Audit 3 Flashcards Preview

AUD > Audit 3 > Flashcards

Flashcards in Audit 3 Deck (29):
1

During Planning the auditor is required to

S-trategy must be developed for the audit
P-lan for the audit must be developed
O
R-isk assessment procedures must be performed to obtain understanding of the entity which includes IC
K-nowledge of the client’s business and industry must be obtained

2

The Nature, Extent and Timing(NET) of the supervision depends on

Q-ualifications of the assistants
-
S-ize of the entity
C-omplexity of the entity
A-ssessed risks of material misstatement
N-ature of the work assigned

3

Cycle test 3 categories

T-ransactions
B-alances of accounts
D-isclosures

4

Types of Cycles

P-ayroll
I-nventory
P-P&E
E-xpenditure
R-evenue

F-inancing
&
I-nvestments

5

Required Contents of Engagement letter

S-cope of the audit
O-bjective
R-esponsibilities of the auditor/management
T-iming of audit procedures

F-orm and content of report
A-statement that because of the inherent limitations of an audit
T-iming of audit procedures

S-ervices additional to be rendered
L-iability restrictions if applicable
O-ther auditors
B-illing

S-ubsequent events must be informed to auditor
P-redecessor auditor
F-ramework: Identify applicable financial reporting framework

FOR THE SUN PROTECTION OF YOKOZUNA

6

Assessing risk of material misstatement

I-nternal control, and environment-obtain an understanding
M-aterial misstatement-assess the risk(ID types of potential misstatements)

A-ssessed level of risk response(NET)

C-ontrol testing
P-erform substantive testing
A-udit Evidence-evaluate appropriateness and sufficiency

7

F/S risks

C-ontrol environment
L-ack of qualified personnel in financial reporting roles
A-pplication and selection of significant accounting policies
P-reparing process the F/S

8

Required Documentation of an audit

Key elements- of the understanding of the entity and its environment

A-ssessment of the risks of material misstatements
M-ore extensive tests/documentation for more complex entities
I-dentified risks and related controls evaluated by the auditor
D-iscussion among the audit team members

9

Documentation may include any item the auditor can FIND

F-lowchart
I-nternal Control Questionnaire or Checklists
N-arrative
D-ocumentation

10

The 6 main F/S assertions(Assertions made by management)

C-ompleteness
O-ff(Cut-Off)
V-aluation, allocation, and accuracy
E-xistance and occurance
R-ights and obligations
U-nderstandability and classification

11

PCAOB standards state that the F/S assertions are

C-ompletness
E-xistence
O-ccurance

A-llocation
P-resentation
R-ights
O-bligations
V-aluation
E-bought a letter
D-isclosure

12

AR=

[Risk of Material Misstatement (Inherent Risk X Detection Risk)(Client’s system)] X Detection Risk

13

Fraud types

Fraudulent Financial reporting

Misappropriation of assets

14

Fraud risk Factors

R-ationalization
I-ncentives/pressure
O-pportunity

15

Identifying Risks

S-ignificance of the risk
L-ikelihood of the risk
E
P-ervasiveness of the risk(Transactions as a whole or individual accounts)
T-ype of risk(does it involve FFR or MA)

16

There is a presumption that the following 2 types of risk exist in every audit

Improper revenue recognition

Management override of controls

17

The auditor is required to respond to the results of the fraud risk assessment on 3 levels

O-verall, General response
R-esponse encompassing Specific Audit procedures
R-esponse Addressing risks Related to Management Override

18

CPA must communicate with/to:

C-ircumstances (special)
L-egal: To comply with certain legal and regulatory requirements
O
G-overnmental: To agencies involving governmental assistance
S-uccessor auditors(with permission from client)
S-ubpoena: In response to subpoena

19

Entities’ objectives may be divided into 3 categories

R-eliability of financial reporting-F/S fraud
E-ffectiveness and efficiency of operations-Asset Misappropriation
C-ompliance with applicable laws and regulations-Corruption

20

5 Components of internal control(COSO framework)

C-ontrol environment
R-isk Assessment
I-nformation and Communication Systems
M-onitoring
E-xisting Control Activities

21

Control Activities in a strong system of internal control

P-renumbering documents
A-uthorization of transactions
I-ndependent checks to maintain asset accountability
D-ocumentation

T-imely and appropriate performance reviews
I-nformation processing controls
P-hysical controls for safeguarding assets
S-egregation of duties

22

Documentation may include any item the auditor can FIND

F-lowchart
I-nternal Control Questionnaire or Checklists
N-arrative
D-ocumentation

23

5 areas of IT that need to be separated(segregation of duties)

C-ontrol group
O-perators
P-rogrammers
A-nalyst(system)
L-ibrarian

24

2 types of service auditor’s reports

Type1- report on design & implementation of service organization’s controls(NO ASSURANCE)(does not reduce control risk)

Type 2- Report on the Design, implementation, and Operating Effectiveness of a service organization’s controls

25

Levels of responses

O-verall response to address F/S level risks
A-ssertion Response: at the relevant assertion level
S-ignificant risk: Response to significant risks

26

Hierarchy of audit evidence

A-uditor’s direct knowledge and observation
E-xternal Evidence
I-nternal Evidence
O-ral Evidence
U-know the vowels for audit evidence

27

Types of Substantive tests

$ balances
D-isclosure amounts
R-atios
A-nalytical procedures
T-ransaction totals

28

The results of further audit procedures may lead the auditor to

Reassess the risks of material misstatements

Identify control activities

Identify misstatements as a result of substantive procedures

29

Documentation requirements should contain

R-esponse overall
N-ET
L-inkage of those audit procedures
R-esults of audit procedures
C-onclusions reached