NINJA CPA REVIEW

NINJA Notes 2014

Auditing & Attestation
Table of Contents
The N.I.N.J.A. Framework

I. Engagement Planning 8
II. Internal Control 25
III. Auditing & IT 36
IV. Evidence & Risk 42
V. Audit Reports 56
VI. Audit Sampling 65
VII. Professional Responsibilities 75
VIII. International Auditing 83

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The N.I.N.J.A. Framework

NAIL THE VIDEOS

Watch your CPA Review videos first before working any
assigned homework questions.

The CPA Review industry says to watch a section of CPA

Review video and then work the accompanying MCQs. This
perspective stems from the old-school approach to the paper
and pencil exam where you had to sit in a live classroom and
learn from an instructor on weekends.

Today, there is a smarter way to study. You dont have to go

to a weekend live course. You can fire up the laptop on a
Tuesday morning and knock out two hours of material
before you even brush your teeth. If you work MCQs in week
one over your week one topic, guess what? You will work
them again in week 5 or 6 when you review because you will
forget what you learned.

If you watch a video in week one and score an 85 on the

corresponding MCQs, will you be able to score an 85 four
weeks later? Not likely. You will need to work them again
anyway and its not a smart use of study time.

Instead, let the N.I.N.J.A. Framework guide you.

INTENSE NOTES
Repeat after me: PUT THE HIGHLIGHTER DOWN.

Which method do you think will help you learn the material
better painting printed words in a book with pretty
florescent colors or writing them down on a legal pad and
thinking about the information?

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Grab a stack of legal pads, put the highlighter down, and
start writing.

Many people have said that instead of taking their own

notes, they just re-write the material inside of this study
guide, which is fine too.

NON-STOP MCQS
Now is the time to start working multiple-choice questions
and do them with a focused frenzy. Do so many MCQs that
youre absolutely sick of them. As you encounter little fact
nuggets that you didnt know or are prone to forget, write it
down and add it to your voluminous stack of notes.

JUST RE-WRITE IT
This is where it gets tedious. This is also where the payoff
happens. You may be familiar with the fact that if you had a
choice between $3 Million and 1 doubled daily for 31 days,
the penny doubled for 31 days ends up tripling the $3
Million. The payoff, however, doesnt happen until the 31st
day. The road is long, but ends up being worth it in the end.

The same goes for re-writing your study notes. The thought
of grabbing that stack of legal pads and going to town re-
writing what youve already written may sound like a
ridiculous suggestion at first, but I am a firm believer in its
impact.

Merely writing down your notes and then reviewing them

before your exam doesnt have near the impact as taking
your furious scribbles and converting them into re-packaged,
easily-digestible fact nuggets.

Not only will your notes mean more when youve whittled
away the non-essentials, but you are actually learning the
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material twice. Re-processing the material by re-writing your
notes is like letting the information marinade in your mind.
Just like a well-prepared steak, you will taste the payoff of
this extra step.

Dont like taking notes? No problem. Re-write these

NINJA Notes instead. You will absorb the material better
vs. reading only.

Plan wisely because this will likely take a week to

complete.

I have found this to be unbelievably helpful! This is now my

second section that I have followed this piece of advice and,
once again, I am amazed at how much the material "clicks"
as I review and write the notes a second time.

Sure, it's time-consuming, but for me, it is worth it. No

questions asked. Not only does it help with processing and
understanding the material, but it also results in a better,
more organized set of study notes to use for review up until
exam date. Sandy

ALL COMES TOGETHER

You have watched the videos. Youve taken ridiculous notes
and have done hundreds (thousands?) of multiple-choice
questions. Youve re-written your notes.

Now, study that stack of review Gold in your hands multiple

times, work MCQs over weak topics, study your notes even
more, and then go in and PASS the CPA Exam.

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How to use NINJA Notes

READING

You've invested in the NINJA Notes, now let it go to battle

for you. You should read the them as many times as
possible.

Carry it with you wherever you go.

Do you have an iPhone, iPad, or similar device(s)?

Simply load the PDF onto the device and if you have 5
minutes of downtime, you have 5 minutes of study
time.

It is recommended that you read the NINJA Notes at least

five times leading up to your final two weeks of exam prep.

If you have 6 weeks to study, then you need to complete

this in 4 weeks. 5 weeks to study, then complete it in 3.
4 weeks = 2 weeks. You get the picture. The point is: plan,
plan, plan and budget, budget, budget, budget because
exam day is looming.

6-Week Plan: Approx. 103 pages x 5 reads /4 weeks

/ 7 days per week = Approx. 18 pages per day

5-Week Plan: Approx. 103 pages x 5 reads /3 weeks

/ 7 days per week = Approx. 24 pages per day

4-Week Plan: Approx. 103 pages x 5 reads /2 weeks

/ 7 days per week = Approx. 37 pages per day

3-Week Plan: Approx. 103 pages x 5 reads /1 weeks

/ 7 days per week = Approx. 74 pages per day

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RE-WRITING

This step is optional, but it won over a lot of skeptics with its
results. This is not mainstream advice. This is the NINJA
way. The mainstream way of studying for the CPA Exam is
old-fashion and outdated.

Forget the old way. You are a NINJA now.

Now is the time to either

1. Re-write your own CPA Exam notes or

2. Re-Write the NINJA Notes.

Plan on investing a week doing this and you should expect to

get through 15 pages a day (Approx. 103 pages / 7) in order
to stay on track.

