materiality for the financial statements as a whole.
Understanding the Entity & Risk Assessment
Performance Materiality
Lower than overall, for specific accounts/disclosures.
Understanding the Entity & Risk Assessment
Fraud Triangle
Conditions for fraud: pressure, opportunity, rationalization.
Understanding the Entity & Risk Assessment
Significant Risk
Identified risk needing special audit consideration.
Understanding the Entity & Risk Assessment
Risk of Material Misstatement
Inherent and control risk; before auditor's procedures.
Understanding the Entity & Risk Assessment
Materiality, Fraud, & Significant Risks
To remember the Fraud Triangle, think 'POR': Pressure, Opportunity, Rationalization. Like a 'POR'thole into the mind of a fraudster!
Understanding the Entity & Risk Assessment
Materiality, Fraud, & Significant Risks
The CPA Exam often tests the relationship between materiality and audit procedures. Remember, an inverse relationship exists: as materiality decreases, the extent of audit procedures generally increases.
Understanding the Entity & Risk Assessment
Materiality, Fraud, & Significant Risks
Confusing overall materiality with performance materiality; overall is for the whole, performance is for parts.
Understanding the Entity & Risk Assessment
Materiality, Fraud, & Significant Risks
Failing to consider qualitative factors when determining materiality, focusing only on numbers.
Understanding the Entity & Risk Assessment
Materiality, Fraud, & Significant Risks
Not adequately linking identified significant risks to specific, enhanced audit responses.
Understanding the Entity & Risk Assessment
Overall Audit Strategy
High-level plan setting scope, timing, and direction of the audit.
Understanding the Entity & Risk Assessment
Nature of Procedures
Type of audit procedure, e.g., inspection, observation, inquiry.
Understanding the Entity & Risk Assessment
Timing of Procedures
When audit procedures are performed, e.g., interim or year-end.
Understanding the Entity & Risk Assessment
Extent of Procedures
Quantity of procedures, e.g., sample size, number of items tested.
Understanding the Entity & Risk Assessment
Risk Assessment Procedures
Procedures to identify and assess risks of material misstatement.
Understanding the Entity & Risk Assessment
Further Audit Procedures
Tests of controls and substantive procedures responsive to assessed risks.
Understanding the Entity & Risk Assessment
Developing Overall Audit Strategy & Plan
STRATEGY is like a GPS: S-cope, T-iming, R-isks, A-llocation, T-eam, E-xpectations, G-uidance, Y-ield. PLAN is the detailed map with turn-by-turn directions.
Understanding the Entity & Risk Assessment
Developing Overall Audit Strategy & Plan
For the California CPA exam, be precise about the distinction: the 'overall audit strategy' establishes the characteristics of the engagement, reporting objectives, and key factors, while the 'audit plan' details the nature, timing, and extent of specific audit procedures. Keywords like 'scope, timing, direction' point to strategy; 'nature, timing, extent of procedures' point to the plan.
Understanding the Entity & Risk Assessment
Developing Overall Audit Strategy & Plan
Confusing the high-level audit strategy with the detailed audit plan.
Understanding the Entity & Risk Assessment
Developing Overall Audit Strategy & Plan
Failing to recognize that audit planning is an iterative process, not a one-time event.
Understanding the Entity & Risk Assessment
Developing Overall Audit Strategy & Plan
Not adequately documenting changes to the audit plan as the audit progresses.
Understanding the Entity & Risk Assessment
Internal Control Over Financial Reporting (ICFR)
Process ensuring reliable financial statements per GAAP.
Understanding the Entity & Risk Assessment
COSO Framework
Widely used model for internal control components.
Understanding the Entity & Risk Assessment
Control Environment
Overall tone, ethics, and integrity of an organization.
Understanding the Entity & Risk Assessment
Control Activities
Policies and procedures to mitigate risks.
Understanding the Entity & Risk Assessment
Material Weakness
Deficiency with reasonable possibility of material misstatement.
Understanding the Entity & Risk Assessment
Integrated Audit
Audit of financial statements and internal control (public companies).
Understanding the Entity & Risk Assessment
Internal Control Over Financial Reporting
Remember the COSO components with 'CRIME': Control Environment, Risk Assessment, Information & Communication, Monitoring Activities, Existing Control Activities.
