Data extraction programs have the following advantages
They allow the CPA a high degree of independence; They allow the CPAs required level of EDP experience and training; They access a wide variety of client records interchangeable w/o special programming and only a limited knowledge of the client’s hardware & software features; They allow the CPA to totally control program execution; They use the speed and accuracy of the computer
An accountant’s report on a review of pro forma financial information should include
a reference to the financial statements from which the historical financial information was used
Obtaining credit approval before shipping goods to customers supports management’s financial statements assertion of
Valuation; Specifically the collectability of AR, thus the valuation of AR
Unintentional violations of the International Ethics Standards Board of Accountants Code of Ethics for Professional Accountants
Does not necessarily compromise compliance with the conceptual framework and as such professional accountants should promptly correct the violation and apply safeguards to avoid future violations
Management Rep Letter makes specific representations of
prep & fair presentation of interim financial statements, internal control, significant deficiencies/material weaknesses in internal control, completeness of information, all transactions have been recorded, assessment of risk that internal financial info may be material misstated, fraud or suspected fraud, allegations of fraud, noncompliance with laws or regs., uncorrected misstatements, litigation/claims, significant assumptions, related party transactions, subsequent events
Difficulties encountered during the audit that should be discussed with those charged with governance
Significant delays in mngt providing required info; an unnecessarily brief time w/in which to complete audit; extensive unexpected effort required to obtain sufficient appropriate audit evidence; the unavailability of expected information; restrictions imposed on the auditor by management; managements unwillingness to make or extend its assessment of the entity’s ability to continue as a going concern when requested
A risk assessment based on an effective operation of internal control
increases allowable detection risk, which reduces the required extend of substantive testing
The auditor’s responsibility paragraph of an unmodified opinion explicitly states
An audit includes performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements
If controls are not operating effectively to prevent material misstatement
a number of material weaknesses exist; Than the auditor would assess control risk high and would increase the nature, timing or extent of substantive testing
Tests of controls include such procedures as:
inspecting documentation, inquiry, observation, and performance
The objective of tests of details used as tests of controls
is to evaluate whether an internal control operated effectively.
If an auditor wished to perform a test of controls over a procedure that leaves no audit trail
the auditor must use observation and inquiry to test the control
Evidence obtained from independent sources outside an entity
provides greater assurance of reliability for the purposes of an independent audit than does evidence secured solely within the entity
Tracing from inventory schedule to the inventory tags and the auditors recorded count sheets verifies
Validity (existence) of the items
TO search for unrecorded disposal of assets
the auditor would vouch a sample od assets on the property ledger to those on hand in the clients facility
The revenue cycle includes
Sales, receivables, and cash receipts; An auditor using a transaction cycle approach would likely to test sales and receivables together
Reviewing confirmations of loans receivable and payable is useful for
determining the existence of related party transactions because guarantees are commonly provided by or for related parties.
The independent auditor’s procedures with respect to litigation, claims, and assessments should include
discussing with mngt the controls adopted for identifying and evaluating and accounting for litigation claims and assessments
When an analytical procedure is used as the principal substantive test of a significant financial statement assertion
the auditor is required to document both the auditor’s expectation and the factors considered in developing that expectation
The most likely analytical procedure for review involving costs and expenses would be
compare the current year expense account to the prior year. Taking into account an average increase in some accounts
Recalculation of amortization and review of the amortization period would test what
valuation & allocation assertion
To audit the statement of cash flows
The auditor reconciles the amount on the statement to amounts on the financial statements
If the results of the analytical procedures disclose unexpected differences
the auditor should consider that the financial statements may contain a material misstatement
The auditor’s risk assessment
affects the nature, timing, and extent of audit procedures but does not determine the relevance of audit evidence.
