Flashcards in AUD Deck (104)
What does TID stand for in the GAAS general standards?
Training, Independence, and Due professional care
What does PIE stand for in the standards of field work?
Planning and supervision, Internal Control, and Evidence
What does GCDO stand for in the standards of reporting?
GAAP, Consistency, Disclosure, and Opinion
When is an adverse opinion rendered?
When a severe GAAP departure is present in the financial statements.
What are the two main differences between the standards of attestation and the auditing standards?
The attestation standards and generally accepted auditing standards differ conceptually in two main areas: 1) the attestation standards provide a framework for the attest function beyond historical financial statements; and 2) the attestation standards provide for the growing number of attest services in which the practitioner expresses assurances in forms other than the positive opinion.
Formula for days sales in acc receivable?
Acc rec / credit sales per day.Credit sales per day = Total credit sales / 365.
Adj entry for wages at end of year that weren't recorded:
DR: Operating expensesCR: Accrued wages payable(accrued liab)
Why would an auditor modify the auditor's report based on the work of a specialist?
If there is a difference between the specialist's valuation of an asset and the client's.
who should make up the audit committee?
members of the board or directors who are not officers or employees
what are the 3 general standards?
adequete training, independence of mental attitude, and due professional care
3 fieldwork standards?
adequete planning, understanding the entity and its internal control, sufficient and appropriate audit evidence
the auditors judgment of the overall fairness of the financial statements is applied within the framework of?
generally accepted audit principles
what does the auditor primarily use to come up with materiality?
the prior year financial statements
basics of independence concerning a close relative?
CR can have a financial interest in the audit client as long as the amount is immaterial to them. CR can work for the audit client as long as its not in accounting or financial reporting. CR can work for audit firm, and is not a covered member unless the person works on the engagement team or can influence the members of the engagement team or the audit itself
when planning a new audit, why would the auditor consider the methods used to process accounting information?
Because the methods influence the design of internal control
who appoints the PCAOB?
SOX created the PCAOB and it is overseen by the SEC
under securities act of 1934 what organizations are required to submit audited financial statements?
every company traded on national and over the counter exchanges
primary purpose of establishing quality control procedures for deciding whether to accept a new client?
minimize likelihood of association with clients whose management lack integrity
to succeed in legal action against the auditor, the client must be able to show that?
the CPA had duty to perform, the CPA breached the contract, the client suffered losses, and that there is a close causal connection between the auditor's behavior and the damages suffered by the client
risk that auditor concludes no material misstatement exists when there actually is one
3 components of audit risk?
inherent risk, control risk, detection risk. They are multiplied together: .8 x .75 x .25 = .15 audit risk
if inherent risk is .8 and control risk is .2, what does the auditor do to lower audit risk?
increase and perform substantive testing to reduce detection risk to the point that it equals the acceptable level of audit risk
why are inherent risk and control risk different than detection risk?
inherent risk is the possibility of a material mistatement due to lack of human and system technology. Control risk is risk of material error that is not prevented or detected on a timely basis by the client's internal controls. Detection risk is risk that the auditor misses a material error. Thus, inherent risk and control risk are functions of the client and its environment while detection risk is not
the risk of material misstatement refers to:
the combination of inherent & control risk. Multiplying IR by CR results in the 'risk of material misstatement'
the level of detection risk is inversely related to:
the assurance provided by substantive tests. As the auditor performs substantive procedures he becomes more and more sure there are no material errors exist, and detection risk goes down
the audit program should be designed so that sufficient evidence is gathered to:
support the auditor's conclusions
Do most illegal acts affect the fin statements directly or indirectly?
if you uncover an illegal act at a public company, the auditor is required to notify:
when auditor has reason to believe an illegal act has ocurred, he should do what?
consider accumulating additional evidence, inquire of management at a level above those who did the act, and consult with the client's legal counsel