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Auditing Theory > Auditing Theory > Flashcards

Auditing Theory Flashcards

1
Q

Types of Services

A

Assurance and Non-Assurance

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2
Q

Service that provides an opinion (General)

A

Assurance

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3
Q

Service that does not provide an opinion

A

Non-Assurance

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4
Q

Service that requires independency

A

Assurance

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5
Q

Does Non-Assurance have to be independent?

A

No.

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6
Q

Level of Assurance for Audit

A

High/Reasonable. Opinion is positive.

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7
Q

Level of Assurance for Review

A

Moderate/Limited. Opinion is Negative

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8
Q

Types of Non-Assurance Services

A

Agreed Upon Procedures
Compilation
Tax
Consulting/Advisory

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9
Q

Report for Agreed Upon Procedures

A

Factual Findings

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10
Q

Report for Compilation

A

Compilation Report (FS)

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11
Q

Report for Tax

A

ITR. Tax Advice

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12
Q

Report for Consulting/Advisory

A

Consulting Report

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13
Q

Elements of System Quality Control?

A

Leadership Responsibility
Ethical Requirements including Independence
Acceptance and Continuance of Client Relationship
Human Resources and Assignment
Engagement Performance
Monitoring

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14
Q

Who’s in charge of the engagement?

A

Partner in Charge - also signs the auditor’s report

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15
Q

Who’s in charge of the firm?

A

Managing Partner

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16
Q

What are Code of Ethics?

A

Integrity
Objectivity
Confidentiality
Due Care
Professional Competence

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17
Q

Where is familiarity threat included in elements of SQC?

A

Ethical Requirements including Independence

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18
Q

What to check in recurring and new clients?

A

Integrity

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19
Q

What to ask in new clients

A

change in auditor?

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20
Q

In elements of SQC, asking for specialist in that specific field (engineers. Manpower and Expertise

A

Human Resources and Assignment

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21
Q

In elements of SQC, ensuring there is teamwork and good communication between associate and senior associate

A

Engagement Performance

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22
Q

In elements of SQC, evaluation of the whole audit

A

Monitoring

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23
Q

This is a requirement for listed companies. It is a spot check where one partner surprise audit the other partner

A

EQCR - Engagement Quality Control Review

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24
Q

Can the Auditor’s Report be issued without EQCR?

A

No for listed companies

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25
Q

What to do if client want to change in to lower level of engagement? Audit to Review

A

If with justifiable reason, okay
If without justifiable reason, withdraw from engagement

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26
Q

Types of Independence

A

In appearance - 3rd party POV
In fact/Of mind - objective/personal

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27
Q

Types of Fraud

A

Fraudulent Financial Reporting
Misappropriation of Assets

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28
Q

Fraud that manipulates FS

A

Fraudulent Reporting - Management Fraud

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29
Q

Fraud that steals cash and fictitious employees

A

Misappropriation of assets - Employee Fraud

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30
Q

What are fraud risk factors

A
  1. Incentives/Pressure - bonuses
  2. Opportunity - lack of internal control
  3. Attitudes/Rationalization - personal
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31
Q

Responsibilities of management and BOD

A

prevention and detection of fraud (generally)

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32
Q

Responsibility of the auditor

A

provide reasonable assurance that the FS are free from material misstatements due to fraud of error

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33
Q

What to consider before withdrawing from audit?

A

Percentage of Completion
if beginning, okay to withdraw
if almost complete, change in opinion

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34
Q

What to do if fraud is discovered?

