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AUDIT > CH 3 AUDITING & IT > Flashcards

CH 3 AUDITING & IT Flashcards

1
Q

What should be included for the Auditor’s address?

A

The City and State where located

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2
Q

What is Management Responsible for in regards to the Financial Statements?

A

Preparation and Fair Presentation of Financial Statements in accordance with the Applicable Financial Reporting Framework

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3
Q

What is Management Responsible for in regards to Internal Control?

A

Internal Control Design, Implementation, Maintenance

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4
Q

What are the headings in the Audit Report for an Unmodified Opinion?

A

(TIM-AA) Title; Introduction; Management Responsibility; Auditor Responsibility; Audit Opinion

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5
Q

What are the headings in the Audit Report for an Modified Opinion?

A

(TIMA-BA) Title; Introduction; Management Responsibility; Auditor Responsibility; Basis for (Modified) Opinion; Audit Opinion

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6
Q

In an Unmodified Opinion with Emphasis-of-Matter / Other-Matter sections, what is the order of the headings?

A

(TIM-AA EMO) Title; Introduction; Management Responsibility; Auditor Responsibility; Audit Opinion; Emphasis-of-Matter; Other-Matter

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7
Q

What are the requirements for referencing a Component Auditor in the Audit Report?

A

Component Financial Statements must be prepared using same Financial Reporting Framework as the Group Financial Statements; Component Auditor must have performed audit in accordance with GAAS or PCAOB Standards.

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8
Q

What must the Group Engagement Partner do if they assume responsibility for the Component Auditor’s work?

A

Perform additional audit procedures; Be involved in Component Auditors work; Perform Risk Assessment procedures; Assess Risk of Material Misstatement

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9
Q

What standards govern SSARS engagements?

A

Compilations are governed by SSARS (Statements on Standards for Accounting and Review Services)

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10
Q

Which clients can have compilation engagements?

A

Non-SEC (non-public) registrants only.

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11
Q

What is a Compilation?

A

Accountant puts together financial statements with information PROVIDED BY MANAGEMENT. No opinion is expressed and no assurances are given. Independence is not required.

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12
Q

What disclosures are required for Compilation engagements?

A

Disclosures not necessary must state that they are not included

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13
Q

What standards govern Review engagements?

A

SSARS (Statements on Standards for Accounting and Review Services)

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14
Q

What type of assurance is given in a Review engagement?

A

Reviews give limited assurance.

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15
Q

What procedures are required for Review engagements?

A

Analytical procedures are required for reviews. Compare results to documented predictions.

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16
Q

What is a Review engagement?

A

Financial statements are presented with no opinion expressed- and limited assurances are given. Independence is required for a review engagement.

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17
Q

What is a Forecast?

A

A prospective financial statement that uses normal circumstances. General and limited use allowed.

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18
Q

What is a Projection?

A

A prospective financial statement using hypothetical situations. Only limited use by the client is allowed.

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19
Q

What are the requirements for Agreed Upon Procedures?

A

Independence is required; Only limited use by the client is allowed.

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20
Q

What disclosures are required for remote likelihood of losses?

A

No disclosure required.

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21
Q

What disclosure is required for a probable loss contingency?

A

Accrue if estimable. Emphasis-of-Matter paragraph if not estimable.

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22
Q

What disclosure is made if a loss contingency is reasonably possible?

A

Auditor assesses need for Emphasis-of-Matter paragraph based on loss likelihood.

23
Q

How is a gain contingency reported?

A

Gain contingencies are not reported.

24
Q

How does an immaterial GAAP issue affect the audit opinion?

A

It doesn’t. Opinion is Unmodified.

25
Q

How does a very material GAAP issue affect the Audit Report?

A

Modified-Adverse Opinion is issued. Emphasis-of-Matter paragraph is added after Opinion paragraph.

26
Q

How do GAS standards compare to GAAS?

A

GAS is more strict than GAAS.

27
Q

What is required under the Single Audit Act?

A

Funding Threshold is $750,000. An audit performed under governmental auditing standards (GAS). A report on internal control is required. GAAS and GAS don’t require the I/C report.