Understanding the Entity & Risk Assessment
Internal Control Over Financial Reporting
The CPA Exam will test your understanding of the COSO framework's five components and how they relate to audit procedures, especially for public companies under SOX. Keywords to spot include 'material weakness,' 'significant deficiency,' and 'segregation of duties.'
Understanding the Entity & Risk Assessment
Internal Control Over Financial Reporting
Confusing a significant deficiency with a material weakness; remember the 'reasonable possibility of material misstatement' threshold.
Understanding the Entity & Risk Assessment
Internal Control Over Financial Reporting
Assuming ICFR only applies to fraud prevention; it also ensures accurate and timely financial reporting.
Understanding the Entity & Risk Assessment
Internal Control Over Financial Reporting
Underestimating the importance of IT general controls in the overall ICFR assessment.
Understanding the Entity & Risk Assessment
Audit Evidence
Information used to form the audit opinion.
Audit Evidence & Substantive Procedures
Sufficiency
The quantity of audit evidence obtained.
Audit Evidence & Substantive Procedures
Appropriateness
The quality of audit evidence (relevance and reliability).
Audit Evidence & Substantive Procedures
Relevance
Logical connection to the audit assertion.
Audit Evidence & Substantive Procedures
Reliability
Trustworthiness of evidence source and nature.
Audit Evidence & Substantive Procedures
External Evidence
Evidence from independent third parties.
Audit Evidence & Substantive Procedures
Internal Evidence
Evidence generated within the client's organization.
Audit Evidence & Substantive Procedures
Sufficiency & Appropriateness of Audit Evidence
To remember the two 'S' words: 'Sufficient' is about 'Size' (quantity), and 'Appropriate' is about 'Soundness' (quality).
Audit Evidence & Substantive Procedures
Sufficiency & Appropriateness of Audit Evidence
The exam often tests your understanding of the hierarchy of audit evidence reliability. Remember that external evidence is generally more reliable than internal, and direct evidence obtained by the auditor is more reliable than indirect. Look for scenarios where you need to evaluate the strength of different types of evidence.
Audit Evidence & Substantive Procedures
Sufficiency & Appropriateness of Audit Evidence
Confusing sufficiency (quantity) with appropriateness (quality). They are distinct but interrelated concepts.
Audit Evidence & Substantive Procedures
Sufficiency & Appropriateness of Audit Evidence
Assuming all external evidence is automatically reliable without considering the circumstances or the independence of the source.
Audit Evidence & Substantive Procedures
Sufficiency & Appropriateness of Audit Evidence
Failing to consider the effectiveness of internal controls when evaluating the reliability of internally generated evidence.
Audit Evidence & Substantive Procedures
Tests of Controls
Procedures to evaluate control operating effectiveness.
Audit Evidence & Substantive Procedures
Tests of Details
Examining individual transactions/balances for accuracy.
Audit Evidence & Substantive Procedures
Substantive Analytical Procedures
Evaluating financial data through plausible relationships.
Audit Evidence & Substantive Procedures
Vouching
Tracing from records to supporting documents.
Audit Evidence & Substantive Procedures
Tracing
Tracing from supporting documents to records.
Audit Evidence & Substantive Procedures
Substantive Procedures & Tests of Controls
To remember the types of substantive procedures, think 'D.A.T.A.': Details (Tests of Details), Analytics (Substantive Analytical Procedures), Transactions, and Accounts.
Audit Evidence & Substantive Procedures
Substantive Procedures & Tests of Controls
The California Board of Accountancy (CBA) emphasizes understanding the inverse relationship between control risk and the extent of substantive procedures. Be prepared to identify scenarios where auditors would increase or decrease substantive testing based on control effectiveness.
Audit Evidence & Substantive Procedures
Substantive Procedures & Tests of Controls
Confusing tests of controls with substantive procedures; they have different objectives.
Audit Evidence & Substantive Procedures
Substantive Procedures & Tests of Controls
Believing that substantive procedures can be eliminated if controls are very strong.
Audit Evidence & Substantive Procedures
Substantive Procedures & Tests of Controls
Not understanding the inverse relationship between control risk and the extent of substantive testing.
Audit Evidence & Substantive Procedures
Audit Sampling
Applying audit procedures to less than 100% of a population.
Audit Evidence & Substantive Procedures
Sampling Risk
Risk sample conclusion differs from population conclusion.