A
  1. Report to high level personnel
  2. Intensify examination
  3. Determine who’s responsible
  4. Notify regulatory authorities
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35
Q

Stages in Audit

A
  1. PEA
  2. Planning
  3. Understanding of IC
  4. TOC
  5. Substantive Testing
  6. Monitoring
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36
Q

3 activities in Preliminary Engagement Activities

A
  1. Acceptance and continuance of client relationship
  2. Evaluate compliance with ethical requirements including independence
  3. Establish Terms of the Engagement
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37
Q

Written contract of audit team and client. Use to avoid misunderstanding

A

Engagement Letter

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38
Q

Inquiring about client’s legal concerns

A

Letter of Audit Inquiry

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38
Q

Confirming amounts of AR to client’s customer

A

Confirmation Letter

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39
Q

Impress upon management its responsibility in the FS

A

Management Representation Letter

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40
Q

How often is the audit for listed companies

A

Quarterly

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41
Q

Who is the audit committee in a company?

A

BOD - Independent Directors

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42
Q

Contents of an Engagement Letter

A
  1. Objective and Scope (Parent and Subsidiary)
  2. Responsibilities
  3. Framework
  4. Other requirements
  5. Fees
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43
Q

How is the fees computed in audit?

A

Hours x Rate

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44
Q

Responsibility of the auditor

A

express an opinion

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45
Q

Responsibility of the management

A
  1. Preparation of FS
  2. Implementation of IC
  3. Adjust FS to correct misstatements
  4. Compliance with laws and regulations
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46
Q

What is discussed in Audit Planning

A
  1. Overall audit strategy
  2. Developing audit plan/program
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47
Q

What is included in overall audit strategy?

A

Scope, Timing, Direction

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48
Q

Procedures where it analyzes using numbers

A

Analytical Procedures such as ratio analysis, trend analysis, regression, benchmark etc.

Premise: relationships among accounts may exist

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49
Q

Analytical Procedures are required to use by PSA in what stages of audit?

A

Planning and Completing the Audit
ST is not required but used in practice

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50
Q

Why is AP used in planning?

A

to identify areas that may represent specific risks and to understand the business

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51
Q

Why is AP used in completion?

A

to test reasonableness of the audited amounts

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52
Q

How do we set for Materiality?

A

guidelines and professional judgments

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53
Q

Is materiality required by PSA?

A

No.

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54
Q

Levels of Materiality

A
  1. Overall/Planning Materiality
  2. Performance Materiality
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55
Q

Level of materiality where it checks per FS and are normally in percentage based in total

A

Overall/Planning Materiality

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56
Q

Level of materiality where it checks per line item, per account balance

A

Performance Materiality / Tolerable Misstatements or Error

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57
Q

What are the uses of Performance Materiality?

A
  1. To know which transactions to test
  2. Report the difference between audited and unaudited amounts then propose adjustments in material amounts
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58
Q

What’s the importance of audit?

A

It enhances the reliability of the FS

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59
Q

What is the risk of getting an incorrect opinion?

A

Audit Risk

60
Q

Can the audit risk be eliminated?

A

No. Just reduced only

61
Q

Among IR, CR, and DR, what can be controlled?

A

DR only

62
Q

In what level is the risk willing to take?

A

IR - assessed
CR - assessed
DR - acceptable

63
Q

If high, audit is risky

A

Assessed Level

64
Q
A
65
Q

In what stage of audit we identify IR

A

during planning

66
Q

In what stage of audit we identify CR

A

during understanding IC

67
Q

In what stage of audit we identify DR

A

Substantive Testing

68
Q

Steps in audit risk

A
  1. Set the desired level of audit risk
  2. Assessed IR and CR
  3. Set the acceptable level of DR
69
Q

What is IR and CR together?

A

Risk of Material Misstatement

70
Q

What happens if Risk of Material Misstatement is high

A

low level of DR. Affect Nature, Timing and Extent
Nature - more effective
Timing - year end
Extent - larger sample size

71
Q

What happens if Risk of Material Misstatement is high

A

high level of DR. Affect Nature, Timing and Extent
Nature - less effective
Timing - interim
Extent - smaller sample size

72
Q

It is the level of risk we are willing to take

A

Detection Risk

73
Q

What procedures are used to assess RMM

A

Risk Assessment Procedures (RAP)

74
Q

What is Risk Assessment Procedures?