28
Q

When is an audit of IT NOT required?

A

Controls are redundant to another department

The system does not appear to be reliable and testing controls would not be an efficient use of time

Costs exceed benefit

29
Q

When can an audit of IT be performed without directly interacting with the system?

A

System isn’t complex or complicated

System output is detailed

30
Q

What is the role of a Database Administrator?

A

Maintains database

Restricts access

Responsible for IT internal control

31
Q

What is the role of a Systems Analyst?

A

Recommends changes or upgrades

Liaison between IT and users

32
Q

What is the role of the data Librarian?

A

Responsible for disc storage

Holds system documentation

33
Q

What is the benefit of Generalized Audit Software in an audit?

A

Uses computer speed to quickly sort data and files- which leads to a more efficient audit

Compatible with different client IT systems

Extracts evidence from client databases

Tests data without auditor needing to spend time learning the IT system in detail

Client-tailored or commercially produced

34
Q

What is a Relational Database?

A

Group of related spreadsheets

Retrieves information through Queries

35
Q

What is a Data Definition Language?

A

A language that defines a database and gives information on database structure.

It maintains tables- which can be joined together.

It establishes database constraints.

36
Q

What functions are performed by a Data Manipulation Language?

A

Maintains and queries a database

Auditor needs information- so client uses DML to get the information needed

37
Q

What functions are performed by a Data Control Language?

A

A Data Control Language controls a database and restricts access to the database.

38
Q

What are Check Digits?

A

A numerical character consistently added to a set of numbers.

It makes it more difficult for a fraudulent account to be set up or go undetected.

39
Q

What is the purpose of a Code Review?

A

A Code Review tests a program’s processing logic.

Advantageous because auditor gains a greater understanding of the program.

40
Q

What is the purpose of a Limit Test?

A

Examines data and looks for reasonableness using upper and lower limits to determine if data fits the correct range.

Did anyone score higher than 100%?

41
Q

What is the Test Data Method?

A

Auditor processes data with client’s computer - fake transactions are used to test program control procedures.

Each control needs to only be tested once

Problem with this method - fake data could combine with real data.

42
Q

How can Operating Systems Logs be utilized during an audit?

A

Auditor can review logs to see which applications were run and by whom.

43
Q

What is the purpose of Access Security Software?

A

Helpful in online environments

Restricts computer access - may use encryption.

44
Q

How can Library Management Software assist with an audit?

A

Library Management Software logs any changes to system/applications etc.

45
Q

How can Embedded Audit Modules in software be utilized in an audit?

A

Assist with audit calculations

Enable continuous monitoring in an audit environment that is changing

Weakness: requires implementation into the system design

Example: SCARF - Collects information based on some criteria and can be analyzed at a later time (necessary because the audit environment is continually changing)

46
Q

What is an Audit Hook?

A

An Audit Hook is an application instruction that gives auditor control over the application.

47
Q

What is the purpose of Transaction Tagging?

A

Transaction Tagging allows logging of company transactions and activities.

48
Q

How do Extended Records assist in audit trail creation?

A

Extended Records add audit data to financial records.

49
Q

How does Real Time Processing affect an audit?

A

Destroys prior data when updated

aka Destructive Updating

Requires well-documented Audit Trail

50
Q

What is the risk of auditing System outputs versus Application outputs?

A

If the auditor only audits the outputs of a computer system and doesn’t also audit the software applications- an error in the applications could be missed.

51
Q

What is a Compiler?

A

Software that translates source program (similar to English) into a language that the computer can understand

52
Q

How is Parallel Simulation utilized during an audit?

A

Client data is processed using Generalized Audit Software (GAS)

Sample size can be expanded without significantly increasing the audit cost

GAS output compared to client output

53
Q

What does auditing internal control in a company’s IT environment accomplish?

A

Plan the rest of audit- Shorter audit trails that may expire- Less documentation

Assess the level of Control Risk - Unauthorized access to systems or data is more difficult to catch

Systems access controls adds another layer to separation of duties analysis

Focus should be on the general controls- new systems development- current systems changes- and program or data access control or computer ops control changes

AUDIT (8 decks)

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