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Flashcards in Engagement Planning Deck (14)
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1

What are the two preconditions for an audit?

1) Acceptability of financial reporting framework
2) Management's agreement that it is responsible for preparation and fair presentation of F/S, DIM of I/C, and providing auditor with access to all relevant info

2

What are the inquiries that should be made of a predecessor auditor?

RID-C
Reasons for change
Integrity of management
Disagreements during audit
Communication with management or those charged with governance

3

What are matters auditor should communicate to governance?

DISAPPROVE
Disagreements with management
Illegal acts or noncompliance
Significant accounting policies
Adjustments
Prior discussions with management
Problems
Responsibilities
Other info
Views of other accountants
Estimates

4

What are the auditor's responsibilities in an audit?

Conduct audit in accordance with GAAS
Informing client of any improvements in controls or operations that come up

5

What are the client's responsibilities in an audit?

Making available all records
Not limiting scope of work
Paying fee

6

What are the parts of an engagement letter?

FACSIMILE
Fees
Auditor's responsibility
Confirmation of engagement
Scope and objective
Internal control
Management's responsibility
Irregularities
iLegal acts
Errors

7

What are the steps in audit planning?

BRAINSTOPS
Basic discussions with client
Review of audit documentation
Ask about recent developments
Interim F/S
Non audit personnel consulted
Staffing
Timing
Outside assistance
Pronouncements
Scheduling with client

8

What is audit risk?

Risk that auditor may unknowingly fail to modify opinion when F/S are materially misstatements
AR = IR x CR x DR

9

What is inherent risk?

Risk that misstatement will occur in the absence of controls
Part of RMM

10

What is control risk?

Risk that client's I/C will not prevent or detect a material misstatement
Part of RMM

11

What is detection risk?

Risk that audit procedures will incorrectly conclude that material misstatement does not exist
Includes test of details risk and analytical procedures risk

12

What are two types of fraud?

Fraudulent financial reporting - upper management
Misappropriation of assets - defalcation by employees

13

What are the components of the fraud triangle?

Motivation
Opportunity
Rationalization

14

What are the 6 elements of quality control for a CPA firm?

HEAL ME
Human resources
Ethical requirements
Acceptance and continuance of client relationships
Leadership responsibilities for quality
Monitoring
Engagement performance