AUD 1-6 Flashcards
(201 cards)
1
Q
What the 2 most authoritative guidance?
A
- AICPA SAS (Non-issuers) and PCAOB (Issuers) (Most authoritative)
- Auditing publications (Exhibits + guides)
- Other auditing publications (arrticles)
2
Q
Word used for presumptively mandatory = ?
Word for unconditional requirement = ?
A
- Should
- Must
3
Q
What are auditor’s responsibilities?
A
a. Maintaining professional skepticism
- Examples of the application of professional skepticism: Corrobarating evidence, thrid party, support
b. complying with ethical requirements
c. Exercising professional judgment
d. obtaining sufficient appropriate audit evidence
e. Complying with GAAS
4
Q
What are objectives of gaining reasonable assurance?
A
a. Plan the work and supervise assistance
b. Determine and apply appropriate materials
c. Identify risks of material misstatement
d. Obtain sufficient appropriate audit evidence
5
Q
What is the order of an unmodified opinion (non-issuer) ? Where is the framework or GAAS referrenced?
A
OBRA
1. Opinion
a. intro
b. Sentence with opinion
c. Nature of engagement
d. FRAMEWORK referenced
2. Basis for opinion a. Discusses auditing standards b. GAAS referenced
3. Responsibility of management a. GAAP, design of IC b. Going concern c. FRAMEWORK referenced
4. Responsibility of auditor a. Professional Skepticism b. Risks of material misstatement c. Understanding of IC d. Significant accounting estimates + principals e. Expressing an opinion f. GAAS referenced
6
Q
What is the order of an unqualified opinion (Issuer) ? Where is the framework or GAAS referrenced?
A
Opinion of FSs
- Framework (PCAOB + GAAP)
- Nature of the engagement
- Opinion
Basis of opinion
- Material misstatement
- Reasonable assurance
- Auditor is member of the PCAOB and is audited in accordance with the PCAOB.
- FSs are responsibility of mgmt.
- Auditor’s responsibility is to express an opinion.
- Auditor plans and performs to obtain reasonable assurance…….
7
Q
When and what are CAMs used for? What is included in CAM report?
A
CAMs (Only for unqualified or qualified) AKA Issuer ONLY
1. Provides more visibility into complex areas or areas that require judgment.
2. Usually significant judgements, events, transactions
3. Section after “Basis for opinion”
MUST BE:
1. Matter that was communicated to audit committee
2. Relate to accounts or disclosures material to the FSs
3. Involve challenging, subjective, or complex auditor judgment
Report (IPAD)
1. Identification of CAM
2. Principal consideration of matter
3. Addressed - How it was addressed in the audit
4. Disclosures made in FSs
8
Q
What are the modifications for a qualified opinion? (Non-issuer)
A
Opinion section
- “except for”
Basis for qualified opinion
- Add paragraph describing departure from framework and quantify effects
Basis for qualified opinion
- States the type of opinion at the end
9
Q
What are the modifications for a qualified opinion? (Issuer)
A
Opinion section
1. “except for”
2. Add paragraph describing departure from framework and quantify effects
Additional paragraphs 1. Reasons for departure from GAAP.
10
Q
What are the modifications for an adverse opinion? (Non-issuer)
A
Opinion section
- “because of the significance of the matter… the FSs do not present fairly”
- Reference to a separate section disclosing the basis of opinion
Basis for adverse opinion
- Add paragraph describing departure from framework and quantify effects
- Description of the matter giving rise to the modification
- Basis for adverse opinion - States the type of opinion at the end
Note: No Key Audit Matter for Adverse opinions
11
Q
What are the modifications for an adverse opinion? (Issuer)
A
Opinion section
- “because of the significance of the matter… the FSs do not present fairly”
- Reference to a separate section disclosing the basis of opinion
Additional paragraphs
- Add paragraph describing departure from framework and quantify effects
- Description of the matter giving rise to the modification
Note: No Critical Audit Matters for Adverse opinions
12
Q
What are the modifications for a disclaimer of opinion? (non-Issuer)
A
Opinion section
- “do not present fairly”
- Add paragraph describing departure from framework and quantify effects
Basis for disclaimer
- Reference to auditor’s report where auditor’s responsibilities are described.
- Statement on whether evidence obtained is sufficient.
- The reasons for the inability to obtain sufficient appropriate audit evidence
Auditor’s responsibilities
- To conduct in accordance with auditing standards generally excepted.
- Statement Because of Basis for disclaimer of opinion…. Auditor was not able to obtain sufficient appropriate information.
- Auditor is required to be independent.
13
Q
What are the modifications for a disclaimer of opinion? (Issuer)
A
Opinion section
- change heading
- “We were engaged to audit”
- “Not able to obtain sufficient appropriate audit evidence”
Additional paragraphs
- All substantiative reasons for the disclaimer and reservations regarding the conformity to GAAP.
Basis for disclaimer
- Eliminate “Our responsibility” and “We conduct our audits in accordance with”
14
Q
What are the modifications for a audit issues? Qualified? Disclaimer?
