AUD (Misc.) Flashcards
(29 cards)
When do we perform tests of controls?
After completing the risk assessment & may be done in conjunction w/substantive audit procedures
Reasonableness Test
data in 2 or more field are checked for consistency
Completeness
all transactions, events, A, L, E interests that should have been recorded have been recorded, & all disclosures that should have been included in FS have been included
Kiting
a scheme whereby a check drawn on one bank account is deposited in another bank, but the disbursement is not recorded on a timely basis, resulting in an overstatement of cash
Lapping
A scheme whereby a current receipt of cash or check is stolen. To prevent detection, a subsequent receipt is applied to the previously unrecorded customer account.
Remittance Advice
a notification sent by a customer to a supplier confirming that a payment has been made for an invoice
Engagement Letter
a written communication documenting the understanding between the accountant and a client
According to PCAOB auditing standards, all required audit committee communications should be made in a timely manner and
Prior to the issuance of the audit report
According to PCAOB auditing standards, critical accounting policies and practices are…
a company’s accounting policies & practices that are both
1. most important to the portrayal of the company’s financial condition and results, and
2. require management’s most difficult, subjective, or complex judgments, (often as a result of the need to make estimates)
Control Totals (IT Control Technique)
IT control technique whereby a total is computed at a given stage in the processing cycle and recomputed at a later point.
The totals are then compared to ensure that no data was dropped, added, or misprocessed.
Relationship between tolerable misstatement and sample size?
Inversely proportional
Upon receiving the checks from customers by mail, the employee in the mailroom would first…
prepare a duplicate listing of checks received
The primary reason an auditor requests a letter of inquiry be sent to an entity’s legal counsel is to provide the auditor with
Corroboration of the information furnished by management about litigation, claims, and assessments
To satisfy the valuation assertion when auditing an investment accounted for by the equity method, an auditor most likely would…
examine the FS of the investee company
Who writes and who signs the management representation letter?
Written by the external auditors & signed by senior company management
Who should reports be addressed to?
the entity that engaged the auditor
What are the 2 general purpose frameworks?
IFRS & GAAP
6 elements of a System of Quality Control
- tone at the top (leadership responsibilities for quality within the firm)
- ethical requirements (independence)
- acceptance & continuance of client relationships & specific engagements
- human resources
- monitoring
- engagement performance
Who is responsible for promulgating International standards on auditing?
International Auditing & Assurance Standards Board
Sampling Risk vs Nonsampling Risk
SR: risk that the sample doesn’t reflect the population accurately & therefore the auditor will reach the wrong conclusion
NonSR: risk that the auditor makes an error in judgement which leads to reaching the wrong conclusion
According to COSO, a primary purpose of monitoring internal control is to verify that the internal control system remains adequate to address changes in…
Risk
What is a good investment option with expected inflation? Why?
Real estate b/c rising prices increase the value (& resale value) of property over time
What is an Arm’s Length Transaction?
a transaction conducted on such terms and conditions between a willing buyer and a willing seller who are unrelated
and are acting independently of each other
and pursuing their own best interests
The valuation assertion for an investment accounted for by the equity method can generally be satisfied by…?
referring to the audited FS of the investee company
