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Audit > Test 1 > Flashcards

Test 1 Flashcards

1
Q

PCAOB Auditing Standard # 1

A

Auditors have adequate technical training and proficiency

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2
Q

PCAOB Auditing Standard Category # 1

A

General Standards (selecting and training auditors)

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3
Q

PCAOB Auditing Standard Category # 2

A

Fieldwork Standards (conducting the audit)

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4
Q

PCAOB Auditing Standard Category # 3

A

Reporting Standards (communicating auditor’s opinion)

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5
Q

PCAOB Auditing Standard # 2

A

Auditors to be independent (in fact and in appearance)

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6
Q

PCAOB Auditing Standard # 3

A

Audit to be conducted with professional care expected of a prudent auditor

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7
Q

PCAOB Auditing Standard # 4

A

Properly plan and supervise the audit

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8
Q

PCAOB Auditing Standard # 5

A

Develop an understanding of client’s controls

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9
Q

PCAOB Auditing Standard # 6

A

Obtain audit evidence by performing audit procedures

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10
Q

PCAOB Auditing Standard # 7

A

State whether financial statements are presented in accordance with the applicable financial reporting framework (i.e., GAAP or IFRS)

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11
Q

PCAOB Auditing Standard # 8

A

Identify conditions where accounting principles are not consistently observed

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12
Q

PCAOB Auditing Standard # 9

A

Review disclosures for adequacy and state in the report if not reasonably adequate

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13
Q

PCAOB Auditing Standard # 10

A

Express an opinion on financial statements as a whole or state an opinion cannot be expressed

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14
Q

Audit Procedures Category # 1

A

Risk assessment

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15
Q

Audit Procedures Category # 2

A

Tests of controls

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16
Q

Audit Procedures Category # 3

A

Substantive procedures

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17
Q

Designed for detecting material misstatements at the assertion level, Comprised of substantive analytical procedures and test of details.

A

Substantive procedures

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18
Q

Designed for evaluating operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level.

A

Tests of controls

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19
Q

Information for assessing the risks of material misstatement in the financial statements, Used for purposes of planning the audit.

A

Risk assessment

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20
Q

Audit Procedure # 1

A

Inspection of documentation

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21
Q

Audit Procedure # 2

A

Inspection of assets

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22
Q

Audit Procedure # 3

A

Observation

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23
Q

Audit Procedure # 4

A

External confirmation

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24
Q

Audit Procedure # 5

A

Recalculation

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25
Q

Audit Procedure # 6

A

Reperformance

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26
Q

Audit Procedure # 7

A

Analytical procedures

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27
Q

Audit Procedure # 8

A

Scanning

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28
Q

Audit Procedure # 9

A

Inquiry

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29
Q

Examining a client document for evidence of authorization

A

Inspection of documentation

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30
Q

Physically examining a client’s equipment

A

Inspection of assets

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31
Q

Looking at a process or procedure, such as observing the client use of a restricted access area

A

Observation

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32
Q

Obtaining a direct written response to the auditor from a third party, such as the client’s customers, confirming the amount owed to the client

A

External confirmation

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33
Q

Checking the mathematical accuracy of a document or record, such as an inventory count sheet

A

Recalculation

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34
Q

Independently performing procedures or controls that were originally performed by the client, such as reperforming a bank reconciliation

A

Reperformance

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35
Q

Analyzing plausible relationships among both financial and nonfinancial data

A

Analytical procedures

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36
Q

Performing a type of analytical procedure which involves reviewing accounting data to identify significant or unusual items, such as examining a credit balance in an account that typically has a debit balance

A

Scanning

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37
Q

Seeking information of persons within or outside of the client organization, such as communicating with the CFO or general counsel about changes in accounting policy

A

Inquiry

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38
Q

Private sector, non-profit organization that oversees audits of public companies

A

PCAOB (Public Company Accounting Oversight Board)

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39
Q

Governmental body established by Congress in 1934 to regulate the capital markets

A

SEC (Securities and Exchange Commission)

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40
Q

Primary governing organization of the public accounting profession. Develops standards for audits of non-public companies.

A

AICPA (American Institute of Certified Public Accountants)

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41
Q

Affiliated with AICPA and dedicated to enhance investor confidence and trust in financial markets

A

CAQ (Center for Audit Quality)

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42
Q

Sets international auditing standards

A

IAASB (International Auditing and Assurance Standards Board)

43
Q

Provider of thought leadership and guidance on internal control, enterprise risk management, and fraud deterrence. Provides the internal control framework used in virtually all audits.