Audit Evidence & Substantive Procedures
Risk of Incorrect Acceptance
Concluding no material misstatement when one exists.
Audit Evidence & Substantive Procedures
Risk of Incorrect Rejection
Concluding material misstatement when none exists.
Audit Evidence & Substantive Procedures
Tolerable Misstatement
Maximum misstatement auditor will accept in population.
Audit Evidence & Substantive Procedures
Statistical Sampling
Random selection, probability theory for evaluation.
Audit Evidence & Substantive Procedures
Non-Statistical Sampling
Auditor judgment for selection and evaluation.
Audit Evidence & Substantive Procedures
Analytical Procedures & Audit Sampling
To remember the stages of analytical procedures, think: 'P.S.R.' - Planning, Substantive, Review.
Audit Evidence & Substantive Procedures
Analytical Procedures & Audit Sampling
For the CPA Exam, remember that substantive analytical procedures are generally more effective for predictable relationships and when data is reliable. Also, understand that increasing the desired confidence level or decreasing tolerable misstatement will increase sample size.
Audit Evidence & Substantive Procedures
Analytical Procedures & Audit Sampling
Failing to adequately investigate significant differences identified by analytical procedures, assuming they are just 'noise.'
Audit Evidence & Substantive Procedures
Analytical Procedures & Audit Sampling
Using analytical procedures as a substantive test when the relationships are not predictable or the data is unreliable, leading to insufficient evidence.
Audit Evidence & Substantive Procedures
Analytical Procedures & Audit Sampling
Incorrectly determining sample size or misinterpreting sample results, which can lead to either over-auditing or under-auditing.
Audit Evidence & Substantive Procedures
Related Party
Individuals/entities with significant influence.
Audit Evidence & Substantive Procedures
Arm's Length Transaction
Transaction between independent, unrelated parties.
Audit Evidence & Substantive Procedures
Subsequent Events
Events between year-end and audit report date.
Audit Evidence & Substantive Procedures
Type 1 Subsequent Event
Adjusts financial statements; conditions existed at year-end.
Audit Evidence & Substantive Procedures
Type 2 Subsequent Event
Disclosed in notes; conditions arose after year-end.
Audit Evidence & Substantive Procedures
Going Concern
Assumption entity will operate for foreseeable future.
Audit Evidence & Substantive Procedures
Substantial Doubt
Significant uncertainty about going concern ability.
Audit Evidence & Substantive Procedures
Related Parties, Subsequent Events & Going Concern
R-S-G: **R**elated parties are **S**uspicious; **S**ubsequent events **G**ive us more info; **G**oing concern means staying alive!
Audit Evidence & Substantive Procedures
Related Parties, Subsequent Events & Going Concern
For the CPA Exam, remember that the auditor's responsibility for subsequent events extends up to the date of the auditor's report. For events discovered *after* the report date but *before* financial statements are issued, the auditor has a responsibility to consider if the financial statements need revision and if so, to request management to revise them.
Audit Evidence & Substantive Procedures
Related Parties, Subsequent Events & Going Concern
Failing to identify all related parties and their transactions.
Audit Evidence & Substantive Procedures
Related Parties, Subsequent Events & Going Concern
Confusing Type 1 and Type 2 subsequent events regarding adjustment vs. disclosure.
Audit Evidence & Substantive Procedures
Related Parties, Subsequent Events & Going Concern
Not adequately evaluating management's going concern assessment or its implications for the audit report.
Audit Evidence & Substantive Procedures
Written Representations
Formal letters from management confirming specific matters.
Audit Evidence & Substantive Procedures
Internal Auditor
Employee performing assurance activities within the entity.
Audit Evidence & Substantive Procedures
Auditor's Specialist
Expert in a non-auditing field whose work is used by auditor.
Audit Evidence & Substantive Procedures
Competence
Qualifications, experience, and ability to perform a task.
Audit Evidence & Substantive Procedures
Objectivity
Impartiality and freedom from bias or conflicts of interest.
Audit Evidence & Substantive Procedures
Sufficiency of Evidence
Quantity of audit evidence obtained.
Audit Evidence & Substantive Procedures
Appropriateness of Evidence
Quality and relevance of audit evidence.