A
Qualified opinion
· Reference to basis paragraph (non-issuer)
· Reference to additional paragraph (issuer)
15
Q
What opinion would you modify the auditor’s responsibility paragraph?
A
Disclaimer of opinion only
16
Q
EOM paragraph is used when?
A
- Justified change in accounting principal, change in consistancy, change in reporting entity
- Change in audit opinion from subsequent events
- Special purpose framework refers to note in FS
- Going concern
17
Q
Other-Matter Paragraphs is used when?
A
- Change in audit opinion
- Prior year FSs not presented (audited by prior auditor)
- Comparitive FSs where CY is audited and PY is not.
- Restrict the use of report
- Report on compliance in auditor’s report.
18
Q
Predecessor auditor should (5)?
A
- Read CY comparative FSs
- Compare PY with CY
- Obtain letter of representation from successor auditor
- Obtain letter of representation from management
- Date of report (unrevised or dual date)
19
Q
Successor auditor should (4)?
A
- Check that FSs were audited
- Check type of opinion expressed
- Check nature of “Extra” paragraphs added
- Check Date of Prior audit report (USE ORIGINAL DATE IF NOT REVISED)
20
Q
In other matter paragraph, concerning differing opinions, what is the format that you should state? (DORCS)
A
- Date
- Opinion (previously used)
- Reason (for prior opinion)
- Changes
- Statement (for change)
21
Q
Group engagement partner vs Principal auditor?
A
Group engagement partner (AICPA Private) or Principal auditor (PCAOB Public)
22
Q
Group engagement team relies on component auditor when……
A
- Make no reference = take all responsibility (Option 1)
Components not significant = perform ANALYTICAL PROCEDURES
- Must be satisfied with component auditor independence and work
· Make reference to component auditor = Divide responsibility (Option 2)
23
Q
Auditor Responsibility (PRIME) of Subsequent Events **
A
- Post-balance sheet transactions
- Representation letter of management
- Inquiry client’s legal counsel and management
- Minutes
- Examination latest interim FSs
24
Q
Auditor’s responsibility for susequent events after the audit report?
A
Option 1. (None after the report’s release date)
Option 2: Dual Date – Extends responsibility for 1 event after report
Option 3: Use later date: Extend auditor responsibility for all events
25
Recognized subsequent events are?
Events before the FSs date, adjust records
26
Non-recognized subsequent events are?
Events after BS date, before auditor's report. Disclose events in notes.
27
Client refusal to make changes. What are the steps?
1. Auditor notifies each member of the BOD
2. “DAR” Disassociate, Alert agencies, Relying parties
28
What is included in Other information?
1. Report to those charged with governance
2. Financial summaries
3. Employment data
4. Planned capital expenditures
5. Financial ratios
6. Officers
29
Auditor's responsibility for other information?
1. Read other information to determine credibility
2. If management refuses other information revision then:
a. Communicate to those charged with governance.
b. Include an “other matters section” when management refuses to cover
c. Consider withdrawing from the engagement
30
Auditor's responsibility for Supplementary information?
(APPLY LIMITED PROCEDURES)
1. Evaluate the presentation in relation to the FSs
2. Report whether supplementary information is fairly stated
3. Inquiry management on purpose of sup information
4. Obtain an understanding of the methods used
5. Inquire regarding significant assumptions
31
When is a suplemental paragraph required?
Non-issuer
Add separate paragraph “Required Supplementary info”
states management is responsible for Supplementary
information
Issuer
Not required to add paragraph unless:
1. Information is omitted
2. Material departure
3. Auditor unable to complete procedure
4. Are unresolved doubts about conformance of required supplements
32
What basis should you use EOM paragraph for SPF?
(CT) Cash and Tax basis use EOM paragraph exclusively.
33
What basis should you use EOM, other-matter, and discription of purpose of SPF FSs are prepaired?
(RCO) Regulatory, contractual, other basis.
34
What is included in SPF EOM paragraph?
1. Indicate the FSs are prepared in accordance with applicable SPF
2. States that the SPF is a framework other than GAAP
3. Refers to the notes in the FSs that describe the framework and HOW IT DIFFERS
4. States that FSs may not be suitable for any purpose other than the stated purpose
35
What is included in SPF other-matter paragraph?
1. Restricts the use of the stated parties
2. Should not be used by anyone else
36
Engagement Letter Requirements contents
1. Addressee
2. Objectives and scope of the audit
3. Responsibilities of the auditor
4. Responsibilities of management
5. Other relevant information
6. Reporting
7. Signature
37
Engagement Letter Requirements contents
1. Addressee
2. Objectives and scope of the audit
3. Responsibilities of the auditor
4. Responsibilities of management
5. Other relevant information
6. Reporting
7. Signature
38
What parts of the auditor's report do you modify when issuing a Adverse opinion?
Opinion
Basis
39
What parts of the auditor's report do you modify when issuing a qualified opinion?
Opinion
Basis
40
What parts of the auditor's report do you modify when issuing a disclaimer opinion?