A

COSO (Committee of Sponsoring Organizations of the Treadway Commision)

44
Q

Administers the CPA exam and provides licensing

A

State Boards of Accountancy

45
Q

4 significant impacts of the Sarbanes-Oxley Act of 2002.

  1. Creating of the PCAOB, ending the self-regulation for the auditing profession
  2. Increasing auditor independence requirements
  3. Increasing corporate responsibility, CEO & CFO signing officers
A
  1. Increasing auditor independence requirements
  2. Enhancing the role and importance of the audit committee
  3. Requiring reporting on internal control over financial reporting
  4. Providing oversight of the external auditing profession by the PCAOB
46
Q

AICPA independence requirement # 1

A

Self-review threat

47
Q

AICPA independence requirement # 2

A

Advocacy threat

48
Q

AICPA independence requirement # 3

A

Adverse interest threat

49
Q

AICPA independence requirement # 4

A

Familiarity threat

50
Q

AICPA independence requirement # 5

A

Undue influence threat

51
Q

AICPA independence requirement # 6

A

Financial self-interest threat

52
Q

AICPA independence requirement # 7

A

Management participation threat

53
Q

Occurs when the audit firm also provides non-audit work for the client.

A

Self-review threat

54
Q

Occurs when the auditor acts to promote the client’s interests.

A

Advocacy threat

55
Q

Occurs when the auditor and the client are in opposition to one another.

A

Adverse interest threat

56
Q

Occurs when the auditor has some longstanding relationship with an important person associated with the client.

A

Familiarity threat

57
Q

Occurs when client management attempts to coerce or provide excessive influence over the auditor.

A

Undue influence threat

58
Q

Occurs when the auditor has a direct financial relationship with the client.

A

Financial self-interest threat

59
Q

Occurs when the auditor takes on the role of management or completes functions that management should reasonably complete.

A

Management participation threat

60
Q

The fraud triangle

A

Incentive / Opportunity / Rationalization

61
Q

6 Failures in Enron’s fraud

A
  1. Management Accountability - no accountability
  2. Corporate Governance - board members no independence
  3. Accounting Rules - complex, obscure pronouncements
  4. Financial Analysts - relied too heavily on earnings
  5. Investment Banking - rewarded with large fees
  6. External Auditors - Arthur Andersen consulted internally as well as audited externally
62
Q

How many times did the Board of Directors for Aaple meet during 2017?

A

4

63
Q

How many times did the Audit Committee for Aaple meet during 2017?

A

8

64
Q

5 Components of COSO’s Internal Control - Integrated Framework

A
  1. Control Environment - Tone at the Top
  2. Risk Assessment - Identifying & assessing risks
  3. Control Activities - Actions established by policies and procedures
  4. Information and communication
  5. Monitoring - Confirming controls are present and effective
65
Q

5 Types of Controls

A
  1. Entity-wide controls - Monitoring
  2. Transaction controls - Segregation of duties
  3. Physical controls - Asset protection
  4. Preventive controls - Prevent misstatements
  5. Detective controls - Discover processing errors
66
Q

A shortcoming in internal controls such that objective of reliable financial reporting may not be achieved

A

Control deficiency

67
Q

A deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.

A

Significant deficiency (Does not need to be reported to external users)

68
Q

A deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

A

Material weakness

69
Q

The auditor knows the user’s identity and specific transaction involved.

A

Identified User

70
Q

The user is a member of a limited class of users for a specific transaction. The identity of the specific user may or may not be known to the auditor.

A

Forseen User

71
Q

The user is a member of a group who could foreseeably use the financial statements.

A

Forseeable User

72
Q
  1. Structure the audit problem
  2. Assess consequences of a decision
  3. Assess risks and uncertainties of the audit problem
  4. Evaluate information/audit evidence-gathering alternatives
  5. Conduct sensitivity analysis
  6. Gather information/audit evidence
  7. Make a decision about the audit problem
A

Framework for Professional Decision Making

73
Q
  1. Identify the ethical issue
  2. Determine the affected parties and identify their rights
  3. Determine the most important rights
  4. Develop alternative courses of action
  5. Determine the likely consequences of each proposed course of action
  6. Assess the possible consequences
  7. Decide on the appropriate course of action
A

Framework for Ethical Decision Making

74
Q
  • Covered members
  • Financial interest
    a) No direct financial interest
    b) No material (<5%) indirect financial interest
  • Non-audit services
A

Rule 101 - AICPA Code of Professional Conduct regarding independence

75
Q

Liability concepts are developed through court decisions based on negligence, gross negligence, or fraud.

