Audit 3 Flashcards
What type of scope limitation would cause management not to issue an unmodified opinion?
If management refuses to accept responsibility for the fair presentation of the FS, would preclude issuance of a standard report.
What should the current auditor ask of the predecessor auditor?
If anything bears on managements integrity, disagreements with management, the reason for the change in auditor.
Who should initiate communication with the predecessor auditor?
The successor auditor with managements permission.
A general understanding that will be established with the client includes…
the auditors responsibility for ensuring that those charged with governance are aware of any significant deficiencies in internal controls that come to the auditors attention.
What would a successor auditor ask the predecessor auditor after accepting the engagement?
matters that may facilitate the evaluation of financial reporting consistency between the current and prior years.
What does the auditor assess during the planning stage of the audit?
The auditor assess the financial statement accounts likely to contain a misstatement and the conditions that require extension of audit tests.
Internal Auditors may affect the independent auditors work..
They affect the NET, including procedures the auditor performs when obtaining an understanding of the entity Internal control, when assessing risk, and when performing substantive procedures
What is included in the initial planning of the audit?
The auditor considers the extent of involvement of the clients internal auditors?
what is materiality considered?
Materiality is the smallest aggregate level of misstatements that could be considered material to any one of the financial statements.
What happens when there is a decrease in the amount of misstatement in a class of transaction that an auditor will tolerate?
A decrease in the amount of misstatements that an auditor will tolerate will cause planned procedures to be performed closer to the balance sheet date.
To properly plan an audit what are the five components of Internal control?
Control environment, risk assessment, information and communication, monitoring, and existing control activities.
Before applying substantive procedures an entities accounts receivable at interim the auditor should..
assess the difficulty in controlling incremental audit risk. Need to assess the risk and see if additional audit procedures will be sufficient to extend interim conclusions to year end.
the acceptable level of detection risk is inversely related to..
the assurance provided by substantive testing.
What risk can be changed by the auditors discretion?
Detection Risk. Inherent and control risk exist independently of the financial statements audit and cannot be changed by the auditor.
When would an auditor confirm the terms of a large complex sale?
When the inherent and control risk are high, then detection risk will be low and they will need to perform more reliable auditing procedures.
What is an example of factual misstatements?
clerical error, difference between classification of a reported FS and the classification according to GAAP, or inaccuracy in processing data.
What is projected misstatements?
It is the auditors best estimate of misstatement in a population taken from misstatements identified in the audit sample/.
what is directly related to an increase in control risk?
an increase in the test of details.
When should the auditor determine if fraud risk factors are present?
During the planning stage the auditor is required to discuss potential misstatements due to fraud.
what type of journal entries indicate override of controls?
post-closing journal entries, journal entries to accounts rarely used, or made by individuals who normally dont post JE.
What is one thing the auditor considers during every stage of the audit?
the auditor should consider the assessment of the risk of material misstatement and whether the results of audit procedures affect the assessment of misstatement due to fraud.
what is an indication of intentional misstatement?
missing or unavailable documents or electronic evidence that is not readily available.
What are some actions the auditor can take to identify acts of noncompliance?
They can read the board minutes, make inquiries of management and legal counsel, or perform test of details on transactions.
if the client does not take remedial action that the auditor considers necessary for the circumstances, even if they are immaterial. what should the auditor do?
the auditor should withdrawal and disassociate from the FS.