Opinion
Basis
Auditor's Responsibility Section
41
42
43
Current auditor obtains permission to talk to the prior auditor and make inquiries about?
a. Management integrity
b. Disagreements with management
c. Reasons for change
d. Any fraud, non-compliance, and internal control matters related to
communications
e. Nature of clients relationships
f. Review Predecessor auditor work
44
Auditor must review (Before accepting an engagement):
1. Firm’s ability to meet reporting deadlines considering:
a. Timing and complexity of the engagement
2. Firm’s ability to staff the engagement
3. Firm’s independence
4. Integrity of client’s management and group engagement partner/team will be able to
obtain sufficient appropriate evidence
5. Acceptable framework
6. Management responsibility of IC
7. Management access to all information relevant to the financial statements (scope
limitation)
45
Quality control procedures/standards “HELP ME” ***
1. Human Resources (hiring competent employees)
a. Hiring
b. Assign personnel to engagement
c. Professional development
d. Performance and evaluation
2. Engagement/Client acceptance and continuance
a. Minimize association with client management that lacks integrity
b. Reasonably expect to complete with professional competence
c. Obtain an understanding on the Nature and Scope
d. Policies and procedures to withdraw
3. Leadership responsibilities (firm’s tone at top)
4. Performance of the engagement (allow consultation with experts)
5. Monitoring
a. Inspections
b. Peer review (Every 3 years)
c. “Wrap-up” (Second partner review)
6. Ethical requirements
a. Evaluating independence
46
Document retention********
1. SAS rules (Non-issuer) = holder for 5 years after release, assembled 60 days after report release
2. PCAOB rules (Issuer) = holder for 7 years after release, assembled 14 days after report release
47
Audit documentation should:
1. Assist engagement team in planning, conducting, and supervising.
2. Accounting record reconcile with FSs
3. Reach conclusion drawn from the results, findings, and judgements
4. Enough detail that an “EXPERIENCED AUDITOR” can understand
5. Add who did the work and date
48
ORC - “Objectives” of COSO
1. Effective and efficient operations
2. Reliability of financial reporting
3. Compliance with laws and regulations
49
******5 Components of Internal Control (CRIME)***** APPLIES TO ORC – PRESENT + FUNCTIONING
1. Control environment (Tone at the top) (EBOCA)
* Ethics, Independent BOD, Organization structure, Competence, Accountability
2. Risk assessment (FS misstated, not efficient) (SAFR)
* Specify objectives, Analyze risks, Consider potential fraud, ID and assess changes
3. Information and communication systems (Fair, accurate, complete, timely) “FACT” (OIE)
* Obtain and use information, internally report, externally report
4. Monitoring (Effectiveness of controls + reporting) (SOD)
* Ongoing and separate evaluations, Communicate deficiencies
5. Existing Control activities (policies to mitigate risks) (CAT P)
Select control activities, Technology controls, deploy policy and procedures
“PAID TIPS”
Pre-number documents
Authorize and approval of transactions
Independent checks
Example: Bank recs
Documentation
Timely and appropriate financial performance reviews
Information processing
Physical and logical controls
Segregation of duties
50
Engagement partner responsible for?
1. Planning, Supervision, and compliance
Supervision of assistants include directing efforts/responsibility, communicating to team, reviewing work, and staying informed
“NET” of supervision uses the “COVER U”
2. Communicating Written plan with those charged with governance
a. Planned scope and timing
b. Internal control
c. Materiality factors
d. Use of internal audit staff
e. Plan to address significant changes
f. Fraud
51
Audit Plan made up of? ***************
1. Written - “NET” helps assess staff, location, time needed
2. Audit plan is made up of: NET of audit procedures
a. Risk assessment procedures
Understanding of entity and environment
b. Further audit procedures
Test of controls (Testing effectiveness)
$ubstantive procedures (Required)
3. NET of assertions under consideration
52
Developing overall audit strategy (Focus) INITIAL PLANNING PHASE items include?
1. Scope of the engagement
Size of complexity
Information technology
Knowledge gained from prior experience
Use of service org
2. Reporting objective
Deadlines/Key dates
Nature and timing of audit team/3rd party communications
3. Timing of the audit
Helps determine what resources are needed for the engagement
4. Required communications to governance
5. Preliminary judgment of materiality
6. The focus of the audit
7. Risk assessment:
Risk assessment procedures
Further procedures
Test of controls (understanding and relying)
Substantive procedures (Test account balances and test details)
Other audit procedures
Testing at an interim date
53
When should you use more interim dates over year end dates?
1. Strong IC = More Interim dates
2. Weak IC = More year-end (RISK OF DETECTION)
54
What is NET of an audit plan made up of?
Preliminary analysis (Nature “NET”) helps determine materiality, audit risk, and type of procedures
Preliminary analysis (Extent “NET”) characteristics of size, complexity, other factors (Scope) (Number of items)
Preliminary analysis (Timing “NET”) helps determine deadlines and communication testing period
55
Formula for performance materiality?
$140,000 (overall materiality) × 0.5 (lower range provided in audit firm guidance) = $70,000
56
What should you establish to reduce the risk that the aggregate of undetected misstatements in the group financial statements
Component materiality that is lower than the materiality for the group financial statements.
