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Audit Initial Items/ Control Testing Flashcards

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1
Q

Client IC and evidence needed relationship

A

Inverse

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2
Q

Initial Meeting with client

A

identify scope, timing, and observation (spefically inventory)

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3
Q

Risk Assessment Steps

A

1 - inquires with management
2 - analytical procedures
3 - observation and inspection

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4
Q

How to determine risk

A

Liquidity increase risk

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5
Q

Detection Risk is inverse to

A

Materiality

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6
Q

To reduce detection risk

A

1 - increase effective procedures
2 - increase year end procedures
3 - increase extent of testing

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7
Q

Deciding to continue with a client you need

A 
1 - internal audit report
2 - interim statements
3 - quarterly reports
4 - board minutes
5 - materiality check
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8
Q

Substantive procedures used are based on

A

UNDERSTANDING of IC

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9
Q

Analytical Procedures

A

1 - part of risk assessment - mandatory
2 - used to form an audit conclusion
3 - can be used to decide on substantive procedures - not mandatory

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10
Q

Substantive Procedures are used to

A

Find material misstatements at the assertion level

Include:
1 - Analytical Procedures
2 - test of details

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11
Q

Analytical Comparisons

BEST USED

A

1 - Account Balances
2 - Ratios
3 - Budgetary Expectations from auditor

Income statement items is best use

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12
Q

Analytical Procedures used and audit risk relationship

A

DIRECT

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13
Q

What is a significant variance for analytical comparison

A

Changes of 10% or more

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14
Q

Analytical Procedures aid in risk assessment by

A

1 - overall entity understanding
2 - comparisons
3 - development of a conclusion

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15
Q

Strongest Audit Procedure carried out by analytical

A

Substantive procedures because misstatements at the assertion level can be detected

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16
Q

Noncurrent assets and liabilities

A

integral to OVERALL PROFITABILITY

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17
Q

Immaterial Fraud in IC

A

Must follow to a conclusion

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18
Q

Factors that increase Fraudulent reporting

A

1 - Complexity of systems
2 - management overrides
3 - inability to generate CF
4 - high MGMT turnover

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19
Q

IC fraud risk is identified by

A

Evaluation of IC designs and implementation

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20
Q

Responses to Fraud Risk

A

1 - Assessing overall risk
1a- assign more experienced staff
1b - unpredictable audit procedures
1c - applications of accounting principles on a cum. basis
2 - changes in timing nature and extent based on risk
3 - address MGMT override
3a - retrospective review of significant accounting estimates

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21
Q

Fraud detection and misstatement detection

A

not the same thing

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22
Q

Auditors responsibility for FS

A

in conformity with REPORTING STANDARDS

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23
Q

Fraud

A

ALTERATION OF RECORD to benefit the company as a whole financial position

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24
Q

Misappropriation of Assets

A

Employees are altering records because they are stealing for their own personal gain

