Deck 1 Flashcards
Which internal control procedures addresses completeness of inventory?
Prenumbered receiving reports are periodically reconciled with inventory records. It shows all goods received are recorded in inventory.
What are the factors determining sample size in Attribute sampling?
Tolerable deviation rate
Expected population deviation rate
Acceptable level of the risk of over reliance (sample will cause the auditor to rely on controls incorrectly).
Tolerable misstatement NOT considered. TM affects sample size in variable sampling.
To check all inventory items are valid what should the auditor trace
Items to the inventory listing to inventory tags with auditor’s recorded count sheet
If auditor is unable to obtain sufficient audit evidence on client’s opening inventory (no other significant matters were identified) what type of opinion is espressed?
Issue unmodified opinion on financial position and disclaim an opinion regarding ther results of operations and cash flows.
Auditor may express disclaimer of opinion on income statement and balance sheet.
which assertions are tested when the auditor inspect new additions listed on the analysis of PPE?
Existence or Occurence. To test existence or occurence, auditor’s observe physical assets, review leases/purchase statements and perform unrecorded retirements.
To test presentation & disclosure, verify financial statement accounts and footnote disclosures adhere to GAAP.
Right & obligations - review minutes for approval of additions.
completeness & cufoff - perform analytical procedures, vouch repair and maintenance expenses.
Valuation,allocation & accuracy - Foot summary schedules, reconcile summary schedules to gains/losses, recalculate depreciation.
What is included in Non-issuers opinion on ICFR to management and those charged with governance?
ALL internal control deficiencies identified are reported in writing and not ONLY material weaknesses and significant deficiencies. (Integrated audit)
What needs to be considered while planning auditor’s sample for test of controls?
Allowable risk of assessing control risk too low. While planning a sample for tests of controls, auditor should consider sampling risk. If sample shows the auditor to assess control risk too low (incorrect acceptance/Type II/over reliance on controls)- audit will be ineffective.
What is the assertion obtained when comparing recorded inventory items to purchase document?
Comparing recorded inventory to purchase document helps to validate rights and obligation assertion, that whether the client owns the inventory or not.
For existence and completeness assertions - physical inventory counts are compared with inventory records (and vice versa) to verify if there’s any missing/destroyed/sold items may not be recorded.
While performing a preparation engagement, auditor becomes aware of inadequate disclosures/known departure in financial statement, where should it discloses?
Auditor should disclose in the face or notes of the financial statement.
What are the auditor’s primary concern regarding management estimates?
To determine the reasonableness of management’s estimates. considers complex, non routine , subjective assumptions which are susceptible to bias.
Auditor tests effectiveness of internal control related to estimates.
What are the elements of Engagement letter of Preparation
Objective of engagement (prepares F/S in according to Fin Rep Framework) , responsibilities of management and accountant, limits to engagement, identified framework, known departures, management agrees that ..”no assurance is provided”.
What are the four areas mandatory to add an Emphasis of matter paragraph?
Auditor’s opinion on revised F/S differs from previously expressed opinion.
Justified change in accounting principles.
F/S prepared using special purpose framework.
F/S prepared using a regulatory basis intended for general use.
(remote likelihood of a material loss resulting from uncertainty is not required to be accrued or disclosed)
Statistical vs Nonstatistical sampling methods
Statistical - uses law of probability.
Probability of selection is known.
Quantifies sampling risk.
Generally used when population is large.
Nonstatistical - do not use law of probability.
Judgement may be used to select items.
Do not quantify sampling risk.
Generally used when population is small.
What are the audit procedures for PPE & Repairs and Maintenance expenses to identify improper recording.
Assess internal control and capitalization policies.
Inspect supporting documents.
Physically observe PPE.
Analytical procedures to test reasonableness- comparing repairs & maintenance exp to budgeted amounts/comparing assets acquisitions to budgets of capital expenditures.
(vouching repairs exp to supporting docs would least likely result discovery of expenses recorded as assets).
How are completeness of revenue cycle are tested?
Revenue cycle consists of sales revenue, AR and cash receipts. Completeness is that all sales are recorded. sales revenue is recognized when goods are shipped to customers. Auditor tests completeness by determining that sales invoices are prepared for shipping documents (eg sales invoice to shipping documents).
