A2 Flashcards
(32 cards)
Elements of Quality Control
Human resources
Engagement/client acceptance and continuance
Leadership responsibilities- ultimate responsibility for quality control
Performance of engagement
Monitoring
Ethical requirements- helps firm maintain independence
Tone at the Top attributes
Control environment Risk assessment Information Monitoring Existing control activities
Significant engagement deficiencies
The team failed to obtain sufficient appropriate evidence
The engagement team reached an inappropriate conclusion
Engagement report is not appropriate for the circumstances
Firm is not independent of the client
Performance of Engagement examples
Ensure engagement is properly supervised and work is appropriately reviewed
Maintain confidentiality, integrity of documentation.
Engagement quality review should be appropriately documented.
Develop and use standard audit forms, checklists.
Establish procedures to review engagement documentation.
Monitoring procedures
Helps determine whether firm has complied with legal requirements
Helps determine whether quality control system has been designed, implemented, operated effectively.
Review of administrative records, working papers, financial statements.
Conduct peer reviews at least every three years.
Report release date
The date which the auditor grants the client permission to view the report.
Date on which report is delivered to client.
Document completion date
The date in which auditor must have final documentation assembled. The date after which no existing documentation can be deleted and all additional information must be documented.
Factors in determining nature and extent of documentation
Size and complexity of entity Nature of auditing procedure Risk of material misstatement Significance of evidence obtained Nature and extent of any exception identified Extent to which judgement was required
Significant audit findings
Complex and unusual transactions, estimates
Matters that give rise to significant risks
Cause significant difficulty in applying required audit procedure
Result in modifying opinions, or adding an emphasis of matter paragraph
Engagement letter required content
Objective and scope of audit
Responsibilities of auditor and management
Statement that unavoidable inherent risk exists.
Identification of applicable reporting framework.
Statement that the auditor’s report may differ from what is expected.
Engagement letter optional content
Scope of the audit- reference to applicable regulations
Audit planning arrangements- audit team composition
Agreement of management to provide all information auditor requests
Agreement of management to provide written repesentation (last)
Arrangements regarding use of specialists, former auditors
Fees and billing arrangements
Auditor’s responsibilities during planning stage
Obtain knowledge of client’s business and industry
Develop audit strategy and audit plan
Perform risk assessment procedures to assess risk of material misstatement
Audit strategy procedures
Define scope, timing and objective of audit
Determine focus of audit team efforts
Determine allocation of resources
Making required communications
Preliminary assessment of materiality and material misstatement
Financial statement assertions
Completeness Cutoff Valuation, Allocation, and Accuracy Existence and Occurrence Rights and Obligations Understandability and Classification
Supreme Court definition of materiality
Information that is likely to be viewed by a reasonable investor as altering the mix of available information
Factors in preliminary assessment of materiality
Identify appropriate benchmark: based on FS items to focus on, nature and size of entity, industry
Prior period financial results
Current period budgets and forecasts
Significant known or expected changes in entity’s circumstances
Changes in conditions on industry or economy as a whole
Tests of details
Audit procedures to verify specific account balances
Tests of controls
Performed to evaluate the effectiveness of internal controls
Tests of transactions
Selecting specific transactions and verifying if they were properly recorded
Analytical Procedures Performed during Planning
Comparing financial statements to budgeted results
Comparing financial information with nonfinancial operating data
Comparing current year account balances for conformity with predictable patterns
Objectives of Analytical Procedures during Planning
Enhance auditor’s understanding of entity and transactions/events that have occurred since last audit.
Identify unusual transactions and events
Identify risks of material misstateents due to fraud
Control Environment Factors
Integrity Competence Participation of those charged with governance Management philosophy Organizational structure Assignment of responsibility Human resource policies
Risk Assessment factors
Related to changes:
Change in regulatory/operating environment
New personnel/technology/business models
Corporate restructuring
Rapid expansion of operations
Expansion or acquisition of foreign operations
Adoption of new accounting principles
Information and Communications systems factors
Communicating roles and responsibilities
Identify and record valid transactions
Present transactions and disclosures properly in FS
Financial reporting process- developing significant accounting estimates
