Final Review II

Question 1

What is the audit strategy

Answer 1

outlines the scope of the audit engagement,
reporting objectives
timing of the audit
req communications
factors that determine the focus of the audit

Question 2

What is the audit plan?

Answer 2

outlines the nature, extent, and timing of the procedures to be performed during the audit :

• risk assessment
• further audit procedures
• other audit procedures

Question 3

What is internal control

Answer 3

process to provide assurance that an entitys objectives will be achieved

Question 4

What are the 5 components of internal control?

Answer 4

• control environment
• risk assessment
• information and communication systems
• monitoring
• existing control activities

Question 5

What is existing control activities and what are the key points?

Answer 5

policies and procedures est to ensure that mgmt objectives are carried out
PAID TIPS

Question 6

What is PAID TIPS

Answer 6

• Prenumbering documents
• authorization of transactions
• independent checks to maintain asset accountability
• documentation
• timely and appropriate performance reviews
• information processing controls
• physicals controls for safeguarding assets
• segregation of duties

Question 7

How is a service organization related to user entity’s IC

Answer 7

considered to be part of user entity’s information system when such services affect initiation, execution, processing or reporting of the user transactions

Question 8

What are the 2 types of user reports from a service organization?

Answer 8

• report on controls placed in operation

- report on controls placed in operation and tests of operating effectiveness

Question 9

What is the auditors use of IT on the audit

Answer 9

effects both the eval and gathering evidence but audit objectives remain the same

Question 10

What are computer assisted auditing techniques

Answer 10

auditing through the computer

Question 11

What is transaction tagging

Answer 11

electronically marks a transaction and allows the auditor to follow it though the clients system

Question 12

what is an embedded audit module?

Answer 12

application program collects transaction data for the auditor. auditor must be involved in program design

Question 13

What is test data (deck)

Answer 13

uses application program to process test data the results of which are already known

Question 14

What is integrated test facility?

Answer 14

test data is mixed with live data

Question 15

What is a parallel simulation

Answer 15

auditor reprocesses clients live data and compares results

Question 16

what is generalized audit software packages

Answer 16

auditor to perform test of controls and substantive tests directly on the clients system

Question 17

What are some IT risks

Answer 17

• potential reliance on inaccurate
• loss of data
• unauthorized changes to data
• failure to make req changes

Question 18

What are some IT benefits ?

Answer 18

• accurate and consistent processing
• timeliness
• facilitation of data analysis

Question 19

When should fraud be reported to 3rd parties?

Answer 19

• to SEC in order to comply with certain legal and regulatory req.
• successor auditor
• in response to a subpoena
• to a funding agency

Question 20

What is audit risk

Answer 20

auditor may unknowingly fail to modify the opinion on materially misstated FS

Question 21

What is the risk of material misstatement?

Answer 21

IRCRDR

Question 22

What is inherent risk?

Answer 22

susceptibility of material misstatement assuming no related controls

Question 23

What is control risk?

Answer 23

material misstatement will not be prevented or detected on a timely basis

Question 24

what is detection risk?

Answer 24

auditor will not detect material misstatement

Question 25

What is the effect on DR when risk of material misstatement is low

Answer 25

- higher acceptable level of DR | - lower NET substantive tests

Question 26

What is the effect on DR when risk of material misstatement is high

Answer 26

- lower acceptable level of detection risk | - higher NET substantive tests

Question 27

What procedures must auditor perform to assess and respond to risk?

Answer 27

- obtain an understanding of the entity and its environment - assess RMM - respond to assess risk - eval audit evidence

Question 28

what should an auditor understand for risk assessment?

Answer 28

- financial performance - internal control - PCAOB requires understanding of selection and application of accounting principles

Question 29

what items does mgmt make assertion about?

Answer 29

account bal., presentation and disclosure

Question 30

What are the 6 main financial stmt assertions ? | COVERU

Answer 30

- completeness - Cutoff - valuation, allocation, and accuracy - existence and occurance - rights and obligations - understandability

Question 31

What is completeness?

Answer 31

acct bal., transaction and disclosures that should have been recorded are recorded

Question 32

what is cutoff?

Answer 32

transactions are recorded in correct acct period

Question 33

what is valuation, allocation and accuracy?

Answer 33

acct bal., transaction, and disclosures are recorded fairly and at appropriate amounts

Question 34

What is existence and occurrence?

Answer 34

account bal. exist and have been recorded

Question 35

What are rights and obligations?

Answer 35

entity controls the rights to the asset

Question 36

what is understandability and classification?

Answer 36

transactions have been recorded in the correct accts

Question 37

What are the relevant assertions for transactions and events?

Answer 37

- completeness - cutoff - accuracy - classification - occurrence

Question 38

what are the relevant assertions for acct balances

Answer 38

- completeness - allocation and valuation - rights and obligations - existence

Question 39

what are the relevant assertions for presentation and disclosures?

Answer 39

- completeness - understandability and classification - rights and obligations - valuation and accuracy

Question 40

what are some of the overall responses to assessed risk

Answer 40

- communicate to audit team an increased need for professional skepticism - staff with more experience or skill - increase supervision - incorporate more unpredictability - changes to NET of tests

Question 41

When should there be separate materality of classes of transactions?

Answer 41

when it could influence economic decision of users

Question 42

What can auditor not share with internal auditor?

Answer 42

- responsibility for audit decisions | - issuing the audit report

Question 43

What are the critical factors an independent auditor should consider about internal auditor

Answer 43

- competence of internal audit function (education, professional certification, quality of audit documentation - objectivity of internal auditor (org level) - application of systematic and disciplined approach

Question 44

What is the impact of the use of a specialist on audit report

Answer 44

-indicate that the reference to the specialist in the report does not reduce the auditor responsibility

Question 45

What are audit procedures for related parties ?

Answer 45

- companies procedures to identify related party - inquiry of mgmt - filings with SEC - review material transaction

Question 46

What are mgmts responsibility for FV measurements

Answer 46

-making FV measurements and disclosures

Question 47

what are auditors responsibility for FV measurements

Answer 47

auditor tests measurements and disclosures

Question 48

What should auditor verify in regards to accounting estimates?

Answer 48

- appropriate practices - estimates are reasonable - presented in conformity with GAAP - properly disclosed