A

Common Law

76
Q

Liability occurs where there is a breach of contract

A

Contract Law

77
Q

A type of liability that apportions losses among all defendants who have an ability to pay for the damages, regardless of the level of fault

A

Joint and several liability

78
Q

Payment by an individual defendant based on the degree of faiult of the individual

A

Proportionate liability

79
Q

Laws developed through legislation

A

Statutory Law

80
Q

4 Concepts of the audit opinion formulation process

A
  1. Management Assertions
  2. Accounting Cycles
  3. Audit evidence and audit procedures
  4. Documentation
81
Q

5 Management assertions in financial statements

A
  1. Existence or Occurrence
  2. Completeness
  3. Valuation or Allocation
  4. Rights and Obligations
  5. Presentation and Disclosure
82
Q

Refers to components of financial statements being properly classified, described, and disclosed.

A

Presentation and Disclosure

83
Q

Refers to assets being the rights of an organization. Refers to liabilities being the obligations of an organization

A

Rights and Obligations

84
Q

Refers to inclusion of accounts in financial statements at appropriate amounts.

A

Valuation or Allocation

85
Q

Refers to inclusion of all transactions and accounts in financial statements.

A

Completeness

86
Q

Refers to existence of assets and liabilities. Refers to occurrence of recorded transactions.

A

Existence or Occurrence

87
Q

The susceptibility of an assertion to a misstatement, due to error or fraud, that could be material, individually or in combination with other misstatements, before consideration of any related controls

A

Inherent risk

88
Q

The risk that a misstatement due to error or fraud that could occur in an assertion and that could be material, individually or in combination with other misstatements, will not be prevented or detected on a timely basis by the organization’s internal control

A

Control risk

89
Q

Directly obtained evidence (Observation)

A

Reliable Audit Evidence

90
Q

Indirectly obtained evidence (Inquiry about a control)

A

Less Reliable Audit Evidence

91
Q

Testing for existence (GL to Source Document)

A

Vouching

92
Q

Testing for completeness (Source Document to GL)

A

Tracing

93
Q
  • Determine suitability
  • Evaluate data reliability
  • Develop an expectation
  • Determine the amount of acceptable difference
  • Compare expectation with client’s recorded amount
  • Investigate significant unexpected differences (quantify and corroborate)
  • Document
A

Analytical Procedures

94
Q

Risk that the auditor will issue an inappropriate audit opinion when the financial statements are materially misstated.

A

Audit Risk (Reporting Level)

95
Q

Audit Risk =

A

Inherent Risk x Control Risk x Detection Risk

96
Q

Detection Risk =

A

Audit Risk / (Inherent Risk * Control Risk)

97
Q

Risk that the substantive audit procedures performed will not detect a material misstatement.

A

Detection Risk (Operations Level)

98
Q

The dollar magnitude of a misstatement

A

Quantitative Consideration

99
Q

The reason for the misstatement

A

Qualitative Consideration

100
Q

PCAOB Auditing Standard Categories

A
  1. General Standards (selecting and training auditors)
  2. Fieldwork Standards (conducting the audit)
  3. Reporting Standards (communicating auditor’s opinion)
101
Q

PCAOB Auditing Standards

A
  1. Auditors have adequate technical training and proficiency
  2. Auditors to be independent (in fact and in appearance)
  3. Audit to be conducted with professional care expected of a prudent auditor
  4. Properly plan and supervise the audit
  5. Develop an understanding of client’s controls
  6. Obtain audit evidence by performing audit procedures
  7. State whether financial statements are presented in accordance with the applicable financial reporting framework (i.e., GAAP or IFRS)
  8. Identify conditions where accounting principles are not consistently observed
  9. Review disclosures for adequacy and state in the report if not reasonably adequate
  10. Express an opinion on financial statements as a whole or state an opinion cannot be expressed
102
Q

Audit Procedure Categories

A
  1. Risk assessment
  2. Tests of controls
  3. Substantive procedures
103
Q

Audit Procedures

A
  1. Inspection of documentation
  2. Inspection of assets
  3. Observation
  4. External confirmation
  5. Recalculation
  6. Reperformance
  7. Analytical procedures
  8. Scanning
  9. Inquiry
104
Q

AICPA Independence Requirements

A
  1. Self-review threat
  2. Advocacy threat
  3. Adverse interest threat
  4. Familiarity threat
  5. Undue influence threat
  6. Financial self-interest threat
  7. Management participation threat

Audit (3 decks)

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