57
Formula for audit risk?
RMM (IR * CR) * DR (Detection risk)
58
What is audit risk?
risk of issuing wrong opinion due to failing to detect material misstatement
59
relationship with RMM, “acceptable level of DR” **************
1. RMM(increasing) = DR(decreasing)
a. More assurance required from $ubstantive testing
b. More tests at year end
2. RMM(decreasing) = DR(increasing)
a. Less assurance required from $ubstantive testing
b. More tests at interim date
60
Control risk to sample size relationship?
Lower control risk = Lower sample (Positive relationship)
61
What are examples of IR?
1. High-volume, unique, significant
2. transactions
3. Complex
4. Amount with estimates
5. Cash
6. Economic change
7. Low working capital
62
What are Management’s responsibility related to fraud?
Designing and implementing programs and controls to prevent fraud
63
Auditor’s responsibility related to fraud
1. Plan and perform an audit
2. Fraud assessment, and assess in every phase of the audit
Provide reasonable assurance on detecting errors
3. Discussion to every member of the engagement team
Document discussion
4. Obtaining information during the audit
a. Inquire of entity personnel regarding their views on fraud
b. Results of analytical procedures
c. Evaluate fraud risk factors
1. Types of risk
2. Significance of risk factors
3. Likelihood of the risk
4. Pervasiveness of the risk
64
What is the auditor's response to fraud?
1. Overall, general response
Consider when assigning engagement members
2. Changing the audit, year to year
Change the NET response encompassing specific audit procedures
3. Response addressing management override
Controls of journal entries
65
What are the exceptions to when you can give out the client's information without their concent? (3)
1. Subpoenaed
2. Investigated by state board of accountancy
3. Requested by your firm's lawyers when being sued
66
What areas should an internal auditor not be able to provide direct assistance?
1. Areas of high complexity/judgement
2. Risk assessment
67
How is Income tax benefit be calculated?
Income/loss from operations +- Income/loss from discontinued operation * tax rate
68
When should an allowance for credit losses in added in factoring?
Factoring includes an allowance for credit losses added like (allowance for doubtful accounts) only when they are transferred recourse (AKA liability)
69
What are the risk assessment procedures by PCAOB?
1. Obtain understanding of entity and environment
Structure - including compensation
How they use I.T.
Gathers evidence manual and computerized
Auditor assessment of control and inherent risk of IT
Design tests of controls and $ubstantive testing to address that
Nature of the entity
2. Obtain an understanding of internal control over financial reporting
3. Inquire the audit committee, management, BOD, internal auditors and others within the company about risks of material misstatement
Helps identify processes in the company that have failed
4. Perform analytical procedures to assist in planning by Identifying inconsistencies:
Unusual transactions or events
Trends that have audit implications
generally enhances the auditor's understanding of the company
Procedures include:
Evaluations on financial information (Financial and Non-financial)
Year-to-year comparisons, budgeted vs actual results
Plan audit procedures to look for these trends or inconsistencies
5. Conduct a discussion among engagement teams members regarding RMM
6. Observation and inspection Support, corroborate or contradict inquiries of management
7. Other procedures
Reviewing external information (journals, Analysis reports)
Results from fraud assessment
Information obtained from client acceptance or continuance process
Engagement information
Prior period evidence
May do $ubstative procedures, if efficient to do so
70
What are detective controls?
Applied after the process occurs
Examples:
Bank reconciliation
71
What are Preventative controls
Applied before the process occurs
Examples:
Hiring competent employees
Training
ARC
72
What are responses to areas of greater RMM for FSs risks?
1. Communicate skepticism to team
2. Assign staff with more specialization
3. More supervision
4. Greater level of unpredictability
5. Make pervasive changes to audit strategy
73
What are responses to areas of greater RMM for Assertion level risks?
Design procedures that address NET of items:
Nature
Inquiries (Not enough), Observation, Inspection, reperformance (Tests operating effectiveness)
Extent
Sample size used
Frequency of performance is a large factor
Timing
When the tests are performed
74
What are the Standard Audit Procedures?
1. Observation
a. Auditor looks at a process being completed BY A PERSON
2. Reperformance
3. Inquiry (alone, not enough)
a. Internal
b. External
4. Walkthrough
5. Subsequent events review
a. Type 1 - Provide evidence about conditions existed before BS date
i. Requires disclosure in FSs
b. Type 2 - Provide evidence about conditions that did not exist before BS date
i. Requires disclosure in FSs
6. Inspection
a. Reviewing a DOCUMENT or a THING
7. Reconciliation
8. Recalculation
a. Cross-footing
9. Cut-off review
10. Analytical procedures
a. Relationships among data
b. Verify internal consistency
c. Scanning for unusual events
11. Vouching - FSs → Source documents
a. Testing for existence
12. Tracing - Source documents → FSs
a. Testing for completeness
13. Confirmation - From external 3rd party
75
What are Standard Audit Procedures?
