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Audit > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

Assurance services

A

Independent professional services that improve quality of info, targeted towards client

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2
Q

Attestation services

A

Goal is to provide assurance for information as to its reliability, and to provide assurance free of any misstatement

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3
Q

Examinations (audits)

A

Attestations that are Open ended, high level assurance, referred to as an opinion

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4
Q

Reviews

A

Attestations that result in moderate/limited assurance, less open ended

Inquiries of management and analytical procedures

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5
Q

Agreed upon procedures

A

Attestations that result in a report with procedures performed, completely closed ended, client agrees with auditor completely with what they want to perform, no assurance and just reports results

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6
Q

3 types of audits (examinations)

A

Business risk- success of business
Information risk- accuracy of financial statements
Agency costs- consequences that an agent my follow their own best interests

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7
Q

Presentation and disclosure

A

Assertion that accounts are described and classified in financial statements in accordance with GAAP

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8
Q

Existence or occurrence

A

Assertion that assets, liabilities, and equity in financial statements all exist

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9
Q

Rights and obligations

A

Assertion that client has legal rights to assets listed

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10
Q

Completeness

A

Assertion that no transactions, assets, liabilities or equity are omitted from financial statements

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11
Q

Cut-off

A

Assertion that transactions and events have been recorded on correct period

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12
Q

Valuation and allocation

A

Assets, liabilities, revenues, expenses are correctly valued

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13
Q

External audit

A

Focus is on financial statements

Objective is expression of an opinion on fairness

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14
Q

Internal audit

A

Focus is how well business is run

Reviews policies and procedures and makes recommendations to increase revenues

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15
Q

Operational audit

A

Internal audit that tests effectiveness and compliance with policies and procedures

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16
Q

Compliance audit

A

Internal audit that tests compliance for laws, government auditing, external auditor doesn’t care about it

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17
Q

Internal reporters report to the ________ and NOT _______

A

Audit committee, CEO

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18
Q

PCAOB

A

Goal is to regulate audits and auditors of public companies

Establish audit, quality control standards. Writes GAAP

Only 2 of the 5 board members can be accountants

Appointed by the SEC

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19
Q

AICPA

A

Issues statements in auditing standards, quality control standards and peer review

Statements on Auditing Standards

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20
Q

Auditing standards responsibility levels

A

Unconditional- required in all cases

Presumptively mandatory- required except when auditor deems necessary to not follow

Responsibility to consider- auditor can use professional judgement on whether or not to follow

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21
Q

GAAS standards

A

Statements(AICPA)- must be applied

Interpretive publications- recommendations to consider

Other auditing publications- help auditor understand and apply standards

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22
Q

AU topics

A

200-299- general principles and responsibilities
300-499- risk assessment and response to assessed risk
500-599- audit evidence
600-699- using work of others
700-799-audit conclusions and reporting
800-899- special considerations
900-999- ^ in US

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23
Q

6 main parts of a public company standard audit report

A 
What the auditors did
Opinion of auditor
Mention of internal controls
Managements responsibility 
Auditors responsibility
Standards used
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24
Q

Qualified opinion

A

Modified opinion that States that financial statements are fair except for some small matter, such as auditor is not able to audit a particular area

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25
Adverse opinion
Modified opinion that financial statements are not presented fairly
26
Disclaimer of opinion
Modified opinion where auditors cannot obtain sufficient audit evidence
27
Pervasive misstatement
Financial statements as a whole are misstated
28
Audit risk
The risk that the auditor will incorrectly give an unqualified opinion on materially misstated financial statements Ineffective audit
29
Audit risk equation
Inherent risk x Control risk x Detection risk
30
Inherent risk
Susceptibility of an account to misstatement. Ex. Cash is easy to steal; high risk
31
Major types of audit evidence
``` Accounting information systems Documentary evidence Third party representation Physical evidence Computations Data interrelationships Client representations Evidence from related party transactions Subjective audit evidence ```
32
3 steps to review audit estimates
Review managements approach Develop an estimate Review subsequent events after estimate- ex. Cash collections after estimating ADA
33
Appropriate audit evidence
A measure of audit evidence reliability and relevance
34
What makes audit evidence reliable?
``` Independent source Generated through effective controls Obtained directly by an auditor Written documentation Original documents, not copies ```
35
Audit Sufficiency
Enough quantity of evidence to form a reasonable opinion
36
Scope of audit sufficiency
Nature- what audit procedure Timing- when to perform procedure Extent- how many items in procedure
37
Risk assessment
To obtain an understanding of the entity, it’s environment and internal control
38
Substantive tests
Tests whether the balance in the account is correct; end of processing
39
Tests of details
Verifying that balances are correct Transactions, ending balances, disclosures
40
Analytical procedures
Evaluations of financial information made by a study of plausible relationships a month financial and non financial data
41
Analytical procedure approaches
``` Trend analysis Horizontal analysis- across time Cross sectional analysis Reasonableness tests Vertical financial statements- convert all numbers to percentage of something ```
42
Cross footing
Total of a row of numbers
43
Data analytics
The computer assisted examination of information in financial statements. Entire population rather than samples
44
6 audit steps
Plan the audit, strategy Obtain understanding of client Assess risks and design audit procedures Perform tests of control, analytical procedures Complete the audit Form an opinion
45
Engagement risk
Risk to a CPA firm of association with an audit client, or would be sued by a client, reputation harmed by a client
46
Responsibilities of management but not auditors
``` Financial statements Effective internal control Compliance with laws Providing representation letter Adjusting financial statements for material misstatements ```
47
Tolerable misstatement
An account level misstatement
48
Transactions assertions
``` Occurrence Completeness Accuracy Cutoff Classification- proper accounts ```
49
Account balances assertions
Existence Rights and obligations Completeness Valuation and allocation
50
Disclosures assertions
``` Occurrence Rights and obligations Completeness Accuracy and valuation Classification and understandability ```
51
PCAOB 2nd standard of fieldwork
Auditor must have sufficient understanding of the entity, it’s environment, it’s internal control to assess risk of material misstatement
52
AICPA-GAAS standard of internal control
To obtain reasonable assurance but not absolute assurance, auditor identifies and assesses risks based on understanding of the entity including its internal control
53
Control activities
Performance reviews Information processing controls Physical controls Segregation of duties: authorisation, recording, and custody
54
Types of control tests
Inquiries- discuss with client Inspection- sample of purchase orders Observation- observe procedures applied to invoices Reperformance- compare quantities on invoice to quantities on shipping documents
55
Deficiency
An internal control issue where a control does not allow employee to prevent material misstatements
56
Significant deficiency
An internal control deficiency important enough to bring up to the audit committee
57
Material weakness
An internal control deficiency that would cause reasonable possibility that a material misstatement will not be prevented
58
Assessment of internal auditors
Objectivity- policies for assuring it Competence- education, experience Work performance- reviewed by an external auditor
59
Internal control over financial reporting audit stages
``` Plan the engagement Identify controls to test Begin at financial statement level identify relevant assertions Identify entity level controls Test and evaluate Form an opinion ```
60
ICFR evaluations
``` Adequacy of management assessment Results of auditors design evaluation Results of operating tests Negative results of substantive procedures Control deficiencies ```
61
5 components of internal control
Control environment- managements attitude and ethics Management risk assessment- organisations should evaluate their own risk accounting information and communication system Control activities- PIPS Monitoring- over time for if they continue to be relevant
62
Steps in auditors considerations of internal control
``` Obtain understanding of internal control Document understanding- work paper Assess risks of material misstatement Design further audit procedures Perform tests of controls and evaluate results Substantive procedures ```

Audit (5 decks)

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