A

Understanding entity (IR) and its internal controls (CR)

75
Q

What are the procedures done in Risk Assessment Procedures?

A

IIOA
inquiry
inspection
observation
analytical procedures

76
Q

It is the processes, policies, and procedures implemented by the top management to achieve the entity’s objectives

A

Internal Control

77
Q

Components of IC. Factors that affect CR

A

CRIME
1. Control Environment
2. Risk Assessment
3. Information and Communication System
4. Monitoring
5. Existing Control Activities

78
Q

Control policies and procedures that help ensure management’s directions are carried out

A

Control Activities

79
Q

What are the control activities?

A
  1. Physical Controls
  2. Segregation of duties (ARC)
  3. Information Processing Controls
  4. Performance Reviews
80
Q

What does ARC mean in segregation of duties?

A

Authorization
Recording
Custody

81
Q

What are the procedures in Understanding IC

A

IIOR
Inquiry
Inspection
Observation
Reperformance

82
Q

What comprised understanding of IC

A

Design and Implementation

83
Q

If there’s no audit trail, what procedure should be done?

A

Observation

84
Q

What are PDC Controls

A

Preventive - before
Detective - during (as they arise)
Corrective - after (remedy)

85
Q

What are the inherent limitations in Internal Controls

A
  1. Management Override
  2. Collusion among employees
  3. Cost-Benefit
  4. Human Errors
86
Q

Where is 3 way match used?

A

Accounts Payable department
Purchasing, Receiving Invoicing

87
Q

What PAS covers audit evidence or ST?

A

PAS 500

88
Q

These are representations/claims by the management that are embodied in the FS

A

FS/Mgt Assertion

89
Q

B/S assertion where it should be measure at proper amounts

A

Valuation and Allocation

90
Q

B/S assertion where it should be stated in Notes to FS

A

Presentation and Disclosure

91
Q

B/S assertion where it’s tendency is to overstate

A

Existence

92
Q

B/S assertion where it’s tendency is to understate

A

Completeness

93
Q

I/S Assertion

A
  1. Cutoff
  2. Completeness
  3. Occurrence
  4. Accuracy
  5. Classification
94
Q

what supports are opinion?

A

Audit Evidence

95
Q

Characteristics of Audit Evidence

A

Sufficient and Appropriate

96
Q

Characteristic of Audit Evidence that talks about quantity

A

Sufficient

97
Q

Characteristics of Audit Evidence that talks about quality

A

Appropriate - must be relevant and reliable

98
Q

What is the nature of audit evidence?

A

Persuasive not conclusive

99
Q

Types of audit evidence

A

Accounting Records and Corroborating Info

100
Q

Type of audit evidence that is direct

A

accounting records

101
Q

Type of audit evidence that is indirect

A

corroborating info

102
Q

How to gather audit evidence?

A

Perform Substantive Procedures

103
Q

Types of Substantive Procedures

A

Test of Details - transactions and balances
Analytical Procedures - analyzation of numbers

104
Q

Specific procedures for substantive procedures

A

IIOR - RCA
Inquiry
Inspection
Observation
Reperformance
Recalculation
Confirmation
Analytical Procedures

105
Q

Content of Documentation / Working Papers

A
  1. Audit Objective
  2. Related ST procedures
  3. Audit Conclusion
  4. Signatures
  5. Estimated Hrs, Working Paper references for cross referencing
106
Q

What are some generalizations on the reliability of audit evidences

A

More reliable if
1. Independents sources outside the entity
2. Internal controls are effective
3. Obtained directly by the auditor
4. Written form than obtained orally
5. Original documents than photocopies

107
Q

Directional Testing where from source docs to acctg records

A

Tracing
to check completeness in case of understatement

108
Q

Directional Testing where from acctg records to source docs

A

Vouching
to check existence in case of overstatement

109
Q

year-end balances

A

bank reconciliation

110
Q

transfer throughout the year

A

interbank transfer

111
Q

breakdown of details of Cash in Bank

A

CIB Lead Schedule

112
Q

to check reconciling items

A

Cut-off bank statement

113
Q

withdraw cash from bank then transfer from own to bank to another bank to conceal withdrawal of cash

A

Kiting

114
Q

record cash collection to others

A

Lapping

115
Q

Client’s customer should reply whether they agree or not

A

Positive - blank amount

116
Q

Type of AR Confirmation Letter that is used in few and large amounts

A

Positive Confirmation Letter

117
Q

Type of AR Confirmation Letter that is used in small and many.