Audit Evidence & Substantive Procedures
Written Representations & Using Work of Others
W-R-I-S-T: **W**ritten Reps (Management's words), **R**esponsibility (Auditor's is ultimate), **I**nternal (Competence & Objectivity), **S**pecialist (Competence & Objectivity), **T**esting (External auditor tests internal work).
Audit Evidence & Substantive Procedures
Written Representations & Using Work of Others
The CPA exam frequently tests the conditions under which an auditor can use the work of internal auditors or specialists. Pay close attention to the requirement for the external auditor to remain solely responsible for the audit opinion and the need to assess competence and objectivity in all cases.
Audit Evidence & Substantive Procedures
Written Representations & Using Work of Others
Treating written representations as a substitute for performing other necessary audit procedures.
Audit Evidence & Substantive Procedures
Written Representations & Using Work of Others
Failing to adequately assess the competence and objectivity of internal auditors or specialists.
Audit Evidence & Substantive Procedures
Written Representations & Using Work of Others
Delegating the ultimate responsibility for the audit opinion to internal auditors or specialists.
Audit Evidence & Substantive Procedures
Unmodified Opinion
Financial statements are presented fairly, all material respects.
Audit Reporting & Attestation Engagements
Unqualified Opinion
Equivalent to unmodified for public company audits (issuers).
Audit Reporting & Attestation Engagements
Applicable Financial Reporting Framework
Set of criteria used to prepare financial statements (e.g., GAAP, IFRS).
Audit Reporting & Attestation Engagements
Material Misstatement
Error or omission significant enough to influence user decisions.
Audit Reporting & Attestation Engagements
Forming an Opinion & Unmodified Audit Reports
To remember the conditions for an Unmodified Opinion, think: 'S.A.F.E.R.': Sufficient evidence, Applicable framework, Free from material misstatements, no Scope limitation, and Everything is Fairly presented.
Audit Reporting & Attestation Engagements
Forming an Opinion & Unmodified Audit Reports
CPA Exam Tip: Be precise with terminology. 'Unmodified' is typically used for non-issuers (SAS), while 'unqualified' is for issuers (PCAOB). The core meaning is the same, but the context matters for the exam.
Audit Reporting & Attestation Engagements
Forming an Opinion & Unmodified Audit Reports
Confusing 'unmodified' with 'modified' – an unmodified report is a clean report.
Audit Reporting & Attestation Engagements
Forming an Opinion & Unmodified Audit Reports
Forgetting the required components of a standard audit report.
Audit Reporting & Attestation Engagements
Forming an Opinion & Unmodified Audit Reports
Assuming an unmodified opinion means the financial statements are 100% accurate, rather than 'free from material misstatement.'
Audit Reporting & Attestation Engagements
Forming an Opinion & Unmodified Audit Reports
Mixing up the terminology for non-issuers (unmodified) and issuers (unqualified).
Audit Reporting & Attestation Engagements
Modified Opinion
Auditor's report not expressing an unmodified opinion.
Audit Reporting & Attestation Engagements
Qualified Opinion
F/S fair 'except for' specific material misstatement or scope limitation.
Audit Reporting & Attestation Engagements
Adverse Opinion
F/S are materially and pervasively misstated; not presented fairly.
Audit Reporting & Attestation Engagements
Disclaimer of Opinion
Auditor cannot form an opinion due to pervasive scope limitation.
Audit Reporting & Attestation Engagements
Pervasiveness
Extent of misstatement's or scope limitation's effect on F/S as a whole.
Audit Reporting & Attestation Engagements
Emphasis-of-Matter
Paragraph highlighting properly presented F/S matters fundamental to users.
Audit Reporting & Attestation Engagements
Other-Matter
Paragraph for matters not in F/S, relevant to audit or report understanding.
Audit Reporting & Attestation Engagements
Modified Opinions & Emphasis/Other-Matter Paragraphs
To remember the modified opinions: QAD. Qualified (except for), Adverse (not fair), Disclaimer (no opinion).
Audit Reporting & Attestation Engagements
Modified Opinions & Emphasis/Other-Matter Paragraphs
For the California CPA exam, remember that a material misstatement that is *not* pervasive results in a qualified opinion. If that same material misstatement *is* pervasive, it results in an adverse opinion. This distinction is heavily tested.
Audit Reporting & Attestation Engagements
Modified Opinions & Emphasis/Other-Matter Paragraphs
Confusing an Emphasis-of-Matter paragraph with a modification to the opinion. EOMs do not change the opinion.