Liquid Assets are at highest risk

Bearer bonds negotiable by delivery are at high risk

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25
Most difficult level to detect fraud
Highest Level
26
Fraud 1 - always easily identified 2 - can be detected through correct procedures
1 - management override | 2 - improper revenue recognition
27
Management refusal to change MATERIAL item
1 - auditor notifies the board of resignation & consult legal advice 2 - board takes no action auditor must go to the SEC
28
Noncompliance risk factors
unexpected or large cash payments
29
ISA and noncompliance
Direct and indirect bear the same effect
30
Non Compliance Excludes
1 - internal control 2 - manipulation records 3 - info and communication RELATES TO OPERATING RATHER THEN ACCOUNTING
31
Compliance audit
opinions are expressed
32
Auditor can rely on internal assertions of
Cash Prepaid Fixed Asset Additions
33
Management specialist
assist client in F/S prep
34
Auditor related party transactions responsibility
1 - evaluation of management's substantiation/assertions Can have an emphasis of matter paragraph
35
Related party transactions should be
arms length
36
Related party transactions require minimal testing on
Authorization (found in confirm) | Approval
37
Related party evidence
``` 1 - mtg minutes 2 - filing with regulators 3 - conflicts of interest stmt 4 - transactions w/ major entities 5 - large reoccurred transactions 6 - compensating balance & legal confirms ```
38
Risk Analysis/ Reasonableness | 1st step
understanding of management
39
Estimates are based on
Collective amounts Objective Subjective
40
Test Management Overrides of Fraud by
Analytical procedures | Comparison of actual to budgeted
41
IC development Criteria
Cost Benefit
42
IC Decentralized versus centralized
Decentralized is more effect Centralized is easier to identify deficiencies
43
IC Understanding Effectiveness
1 - what controls have been implemented ; NEEDED FOR GAAS 2 - test of controls if auditor feels like controls can be relied on ; MANAGEMENT MAKES ASSERTION ON EFFECTIVENESS
44
Client Lines of Reporting
Determination of management's ability to circumvent IC which is a part of risk assessment
45
Detection Risk relates to
SUBSTANTIVE PROCEDURES
46
Narrative Memorandum
Process of Flow Documents and control points
47
Assurance on what
test are being preformed to corroborate management assertion
48
IC materiality versus F/S material
SAME
49
IC reports Issuers Nonissuers
Issuers required to provide an assessment of IC not required if desired: 1 - included in management rep letter and/or 2 - seperate report to be put into auditors report
50
IC Opinion Time Frame Issuer Nonissuer
1 - as of specific date based on criteria 2 - over a period of time
51
Section 404 SOX requires
1 - attest report on managements assertions of IC
52
Integrated audit begins at Top - down
Statement Level Entity Level Control - specific accounts
53
Sufficient Evidence of IC
1 - Inquire along w/ (not sufficient alone) 2 - Observation 3 - Tracing Reports
54
Reliance of Controls (similar to test of effectiveness)
1 - identify and understand controls 2 - perform test of controls 3 - assess test of controls by determining scope for sub procedures
55
Test of Controls Efficiency
Not required under GAAS unless it is determined that IC cannot be trusted then evaluation effectiveness
56
General Controls | Application Controls
1 - ALL | 2 - SPECIFIC
57
Timing of substantive tested related to controls is based on
1 - availability | 2 - retrievability
58
Checks received from customers should be
RESTRICTIVELY ENDORSED
59
Fidelity Bonds
protect employers from against fraudlent acts by employees
60
When do you test effectiveness of IC
when substantive procedures are not efficient ; if sub procedures are efficient then do not TEST EX automated system with no documentation
61
Changes in IC
test before relied upon
62
IC is ineffective then
Risk of material misstatement is heightened
63
Response to ineffective IC
increase substantive procedures
64
Substantive procedures are a response to
Misstatement @ assertion level Lower Audit Risk more testing
65
Testing of Controls Effectiveness
1 - Inquire W/ 2 - Observation - strongest 3 - Inspection - sub 4 - Recalculation - sub
66
Writing to audit committee restriction
Can only give in writing that significant deficiencies and material weakness If none don't write
67
Reduction in materiality requires
greater assurance from SUB procedures
68
Analytical Procedure | 1st Step
Develop and expectation | Compare accounting records or ratios with expectation
69
Auditors Responsibility to Non-Compliance
responsible to identifying material and direct interest only NO ASSURANCE RESPONSIBILITY
70
What comes before assessing CONTROL risk
UNDERSTANDING OF INTERNAL CONTROL
71
Audit Plan
1 - description of risk assessment procedures Risk Assessment Procedures a - analytical b - inquires/observation/inspections 2 - description of further & other audit procedures
72
Inherent Risk is higher
amounts derived from estimates amounts that are uncertain EX hedging
73
precondition of an audit
management acknowledges its responsibility for IC
74
complete audit plan is developed
after 1 - understanding IC 2 - assessing risk to material misstatement
75
Preliminary Materiality
judgement of auditor based on many factors; can be used to assess materiality
76
Planning material
does not relate to one financial statement; but the audit as a whole
77
Fraud AND NONCOMPLIANCE keywords
MATERIAL MISSTATEMENT
78
ANALYTICAL PREFERENCE
FINANCIAL OVER NON-FINANCIAL
79
Auditor relies on the competence of another; unless
for inventory auditor ALWAYS OBSERVE PHYSICAL INV
80
WHO SUBSTANTIATES RELATED PARTY at arms length
MANAGEMENT
81
For the following items made by management the auditor should: Assumptions Assertions
evaluate individually and as a whole form a reasonable basis obtain sufficient evidence to express and opinion
82
Routine related party transactions auditor should evaluate
whether transactions would have occurred if parties were not related
83
Consulting include
analysis review prep of certain docs
84
Audit Engagement Plans Financial Statement Plans
need understanding of IC need to known overrall audit strategy
85
Internal control preformance review
Activities used my MANAGEMENT to SUPERVISE IC
86
information system keyword
HOW INFO IS PROCESSED
87
RISK A MATERIAL MISSTATMENT ASSESSES
FURTHER CONTROLS
88
AUDIT PLAN YOU NEVER
DOCUMENT
89
IC STEPS
1 - EVALUATE 2 - ASSESS RISK 3 - FURTHER AUDIT 4 - TEST - NOT PLANNING
90
UNDISCLOSED ITEMS
Significant deficiency
91
nonissuer ic auditor can examine if the following conditions are met
1 - client makes a seperate IC report | 2 - client representation letter
92
no test of controls
high risk
93
nature
test changed due to risk assessment
94
extent
additional procedures
95
management override
operational
96
test controls | test monitoring
simulate | observe
97
Risk Assessment
Before risk assessment you must have procedures to get there to assess the risk: procedures include: analytical inquiry observation WHICH HELP GAIN AN UNDERSTANDING OF THE ENVIRONMENT
98
ANALYTICAL PROCEDURES USED AS
PROCEDURES FOR RISK ASSESSMENT | PROCEDURES FOR SUB. TESTING

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