1. Observation
a. Auditor looks at a process being completed BY A PERSON
2. Reperformance
3. Inquiry (alone, not enough)
a. Internal
b. External
4. Walkthrough
5. Subsequent events review
a. Type 1 - Provide evidence about conditions existed before BS date
i. Requires disclosure in FSs
b. Type 2 - Provide evidence about conditions that did not exist before BS date
i. Requires disclosure in FSs
6. Inspection
a. Reviewing a document OR A THING
7. Reconciliation
8. Recalculation
a. Cross-footing
9. Cut-off review
10. Analytical procedures
a. Relationships among data
b. Verify internal consistency
c. Scanning for unusual events
11. Vouching - FSs → Source documents
a. Testing for existence
12. Tracing - Source documents → FSs
a. Testing for completeness
13. Confirmation - From external 3rd party
76
When are analytical procedures done?
Planning and review stage.
77
What procedures are used for completeness?
1. Tracing - Source documents to JEs
2. Analytical review
3. Observation
78
What procedures do you use for valuation, allocation and accuracy?
1. Inspection
2. Footing
3. Recalculation
4. Reconciliation
79
What procedures do you use for valuation, allocation and accuracy?
1. Inspection
2. Footing
3. Recalculation
4. Reconciliation
80
What procedures are used for existence and occurrence?
1. Vouching
2. Confirmation
3. Observation, inspection and examination
81
What are the procedures for rights and obligations?
1. Inspection
2. Confirmation
82
What is Incorrect acceptance?
Sample supports conclusion of the balance being not materially misstated, but it actually is.
Questions that use the word "misstatements"
83
What is Incorrect rejection?
Sample supports conclusion that the balance is materially misstated, but it actually is not.
Questions that use the word "misstatements"
84
Sampling risks in tests of controls = Too high = ?
Indicates a greater deviation rate in sample than tolerable rate
Does more work than necessary, inefficient
Questions that use the word "deviations"
85
Sampling risks in tests of controls = Too low = ?
Assessed level of controls risk based on sample is too low than true risk
Indicates a lower deviation rate in sample than tolerable rate
Questions that use the word "deviations"
86
What is the upper deviation rate?
When can an auditor rely on controls?
Upper deviation rate = Sample deviation rate + Allowance for sampling risk
If upper deviation rate < or = Tolerable rate = Auditor may rely on
If upper deviation rate > Tolerable rate = Auditor would not rely on
87
RMM and expected misstatement have what effect on sample size?
Positive relationship
88
Tolerable misstatement and acceptable level of risk have what effect on sample size?
Negative relationship
89
When should auditor stratify sample?
1. Sample has highly variable amounts
2. Wants to reduce sample size
90
How do you calculation misstatement using tainting factor?
Sample Error = # recorded - audited #
Tainting factor = Sample error / # recorded
Misstatement = Tainting factor * sampling interval
91
What are diagnastic data analytic techniques?
Explains "Why". Uncovers correlation, patterns, and relationships to explain outcome.
Examples:
Variance analysis
Period-over-period analysis
Data profiling
Clustering
92
What are descriptive data analytic techniques?
Describes what happened within the data set. May be similar to dectective controls.
Examples:
Range, mean, median, dependence (correlation)
93
What are predictive data analytic techniques?
Predictive analytics provide expected or predicted outcomes based on historical data.
Examples:
Predictive
Regression
Semtiment analysis
94
What are prescriptive data analytic techniques?
Prescribes courses of action to help optimize decisions.
Examples:
What-if analysis
Decision support
95
What are the formulas for Sampling interval and sample size using PPS?
Sampling interval = TM / Reliability factor
Sample size = Recorded amount is population / Sampling interval
96
What is the formula for (MPU) Mean-per-unit Estimation = Average sample value * Number of items in population
Mean-per-unit Estimation = Average sample value * Number of items in population
97
What is the formula for Ratio estimation?
Ratio estimation = (Audited value of sample / Book value) * Total Book Value
98
What is the formula for Difference estimation?
Difference estimation
Calculate Projected error = ((Book value of sample - Audited value of sample) / # of items audited) * Population
Calculate Point estimate = Total book value of population - Projected error
99
Which assertion has an objective to validity?
Existance
100
Which assertion has an objective that everything is recorded?
Completeness
101
Which assertion has an objective for a correct amount?
Valuation, allocation, accuracy
102
Which assertion has an objective for the proper legal right
Rights and obligations
103
Which assertion has an objective for correct classification?
Presentation
104
When should you perform negative confirmations?
Low risk, small balances accounts
105
What procedure would make a client more likely to confirm a balance?
Include a list of invoices that make up the balance. Confirm individual invoices.
106
What steps should you take if the 3rd party doesn't give you a response to your confirmation?
1. Send a second confirmation
2. Ask client to reach out to gain communication with them
3. perform additional procedures.
107
What should the auditor do when a confirmation come in from unouwn source?
Verifiy the identification of the sender.
108
What procedures should you perform for the completeness assertion?
1. Tracing
2. Analytical review
3. Observation
109
What procedures should you perform for the valuation, allocation and accuracy assertion?
1. Inspection
2. Footing
3. Independent recalculation
4. Reconciliation
110
What procedures should you perform for the existance and occurence assertion?
