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Flashcards in Audit Evidence Deck (28)
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1

What does sufficiency relate to?

The quantity of audit evidence

2

What does appropriateness relate to?

The quality of audit evidence

3

What is the level of persuasiveness for evidence?

1) Auditor developed
2) Obtained from outsider - bank confirmation
3) Prepared by outsider but obtained from client
4) Prepared by client - letter of representation

4

What is included as audit evidence?

Accounting records - not sufficient appropriate evidence by itself
Corroborative evidence - minutes, confirmations, etc.

5

What are management's assertions?

U-PERCV
Understandability and classification
Presentation and disclosure
Existence and occurrence
Rights and obligations
Completeness and cutoff
Valuation, allocation, and accuracy

6

What are management's assertions for classes of transactions and events?

CPA-CO
Completeness
Period cutoff
Accuracy
Classification
Occurrence

7

What are management's assertions for YE account balances?

RACE
Rights and obligations
Allocation and valuation
Completeness
Existence

8

What are management's assertions for presentation and disclosure?

RACU
Rights and obligations
Accuracy and valuation
Completeness
Understandability and classification

9

What are two categories of substantive tests?

Test of details - verify account balances, etc.
Analytical procedures - examine relationships

10

What are types of audit procedures?

I-CORRIIA
Inquiry
Confirmation
Observation
Recalculation
Reperformance
Inspection
Analytical procedures

11

What is tracing?

Tests completeness
Start from source and go to books

12

What is vouching?

Tests existence
Start from books and go to source

13

What are 5 types of comparisons that may be performed as analytical procedures?

CRAFT
Client vs. industry
Related accounts
Actual vs. budget
Financial vs. non-financial
This year vs. prior

14

When are analytical procedures required?

Planning
Overall review
Recommended in substantive tests

15

What is kiting?

Attempt to overstate cash by showing deposit in current year and disbursement per books in subsequent year
Use interbank transfer schedule to detect

16

What is bank cutoff statement?

Sent directly by bank to auditor with closing date a couple of weeks following year-end
Used to ensure O/S checks and deposits clear in a reasonable amount of time

17

When would a negative A/R confirmation be used?

Low exception rate expected
For small balances
Auditor does not expect request to be ignored
Gives implicit evidence

18

When would a positive A/R confirmation be used?

For large balances
Gives explicit evidence

19

When would a blank A/R confirmation be used?

For large balances
High assessed RMM
Expect customer not to pay attention to negative confirmation

20

What is lapping?

Attempt to cover theft of A/R collection by posting subsequent collection from another customer to that subsidiary account

21

What should audit documentation include at a minimum?

Reconciliation of accounting records with F/S
Audit program
Documentation of understanding of I/C
Documentation of assessed CR
Proof of sufficient evidence obtained to support opinion
Client representation letter

22

What would be included in the current file?

Audit program
Working trial balance
Lead schedules
Responses to info requests
Reconciliations by auditor

23

What would be included in the permanent file?

Organization documents
Minutes
Flowcharts of I/C
Debt agreements
Analyses of equity accounts

24

What representations are included in management representation letter?

Management is responsible for:
Prep of F/S
DIM of I/C
Unaware of errors or fraud that would have material effect on F/S
No acts of fraud by management
Minutes are complete and made available
All financial records made available
No pending legal matters with material impact that have not been disclosed
Believes all estimates are reasonable
All related party transactions have been identified
Subsequent events have been properly accounted and disclosed

25

What would suggest a related party transaction?

Loans at zero or unusually low interest rates
Sales at prices far above or below market value
Large, non recurring transactions occurring very close to B/S date
Loan guarantees
Maintaining compensating balances for benefit of principal S/H

26

How are estimates audited?

1) Review and test management's process
2) Independently develop an estimate
3) Review subsequent events up to date of auditor's report
4) Test effectiveness of I/C related to estimates

27

What is a Type 1 subsequent event?

Condition existed at B/S date
Requires adjustment

28

What is a Type 2 subsequent event?

Condition did not exist at B/S date
Disclose info