After this, you will still have one week left to put the
finishing touches on your CPA Exam review prep i.e. doing
a ton of MCQs. (http://www.tinyurl.com/WileyTB)

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V. Audit Reports
REQUIREMENTS

Must be in Writing

Must be Signed

Must include Auditors Address

o City & State where office located

UNMODIFIED OPINION

The Financial Statements present fairly, in all material

respects, the financial position of the entity as of the
Balance Sheet Date and the results of its operations
and its cash flows for the period then ended, in
accordance with the Applicable Financial Reporting
Framework

o Not Fairly Presented?

Discuss the problem with management and

based on outcome, decide whether opinion
should be Modified

TIM-AA (Timmmaaayyyyy)

o Title must include Independent

o Introductory Paragraph

Who: Identify the Entity

What: State that they have been Audited

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 When: Specify the Date or Period

o Managements Responsibility

Preparation/Fair Presentation of Financials

Applicable Financial Reporting

Framework

Internal Control

Design

Implementation

Maintenance

o Auditors Responsibility

Audit in accordance with GAAS

United States

Plan/Perform Audit
Obtain Reasonable Assurance

Audit Description

Performing Procedures to

Obtain Evidence about

Amounts and Disclosures

o Audit Opinion

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UNMODIFIED OPINION
(Emphasis-of-Matter / Other-Matter)

Financial information is appropriately presented and

disclosed, but the auditor wants to bring attention to
something

o Going Concern Issue

o Updated Report from a Prior Period

Previous opinion was Adverse due to

GAAP/Framework issue

Entity has corrected and Auditor is changing

their Opinion, but pointing it out in Other
Matter section

o Catastrophe that could affect Financials

o Litigation Uncertainty

o Significant Related-Party Transactions

o Unusual Subsequent Events

Emphasis/Other Matter does not affect Audit Opinion

Auditor should communicate the Emphasis/Other

Matter to those in charge of governance

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 TIM-AA EMO

(Timmmaaayyyyys favorite EMO group Other Matter)

o Title

o Introduction

o Managements Responsibility

o Auditors Responsibility

o Audit Opinion

o Emphasis-of-Matter

o Other-Matter

MODIFIED OPINION
(Adverse/Disclaimer)

Financial Statements are Materially Misstated or

Unable to obtain Sufficient Appropriate Evidence

(Timaays Adverse sister TIMA has a Bad Attitude)

o Title

o Introduction

o Managements Responsibility

o Auditors Responsibility

o Basis for (Modified) Opinion

o Audit Opinion

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 What if: Auditor wants to express opinion on A/R even
though they Disclaimed an Opinion on the Financial
Statements taken as a whole?

o OK if report on A/R is presented separately

REFERENCING COMPONENT AUDITOR

If Group Engagement Partner assumes responsibility

for Component Auditors work

o Perform additional audit procedures

o Be involved in Component Auditors work

o Perform Risk Assessment procedures

o Assess Risk of Material Misstatement

If Group Engagement Partner does not assume

responsibility for Component Auditors work

o Reference Component Auditors work

Requirements for referencing Component

Auditor

Component Financial Statements must

be prepared using same Financial
Reporting Framework as the Group
Financial Statements

Component Auditor must have

performed audit in accordance with
GAAS or PCAOB Standards

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COMPILATION REPORTS

Governed by SSARS (Statements on Standards for

Accounting and Review Services)

Non-SEC (public) registrants only

Accountant puts together financial statements

o Information provided by management

Disclosures not necessary must state not included

Required Statements/Disclaimers

o Identify the Financial Statements

o Performed according to Standards

o Limited in Scope

o No Opinion / No Assurance

o No Responsibility to update for Future events

No Opinion No Assurances No Independence

Expressed Given Required

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REVIEW REPORTS

Governed by SSARS (Statements on Standards for

Accounting and Review Services)

Gives Limited/Negative assurance

Analytical Procedures required

o Compare results to documented predictions

No Opinion Limited Independence

Expressed Assurances Given Required

COMPILATION VS REVIEW VS PROCEDURES

No Assurance
Compilation No Indepencence

Limited Assurance
Review Independence

Limited Use
Agreed Upon
Procedures Independence

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PROSPECTIVE FINANCIAL STATEMENTS

Forecasts

o Uses normal circumstances

o General & Limited use allowed

o Disclaimer: Forecast results may not be achieved

Projections

o Uses hypothetical situations

o Only Limited use by client allowed

o Disclaimers: Limitation of Scope/Usefulness

Agreed Upon Procedures

o Independence required

o Only Limited use by client allowed

UNCERTAINTIES AND LIKELIHOOD OF LOSS

No explanatory paragraph
Remote

Accrue if estimable
Probable Explanatory paragraph if not estimable

Auditor assesses need for explanatory

Reasonably
Possible
paragraph based on loss likelihood

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GAAP (FRAMEWORK) ISSUES AND ESTIMATES

Immaterial Issues Unmodified Opinion

o Going Concern Issues

Unmodified Opinion + Emphasis-of-Matter

Material Issues Modified Opinion

o Include in Basis for Modified Opinion section

Very Material Issues Adverse Opinion

Estimates must conform with GAAP (Framework)

GOVERNMENTAL AUDITING

AKA the Yellow Book

Governmental Auditing Standards (GAS) Audits similar

to GAAS Audits except

o GAS are more strict

o GAS focus is on Compliance and Regulation

Single Audit Act

o For Government Agencies, Universities, and

Non-Profits who take funding from the U.S.
Government

o Financial Statements must follow GAAP

o Report must state their Compliance with Laws

and Regulations

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 o Requires a report on Internal Control and
Effectiveness of Controls

o Any Known Fraud?

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