A

Negative Confirmation Letter

118
Q

Client’s customer should reply whether they do not agree

A

Negative - with amount indicated

119
Q

What PAS covers Audit Samploing

A

PAS 530

120
Q

applying audit procedures to less than 100% of the items in the population

A

Audit Sampling

121
Q

What are the approaches of in Audit Sampling

A

Statistical and Non-Statistical

122
Q

Examples of Statistical Approach

A

Random Selection
Probabilities
Mathematics

123
Q

Examples of NonStatistical Approach

A

Subjective and Professional Judgment

124
Q

Types of Statistical Approach

A

Attributes and Variables

125
Q

Types of statistical approach where rate of deviation/occurrence is concern

A

TOC

126
Q

Types of statistical approach where numerical/quantity is concern

A

ST

127
Q

risk where results from sample is different from results in population

A

Sampling Risk

128
Q

Types of Sampling Risk

A

Alpha Risk (Type 1 Error) and Beta Risk (Type 2 Error)

129
Q

Type of sampling risk where risk of assessing CR is too high

A

Alpha Risk (Type 1 error)

130
Q

Type of sampling risk where risk of assessing CR is too low

A

Beta Risk (type 2 error)

131
Q

What is sacrificed in alpha risk

A

Efficiency - underreliance

132
Q

What is sacrificed in beta risk

A

Effectiveness - opinion

133
Q

How to reduce Sampling Risk

A

Sample Selection Method
Sample Size
Projection

134
Q

Type of Sample Selection Method where random numbers and there is equal chances to get selected

A

Random Sampling

135
Q

Type of Sample Selection Method where there is sampling interval

A

Systematic Sampling

136
Q

Type of Sample Selection Method where there is grouping of similar characterstics

A

Stratified Sampling

137
Q

Type of Sample Selection Method where the higher the amount the higher the chances to get selected

A

Value weighted / Prob. Proportion Sampling / Monetary

138
Q

Type of Sample Selection Method where it does not follow any mathematical or structural approach

A

Haphazard Sampling
parang may cut off lang ganun

139
Q

Type of Sample Selection Method where auditor believes deviation is 0. All are reviewed if auditor finds an exception

A

Discovery Sampling

140
Q

Type of Sample Selection Method where it is the least desirable

A

Block Sampling

141
Q

Type of Sample Selection Method where auditor expects few errors. when the auditor is satisfied with the obtained evidence, he stopped collecting

A

Stop or Go

142
Q

Relationship of Acceptable Sampling Risk to Sample Size

A

Inverse

143
Q

Relationship of Tolerable Deviation Rate to Sample Size

A

Inverse

144
Q

Relationship of Expected Population Deviation Rate to Sample Size

A

Direct

145
Q

Techniques in Projection

A

Mean per Unit Estimation
Ratio Estimation
Difference Estimation

146
Q

wrapping up the audit. this is necessary and required by the PSA

A

Completing the audit

147
Q

Procedures in Completing the Audit

A
  1. Review of RPT
  2. Review of Subsequent Events
  3. Verify litigations and claims
  4. Perform AP
  5. Assess going concern assumption
  6. Obtain Management Representation Letter
  7. Review of adequacy of disclosures
  8. Review of working papers
  9. Forming an opinio
148
Q

What IAS does Related Party Transactions is discussed?

A

IAS 24

Auditing Theory (1 decks)

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