Audit Reporting & Attestation Engagements
Modified Opinions & Emphasis/Other-Matter Paragraphs
Incorrectly applying 'pervasiveness' – remember it's about the effect on the financial statements *as a whole*, not just one account.
Audit Reporting & Attestation Engagements
Modified Opinions & Emphasis/Other-Matter Paragraphs
Using a disclaimer of opinion when a qualified opinion is more appropriate for a scope limitation that is not pervasive.
Audit Reporting & Attestation Engagements
Special Purpose Framework (SPF)
Comprehensive accounting basis other than GAAP/IFRS.
Audit Reporting & Attestation Engagements
Cash Basis of Accounting
Recognizes revenues/expenses when cash is transacted.
Audit Reporting & Attestation Engagements
Tax Basis of Accounting
Follows rules prescribed by tax authorities.
Audit Reporting & Attestation Engagements
Regulatory Basis of Accounting
Adheres to rules set by a specific regulatory body.
Audit Reporting & Attestation Engagements
Contractual Basis of Accounting
Based on terms specified in a contract or agreement.
Audit Reporting & Attestation Engagements
Compliance Engagement
Assurance on adherence to specific laws, regulations, or contracts.
Audit Reporting & Attestation Engagements
Emphasis-of-Matter Paragraph
Draws attention to a matter appropriately presented.
Audit Reporting & Attestation Engagements
Special Purpose Frameworks & Compliance Engagements
To remember the common SPFs, think 'CRaFT': Cash, Regulatory, Tax, Contractual. These are the main types you'll encounter!
Audit Reporting & Attestation Engagements
Special Purpose Frameworks & Compliance Engagements
For California, remember that the specific wording for an emphasis-of-matter paragraph in an SPF audit report must clearly state that the financial statements are prepared in accordance with a special purpose framework and are not intended to be a complete presentation in accordance with GAAP.
Audit Reporting & Attestation Engagements
Special Purpose Frameworks & Compliance Engagements
Confusing the auditor's opinion in an SPF audit with a GAAP audit opinion – the criteria are different.
Audit Reporting & Attestation Engagements
Special Purpose Frameworks & Compliance Engagements
Forgetting to include an emphasis-of-matter paragraph in an SPF audit report.
Audit Reporting & Attestation Engagements
Special Purpose Frameworks & Compliance Engagements
Assuming an SPF audit report can always be distributed to general users without restriction.
Audit Reporting & Attestation Engagements
Compilation Engagement
Presenting financial info in statements without assurance.
Audit Reporting & Attestation Engagements
Review Engagement
Limited assurance on financial statements, primarily inquiry/analytics.
Audit Reporting & Attestation Engagements
Attestation Engagement
CPA reports on subject matter or assertion of another party.
Audit Reporting & Attestation Engagements
Agreed-Upon Procedures (AUP)
Performing specific procedures and reporting findings, no assurance.
Audit Reporting & Attestation Engagements
Limited Assurance
Conclusion that nothing came to attention indicating misstatement.
Audit Reporting & Attestation Engagements
Negative Assurance
Statement used in reviews: 'we are not aware of any material modifications'.
Audit Reporting & Attestation Engagements
Examination
High level of assurance in attestation, similar to an audit.
Audit Reporting & Attestation Engagements
Review, Compilation & Attestation Engagements
CAR: Compilation - no Assurance; Review - Limited Assurance; Audit - Reasonable Assurance. Remember the 'A' in CAR for 'Assurance' and the increasing levels!
Audit Reporting & Attestation Engagements
Review, Compilation & Attestation Engagements
For the CPA Exam, remember that a compilation report does NOT include an independence statement, whereas a review report DOES include a statement about independence. This is a subtle but critical distinction often tested.
Audit Reporting & Attestation Engagements
Review, Compilation & Attestation Engagements
Confusing the level of assurance provided by each engagement (e.g., thinking a compilation provides limited assurance).
Audit Reporting & Attestation Engagements
Review, Compilation & Attestation Engagements
Not understanding that Agreed-Upon Procedures engagements provide no assurance, only a report of findings.
Audit Reporting & Attestation Engagements
Review, Compilation & Attestation Engagements
Misidentifying the primary procedures for a review engagement (e.g., thinking it involves internal control testing).
Audit Reporting & Attestation Engagements