During the audit of a publicly-traded biotechnology firm, the engagement team identifies a significant uncertainty related to the outcome of a pending FDA approval for a new flagship drug. Management has included extensive and appropriate disclosures regarding this uncertainty in the footnotes. The auditor has concluded that the financial statements are not materially misstated and the disclosure is adequate. What is the most appropriate course of action for the auditor's report?
An auditor is performing a test of controls over a client's automated cash disbursement process. Using attribute sampling, the auditor sets a tolerable deviation rate of 6%, an expected population deviation rate of 2%, and a risk of assessing control risk too low of 5%. The resulting sample size is 100 transactions. Upon testing, the auditor discovers 4 deviations. What is the auditor's most appropriate conclusion?
A CPA firm is auditing a non-issuer that has outsourced its complex payroll and benefits administration to a third-party service organization. The CPA firm has determined that the services provided by the third party are relevant to the audit of the user entity's financial statements. Which of the following reports from the service auditor would provide the user auditor with assurance regarding the operating effectiveness of the service organization's controls over a period of time?
An auditor is using an audit data analytic (ADA) tool to analyze a client's entire journal entry population for indicators of management override of controls. Which of the following actions using the ADA tool would be most effective for this purpose? (Select TWO)
True or False: When an auditor identifies a material weakness in internal control over financial reporting for a non-issuer, the auditor must issue an adverse opinion on the financial statements.
**Case Study** Nova Solutions Inc., a rapidly growing software-as-a-service (SaaS) company, is undergoing its first audit for the year ended December 31, Year 1. The company recognizes revenue based on complex, multi-year subscription contracts that include setup fees, variable usage fees, and technical support. Nova's accounting team is small, and the CFO, who has significant equity in the company, personally approves all large revenue accruals at year-end. During risk assessment, the engagement partner noted significant pressure on management to meet aggressive revenue targets to secure a new round of venture capital funding. The audit team decides to perform substantive analytical procedures on revenue. They develop an expectation for subscription revenue based on the number of active subscribers, average contract value, and historical churn rates. The recorded revenue is 25% higher than the auditor's expectation, a difference that is significantly above performance materiality. Upon inquiry, the CFO attributes the difference to a new, highly successful sales incentive program launched in the fourth quarter. The CFO provides a spreadsheet summarizing the new contracts but is hesitant to provide the underlying contract documents, citing confidentiality concerns. The audit team notes that many of the large, year-end contracts were with new, unknown customers and involved unusually long payment terms. Given the high risk of material misstatement due to fraud, the significant variance in analytical procedures, and management's reluctance to provide evidence, what is the auditor's most appropriate immediate course of action?
An auditor is required to maintain independence in fact and in appearance. Which of the following best describes 'independence in fact'?
A first-year auditor is tasked with performing a walkthrough of the client's revenue cycle. The primary purpose of this procedure is to:
While auditing a client's accounts receivable, the auditor decides to use negative confirmations for a large number of small, homogeneous balances. This decision is appropriate only if:
The audit engagement partner is reviewing the documentation for the audit of accounting estimates related to a client's warranty liability. Which of the following documented procedures would be LEAST likely to be considered a valid approach for auditing this estimate?