1. Confirmation
2. Observation, inspection, and examination
3. Vouching
111
What procedures should you perform for the rights and obligations assertion?
1. Inspection
2. Confirmation
112
What procedures should you perform for the Presentation and classification assertion?
1. Inspection
2. Review
3. Inquiry of management
113
What is AP responsible for?
1. Match of PO, Receiver, and invoice
114
What are procedures that the treasurer should do?
1. Mail the checks he signs
2. Voucher needs to be stamped paid or cancels the voucher packet, so it cannot be used again
115
What procedure will find unrecorded liabilities?
Vouch cash disbursements after the BS date, compare to receiving reports
116
What are procedures that purchasing should do?
1. Issue prenumbered POs
2. Contact with Vendors
3. Receive requisition
4. Send accounting debit memos for returns
117
What are procedures that requisitioner should do?
1. Receive goods
2. Get approval
3. Send copy to purchasing
118
What is kiting?
Depositing check in 2 banks - Detected by bank transfer schedule
Auditor should look at bank tfr schedule dates
119
What is lapping?
Employee withholds funds for personal use by applying subsequent receipts to cover the prior funds
Auditor should compare depost slips to AR credits
120
How do you test the completeness assertion for inventory?
1. Random selection traced to inventory listing
2. Inventory tag to tag listing
121
How do you test the valuation allocation and accuracy assertion for inventory?
1. Test mathmatical accuracy
2. Inquire about obsolete and damaged goods
3. Scan moving goods
4. Turnover ratio
122
How do you test the existance assertion for inventory?
1. Inventory listing to actual source
123
How do you test the completeness assertion for investments?
Source (statement from custodian) -> records
Search for unrecorded purchases
Procedure: Analytical procedure for reasonableness of dividends/interests
124
How do you test the Valuation and allocation assertion for investments?
Footing totals
YE Fair value, compare stock price to yahoo.com
Procedure: Recalculate for FV or Impairment
125
How do you test the Existence and occurrence assertion for investments?
Procedures:
Confirmations to custodian
Examine physical securities
126
How do you test the rights and obligation assertion for investments?
Confirmation
127
What are examples of qualitative misstatements?
1. Turn loss into a profit
2. Effects loan covenants
3. Increases management compensation
128
What should the auditor consider for misstatements during the audit?
1. Frequency of the misstatement
2. Areas in effect
3. FS implications
129
What should be included in a management representation letter? (10 items)
1. Financial statements
Responsible for FSs design, implementation fair
presentation, controls relevant to preparing
2. Completeness of information
3. Responsible for design and implementation to prevent fraud + disclosure of any fraud
4. Uncorrected misstatements are immaterial
5. Litigation
6. Estimates
7. Laws and regulations
8. Related parties
9. Subsequent events
10. Additional representations - New principals, impairments, obsolete, etc.
130
What is the auditor's responsibility for finding deficiencies?
Auditor does not need to search for deficiencies, but should report them if found
131
How and to who should the auditor communicate significant deficiencies and material weaknesses to?
Management and TCWG within 60 days of the report release
132
What should be included in a communication to management and TCWG letter?
1. Definition of term material weakness
2, Description of significant deficiencies (Potential effects)
3. Sufficient information for TCWG to understand
4. A restriction regarding the communication with management
133
What strategies most likely could improve the response rate of the confirmation of accounts receivable?
Including a list of items or invoices that constitute the account balance.
134
Which of the following actions should an auditor take when receiving a confirmation via electronic communication with the client?
accept confirmation and verify source
135
Revenue Cycle:
What procedures are included in the completeness assertion?
What document are you looking for in the tracing procedure?
a. Tracing - shipping docs (Bill of lading) to sales journal (Invoices) - evidence that shipments were invoiced
b. Analytical review
c. Observation
136
Revenue Cycle:
What procedures are included in the Cutoff assertion?
a. Cutoff procedures - A sales cut-off test is used to detect unrecorded sales (shipments where no invoice has been generated) or sales allocated to the wrong period (January sales included in December by "holding the books open").d
137
Revenue Cycle:
What procedures are included in the Existance and occurance assertion?
a. Confirmation - AR to customers
b. Observation, inspection, examination
c. Vouching
138
Revenue Cycle:
What procedures are included in the Valuation, allocation, accuracy assertion?
a. Inspection
b. Footing
c. Recalculation - evaluating the adequacy of the allowance for doubtful accounts
d. Reconciliation
139
Revenue Cycle:
What procedures are included in the Rights and obligation assertion?
a. Inspection
b. Confirmation
140
Revenue Cycle:
What procedures are included in the Understandability of presentation and classification assertion?
a. Inspection
b. Review
c. Inquiry of management
141
What is the mailroom's procedures?
1. Sperate checks and remittance advices.
2. Stamp endorsement on checks.
3. Prepare prenumbered list of checks received.
4. Forward remittance to A/R (Matches to check deposit and remittance)
5. Forward prelisting to accounting/AR, and cashier ( prepares deposit with check received and adds to prenumbered cash summary list).
142
How are segregation of duties generally tested?
