A4 (4) - EVALUATING AUDIT FINDINGS Flashcards Preview

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Flashcards in A4 (4) - EVALUATING AUDIT FINDINGS Deck (11):
1

ANALYTICAL PROCEDURES USED AS AN OVERALL REVIEW

(1) . Evaluate overall financial statement presentation, to assess the conclusions reached.

(2) - Assist in forming an opinion on whether FSs as a whole are free of material misstatement

2

EVALUATE WHETHER THE FINANCIAL STATEMENTS ARE FREE OF MATERIALMISSTATEMENT

1- Results of analytical procedures during overall review of FSs
2-Misstatements found during audit, Including incorrect
3- Qualitative aspects of company's accounting practices
4- Conditions identified during audit related to fraud risk
5- Presentation of FSs, including disclosures
6-Sufficiency and appropriateness of the audit evidence

3

EVALUATE WHETHER THE FINANCIAL STATEMENTS ARE FREE OF MATERIALMISSTATEMENT- Evaluation of Audit Findings

1- MATERIALITY LEVEL- , the auditor should consider the risk that the addition of undetected misstatements could cause materiality levels to be exceeded.

2- Prior period misstatements may affect FSs of current period.

3- Other Qualitative considerations (see below)

4- Whether or not a misstatement is considered material is ultimately a matter of professional judgment.

4

QULATATIVE CONSIDERATIONS sometimes may cause an otherwise immaterial misstatement to be deemed material.

The specific circumstances surrounding an entity may lead to situations in which misstatements that do not exceed materiality limits are still likely to influence the
economic decisions of users

5

Misstatements are more likely to be considered material if they

1- Affect trends in profitability
2- change a loss into income (or vice versa)
3- Affect the entity's compliance with loan covenants
4- Affect the entity's compliance with contracts
5- Affect the entity's compliance with regulatory terms
6- Increase management compensation
7-indicate a pattern of management bias
8-involve fraud or an illegal act.
9- Affect significant financial statement elements

6

EVALUATE WHETHER THE FINANCIAL STATEMENTS ARE FREE OF MATERIALMISSTATEMENT - Communication to Management

1- All misstatements, must be communicated on time

2-Request management to review & make corrections

3-The auditor should reevaluate the amount of likely misstatement remaining after management has made adjustments

4- If management does not correct some or all of the known and likely misstatements, the auditor should consider the implications on the auditor's report.

7

EVALUATE WHETHER THE FINANCIAL STATEMENTS ARE FREE OF MATERIALMISSTATEMENT - Documentation Requirements

1- Planning levels of materiality and tolerable misstatement.

2- Known and likely misstatements that were corrected by management

3- SUM with The aggregate effect on the financial statements

8

REVIEWING THE WORK OF OTHERS -

Audit documentation should include:
1. Who performed work and date work completed.
2. Who reviewed audit documentation& date of review.

9

ENGAGEMENT QUALITY REVIEW - Engagement Quality Reviewer

BY a partner who is not otherwise associated
with the engagement

10

ENGAGEMENT QUALITY REVIEW - Engagement Quality Review Process

1- Evaluate the significant judgments related to engagement planning

2-Evaluate the engagement team's assessment of and responses to significant risks

3-Evaluate significant judgments about materiality, corrected and uncorrected misstatements, and control deficiencies.

4-Review the evaluation of the firm's independence in relation to the engagement

5- Review the engagement completion document and confirm that there are no unresolved matters

6- Review the financial statements, management's report on internal control

7- Read other information to be filed with the SEC and determine whether appropriate action has been taken with respect to material Inconsistencies or material misstatements of fact.

8- Evaluate the consultations, documentation, and conclusions related to difficult or contentious matters

9- Evaluate communications with management, the audit committee, and regulatory bodies

10- Evaluate whether engagement documentation indicates that the engagement team responded appropriately to significant risks and whether such documentation supports
the conclusions reached by the engagement team

11

A significant engagement deficiency exists when

1- The engagement team failed to obtain sufficient appropriate evidence

2- The engagement team reached an inappropriate overall conclusion

3- The engagement report is not appropriate for the circumstances

4- The firm is not independent of the client