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Flashcards in AUD Mnemonics Deck (25):
1

GAAS - Generally Accepted Auditing Standards (TIPPICANOE)

3 Categories: General, Fieldwork, Reporting

3 General
(T)raining & Proficiency
(I)ndependence
Due (P)rofessional Care

3 Fieldwork
(P)lanning & Supervision
(I)nternal Control
(C)orroborative Audit Evidence

4 Reporting
(A)ccounting Principles in Conformity With GAAP
(N)o New Accounting Principles Applied
(O)mitted Informative Disclosures
(E)xpression of Opinion

2

The auditor must maintain independence for attestation engagements (CARES/ERAS)

(C)ompilations - unless lack of independence is indicated
(A)greed upon procedure engagements and other engagements covered by the attestation standards leading to findings
(R)eviews
(E)xaminations (audits)
(S)pecial Reports

3

Preconditions for accepting an audit engagement (DIM)

Management's Responsibilities:
(D)esign, (I)mplementation, and (M)aintenance of internal control

4

Inquiries of the predecessor auditor (RID-C)

(R)easons for change
(I)ntegrity of management
(D)isagreements during audit
(C)ommunication with management of those charged with Governance

Any of these would cause the successor to get RID of the new client and C you later!

5

Matters the auditors should communicate with those charged with Governance (DISAPPROVE)

(D)isagreements with management
Noncompliance with laws and regulations, including (I)llegal acts
(S)ignificant accounting policies adopted or changed by management
(A)djustments proposed by the auditor with a significant impact on the financial records
(P)roblems arising during the audit in obtaining evidence and employee cooperation
(P)rior discussions with management before acceptance of the engagement
(R)esponsibilities of the auditor under GAAS to obtain reasonable assurance
(O)ther information regarding responsibilities
(V)iews of other accountants who were contacted by management on significant matters
(E)stimates in the accounting records and the process used to obtain them

The mnemonic reminds us that an audit committee would DISAPPROVE of an auditor who failed to inform them on these matters.

6

Elements of the Engagement Letter (FACSIMILE)

(F)ees
(A)uditor's Responsibility (GAAS)
(C)onfirmation of Engagement
(S)cope & Objective of Engagement
(I)internal Control (communicate significant deficiences & material weaknesses in IC)
(M)anagement's Responsibility (preparation of F/S, design, implementation, and maintenance (DIM) of IC and access to info
(I)rregularities (fraud)
i(L)legal Acts (noncompliance with laws & regulations)
(E)rrors

7

Planning Procedures of an Audit (BRAINSTOPS)

(B)asic discussions with the client about the nature of the engagement and about their industry
(R)eview of audit documentation from previous auditor
(A)sk about recent developments in the company such as mergers and new products
(I)nterim F/S are analyzed to identify accounts & transactions that differ from expectations
(N)on audit personnel of the accounting firm who have provided services (tax prep) to the client should be contacted and to learn more about the client
(S)taffing for the audit should be determined & a meeting held to discuss the engagement
(T)iming of the various audit procedures should be determined (IC testing, inventory counting)
(O)utside assistance needs to be determined, including the use of a specialist (appraiser, IT expert)
(P)ronouncements reflecting changes in accounting principles and audit standards should be reviewed
(S)cheduling with the client is needed to coordinate activities

The mnemonic reminds you that the auditor's BRAINSTOPS if they don't plan out the audit carefully before beginning the detailed testing of client records

8

6 Elements of Quality Control (HEAL-ME)

(H)uman Resources (Personnel Management)- the firm should establish policies and procedures for effective hiring, development, assignment, and advancement of staff
(E)thical Requirements (Independence)- the firm should establish procedures to ensure that independence is maintained in attest engagements, and that there is an apporpriate means for identifying potential independence difficulties involving staff memebers
(A)ccpetance and continuance of client relationships and specific engagements
(L)eadership responsibilities for quality within the firm ("tone at the top")
(M)onitoring - the firm should establish procedures to verify that it is complying with the above standards
(E)ngagement performance

9

Management's Assertions (U-PERCV)

(U)nderstandibility and Classification
(P)resentation and Disclosure
(E)xistence or Occurrence
(R)ights and Obligations
(C)ompleteness
(V)aluation or Allocation

10

Audit Procedures: may consist of risk assessment procedures, tests of controls, & substantive tests (ICORRIIA)