Inquiry and observation of activities
143
What are safeguards to protect marketable securities?
1. Custodian has no direct contact with employees who have recordkeeping
2. The GL and the deposit box are reconciled periodically
3. Requires 2 signatures to access
144
Which assertion has an objective to validity?
Existance
145
Which assertion has an objective that everything is recorded?
Completeness
146
Which assertion has an objective for a correct amount?
Valuation, allocation, accuracy
147
Which assertion has an objective for the proper legal right
Rights and obligations
148
Which assertion has an objective for correct classification?
Presentation
149
When should you perform negative confirmations?
Low risk, small balances accounts
150
What procedure would make a client more likely to confirm a balance?
Include a list of invoices that make up the balance. Confirm individual invoices.
151
What steps should you take if the 3rd party doesn't give you a response to your confirmation?
1. Send a second confirmation
2. Ask client to reach out to gain communication with them
3. perform additional procedures.
152
What should the auditor do when a confirmation come in from unouwn source?
Verifiy the identification of the sender.
153
What procedures should you perform for the completeness assertion?
1. Tracing
2. Analytical review
3. Observation
154
What procedures should you perform for the valuation, allocation and accuracy assertion?
1. Inspection
2. Footing
3. Independent recalculation
4. Reconciliation
155
What procedures should you perform for the existance and occurence assertion?
1. Confirmation
2. Observation, inspection, and examination
3. Vouching
156
What procedures should you perform for the rights and obligations assertion?
1. Inspection
2. Confirmation
157
What procedures should you perform for the Presentation and classification assertion?
1. Inspection
2. Review
3. Inquiry of management
158
What is AP responsible for?
1. Match of PO, Receiver, and invoice
159
What are procedures that the treasurer should do?
1. Mail the checks he signs
2. Voucher needs to be stamped paid or cancels the voucher packet, so it cannot be used again
160
What procedure will find unrecorded liabilities?
Vouch cash disbursements after the BS date, compare to receiving reports
161
What are procedures that purchasing should do?
1. Issue prenumbered POs
2. Contact with Vendors
3. Receive requisition
4. Send accounting debit memos for returns
162
What are procedures that requisitioner should do?
1. Receive goods
2. Get approval
3. Send copy to purchasing
163
What is kiting?
Depositing check in 2 banks - Detected by bank transfer schedule
Auditor should look at bank tfr schedule dates
164
What is lapping?
Employee withholds funds for personal use by applying subsequent receipts to cover the prior funds
Auditor should compare depost slips to AR credits
165
How do you test the completeness assertion for inventory?
1. Random selection traced to inventory listing
2. Inventory tag to tag listing
166
How do you test the valuation allocation and accuracy assertion for inventory?
1. Test mathmatical accuracy
2. Inquire about obsolete and damaged goods
3. Scan moving goods
4. Turnover ratio
167
How do you test the existance assertion for inventory?
1. Inventory listing to actual source
168
How do you test the completeness assertion for investments?
Source (statement from custodian) -> records
Search for unrecorded purchases
Procedure: Analytical procedure for reasonableness of dividends/interests
169
How do you test the Valuation and allocation assertion for investments?
Footing totals
YE Fair value, compare stock price to yahoo.com
Procedure: Recalculate for FV or Impairment
170
How do you test the Existence and occurrence assertion for investments?
Procedures:
Confirmations to custodian
Examine physical securities
171
How do you test the rights and obligation assertion for investments?
Confirmation
172
What are examples of qualitative misstatements?
1. Turn loss into a profit
2. Effects loan covenants
3. Increases management compensation
173
What should the auditor consider for misstatements during the audit?
1. Frequency of the misstatement
2. Areas in effect
3. FS implications
174
What should be included in a management representation letter? (10 items)
1. Financial statements
Responsible for FSs design, implementation fair
presentation, controls relevant to preparing
2. Completeness of information
3. Responsible for design and implementation to prevent fraud + disclosure of any fraud
4. Uncorrected misstatements are immaterial
5. Litigation
6. Estimates
7. Laws and regulations
8. Related parties
9. Subsequent events
10. Additional representations - New principals, impairments, obsolete, etc.
175
What is the auditor's responsibility for finding deficiencies?
Auditor does not need to search for deficiencies, but should report them if found
176
How and to who should the auditor communicate significant deficiencies and material weaknesses to?
Management and TCWG within 60 days of the report release
177
What should be included in a communication to management and TCWG letter?
1. Definition of term material weakness
2, Description of significant deficiencies (Potential effects)
3. Sufficient information for TCWG to understand
4. A restriction regarding the communication with management
178
What strategies most likely could improve the response rate of the confirmation of accounts receivable?
Including a list of items or invoices that constitute the account balance.
179
Which of the following actions should an auditor take when receiving a confirmation via electronic communication with the client?
accept confirmation and verify source
180
Revenue Cycle:
What procedures are included in the completeness assertion?