(I)nquiry
(C)onfirmation
(O)bservation
(R)ecalculation
(R)eperformance
(I)nspection of tangible assets
(I)nspection (examination) of records or documents
(A)nalytical Procedures

11

Internal Control testing should be as strong as (IRON)

(I)nquiry: interview company personnel
(R)e-performance: can it be replicated?
(O)bservation: watch the control be applied
I(N)spection: dig into the details/documents

12

Objectives of Internal Control (ACE)

(A)ccurate & reliable financial reporting
(C)ompliance with laws and regulations
(E)ffectiveness & efficiency of operations

Reminds mgmt that it should try and establish a strong internal control structure as to have an ACE in the hole.

13

5 Elements of Internal Control (CRIME)

(C)ontrol Activities
(R)isk Assessment
(I)nformation & Communication
(M)onitoring
Control (E)nvironment

14

Control Environment (CHOPPER)

(C)ommittment to competence
(H)uman resource policies & practices
(O)rganizational structure
(P)articipation of those charged with Governance
(P)hilosophy of mgmt & mgmt operating style
(E)thical values & integrity
(R)esponsibility assignment

15

Control Activities: policies & procedures that help ensure that mgmt directives are carried out (PIPS)

(P)erformance reviews
(I)nformation processing
(P)hysical controls
(S)egregation of duties

16

Segregation of Duties for Control Activities (ARCC-S)

(A)uthorization of transactions
(R)ecording (posting) of transactions
(C)ustody of assets
(C)omparisons

17

Document Understanding of Internal Control (FIND)

(F)lowchart: requires knowledge of specialized symbols
(I)nternal Control Questionnaire (ICQ): series of Y/N questions. Most stuctured approach & easiest for inexperienced staff members.
(N)arrative or Memorandum: detailed description of IC. Most cumbersome & not commonly used.
(D)ecision table/tree: limited tool that can't effectively document the entire structure.

18

Document Understanding of Internal Control (PRAISE)

(P)hysical Controls
(R)ecording
(A)uthorization
(I)ndependent Checks
(S)egregation of Duties
(E)valuate Performance

These should all be asked about in an Internal Control Questionnaire (ICQ)

19

11 Management Assertions (COCA-CURVE)

(C)ompleteness
(O)ccurrence
(C)utoff
(A)ccuracy
(C)lassification
(U)nderstandibility
(R)ights and Obligations
(V)aluation and Allocation
(E)xistence

20

Management Assertions for Classes of Transactions and Events (CPA-CO)

(C)ompleteness
(P)eriod Cutoff
(A)ccuracy
(C)lassification
(O)ccurrence

21

Management Assertions for Balances at Year End (RACE)

(R)ights and Obligations
(A)llocation and Valuation
(C)ompleteness
(E)xistence

22

Management Assertions for Presentation and Disclosure (RACU)

(R)ights and Obligations and Occurrence
(A)ccuracy and Valuation
(C)ompleteness
(U)nderstandibility and Classification

23

5 Types of Comparisons Performed as Analytical Procedures (CRAFT)

(C)lient vs Industry
(R)elated Accounts
(A)ctual vs Budget
(F)inancial vs Non-Financial
(T)his year vs Prior Year

24

4 Elements of Compilation Reports (CARD)

(C)ompiled: the compiled statements are identified
(A)ICPA Standards: the reference to SSARS distinguishes the accountant's work from similar work that might be performed by a non-CPA.
(R)esponsibility of Mangagment: emphasis that they're the F/S on management,
(D)isclaim opinion or assurance: explicitly state that they did not audit or review F/S and disclaim any opinion or assurance

The mnemonic CARD is to remind us the compilation report is small enough to fit on a small card.

25

Key Elements of Review Report (FAMILIAR)

(F)inancial Statements being reviewed
(A)ICPA Standards (SSARS): reference to SSARS made in order to distinguish the work of a CPA from others.
(M)anagement Representation: critical to emphasize statements are presented by management and not the accountant
(I)nquiry and Analytical Procedures
(L)ess in Scope Than Audit
(I)ncapable of Opinion
(A)ssurance Provided: express limited assurance on F/S
(R)efer to US Principles: identify Accounting Principles Generally Accepted in the USA

The mnemonic FAMILIAR reminds us that an accountant dealing with non-public clients must be familiar with the unique review report available for such clients.