What document are you looking for in the tracing procedure?
a. Tracing - shipping docs (Bill of lading) to sales journal (Invoices) - evidence that shipments were invoiced
b. Analytical review
c. Observation
181
Revenue Cycle:
What procedures are included in the Cutoff assertion?
a. Cutoff procedures - A sales cut-off test is used to detect unrecorded sales (shipments where no invoice has been generated) or sales allocated to the wrong period (January sales included in December by "holding the books open").d
182
Revenue Cycle:
What procedures are included in the Existance and occurance assertion?
a. Confirmation - AR to customers
b. Observation, inspection, examination
c. Vouching
183
Revenue Cycle:
What procedures are included in the Valuation, allocation, accuracy assertion?
a. Inspection
b. Footing
c. Recalculation - evaluating the adequacy of the allowance for doubtful accounts
d. Reconciliation
184
Revenue Cycle:
What procedures are included in the Rights and obligation assertion?
a. Inspection
b. Confirmation
185
Revenue Cycle:
What procedures are included in the Understandability of presentation and classification assertion?
a. Inspection
b. Review
c. Inquiry of management
186
What is the mailroom's procedures?
1. Sperate checks and remittance advices.
2. Stamp endorsement on checks.
3. Prepare prenumbered list of checks received.
4. Forward remittance to A/R (Matches to check deposit and remittance)
5. Forward prelisting to accounting/AR, and cashier ( prepares deposit with check received and adds to prenumbered cash summary list).
187
How are segregation of duties generally tested?
Inquiry and observation of activities
188
What are safeguards to protect marketable securities?
1. Custodian has no direct contact with employees who have recordkeeping
2. The GL and the deposit box are reconciled periodically
3. Requires 2 signatures to access
189
What reports can be included in SSARS?
SSARS -preparation, compilation, review
190
In SSARS report, what must the auditor have?
1. Sufficient knowledge to identify applicable SSARS
2. Exercise professional judgment
3. Able to justify departure from SSARS
4. Does NOT apply to other accounting services
191
Independence is impaired if:
1. Spouse, family or close relative is client management
Exception is automobile, insurance loans and borrowing cash or credit cards
2. Member has a material indirect financial interest in an attest client
3. Member is previously employed for the attest client
4. Member leaves firm to work for the client
1 year cool off
5. CPAs make mgmt decisions for the client
6. Client is more than 1 year overdue for professional fees
7. Actual or threatened litigation
192
What 2 ethical standards must a CPA keep at all times?
Objectivity and integrity.
Note: independence is only required for attest services
193
What is included in engagemetn letter of a compilation? and procedures performed in a compilation?
Objective
Auditor responsibility
No accuracy or completeness
Management’s responsibility
Limitations of the engagement
Our report
Gaining an understanding (Procedures)
1. Read the FSs
2. Staff appropriately
194
What is included in the auditor's report of a compilation?
Management responsible for FSs
FSs subjected to compilation
Date or period covered
Accountant complied with SSARS
Statement that Accountant did not audit or review the FSs
No procedures to verify accuracy or completeness
Additional paragraphs for:
1. Lack of independence
2. Disclosing omissions and statement on disclosures
3. Supplemental information
information that is the representation of management without audit or review.
Each page marked
Usefulness of projected FSs
195
What should be included in the additional paragraph when prior period has been audited for a review or compilation?
1. The prior period statements were audited
2. The date of the previous reports
3. The opinions expressed and reasons for it
4. That no auditing procedures have been performed since that date
196
Steps for a review (U LIAR CPA)
1. Understanding the client (EL)
Objectives, responsibilities, limitations, framework, form of report
Similar to compilation
2. Learn and obtain sufficient knowledge of entity’s business
Principles, framework, industry and business
Design analytical procedures and inquiries based on this
3. Inquiries
Management and personnel
Accounting principles and practices
Procedures in FSs
Significant events or transactions
4. Analytical procedures
Develop expectation and comparing recorded amounts (Ratios/budgets)
5. Review other procedures
Read FSs
Perform additional procedures on incorrect work
6. Client rep letter
Required, Accountant report date, Signed by management
7. Professional judgment
Document clear understanding of work that you did
8. Accountant standard report results
Title “independent”
Addressee
Introductory paragraph
Management responsibility
Accountant’s responsibility
Limited assurance
Independent reference
Conclusion
Sign and date
197
What level of assurance do the following give: Preparation, compilation, review?
Preparation - None
Compilation - None
Review - Limited
198
Which of the following require independence: Preparation, compilation, review?
Preparation - Not required
Compilation - Not required
Review - Required
199
What documentation should be included in a preparation?
1. EL
2. Copy of FSs
3. Any significant findings or issues
4. Communication with management regarding non-compliance
200
What is the difference between a compilation and preparation?
1. Compilations require a report, while preparations do not.
2. Compilations require to disclose nonindependence, while preparations do not.
201
What is included in a review report?
1. Title (Independent accountant review report)
2. Addressee
3. Intro paragraph
a. State FSs have been reviewed
b. State period covered
c. Statement that review includes analytical procedures and inquiries
d. Statement that review is less than an audit
4. Management's responsibility - implementation
5. Accountant's responsibility
a. Conducted with SSARS
b. Limited assurance for an opinion
c. Requirement to be independent
6. Accountant conclusion
