Final Review Part II Flashcards
(42 cards)
1
Q
Planning an Audit
A
- industry knowledge
- business knowledge
- determine information technology on the audit
- tour facility
- determine the timing
- determine areas where there is a greater risk of material misstatement
2
Q
Audit Strategy
A
- establish overall audit strategy
- preliminary assessment of materiality
- outlines the scope of engagement
- reporting objectives
- the timing of the audit
- required communications
can be modified in responses to new info
3
Q
Audit Plan
A
- must be written
- NET
- risk assessment procedures
- further audit procedures (test of controls and substantive procedures)
- other audit procedures
can be modified in responses to new info
4
Q
After accepting the engagement (part of audit planning)
A
- recent trends occurring in the industry
- the risk of material misstatement surrounding various FS assertions
5
Q
Not relevant information
A
client’s understanding as to the appropriate opinion on the current year’s FS
6
Q
Internal Control
A
- provide assurance that an entity’s objectives will be achieved
- objectives: reliability of financial reporting/effectiveness and efficiency of operations/compliance with applicable laws and regulations
7
Q
Internal Control = CRIME (Risk Assessment)
A
- management identifies, analyzes, and manages risks that affect the entity’s ability to accomplish its major objectives
- new products
- rapid growth
- other changes
8
Q
Internal Control = CRIME (Information and Communication)
A
- all transactions are recorded and complete
- detailed enough to provide adequate financial reporting disclosures
- communication among management, employees, charged with governance, and external parties
9
Q
Internal Control = CRIME (Monitoring)
A
- assess the quality of the internal control structure
- make necessary corrections
10
Q
Internal Control = CRIME (Existing Control Activities)
A
- PAID TIPS
- prevent and detect the risk of lying, stealing, and cheating
11
Q
SOC 1
A
addresses a company’s IC over financial reporting
12
Q
SOC 2
A
examination of controls of a service organization over privacy, confidentially, processing integrity, availability, and security
13
Q
Type 1
A
- design of control
- help the auditor understand the control
14
Q
Type 2
A
- design of control and test of operating effectiveness
- help the auditor understand the control
- reduce the assessed level of control risk
15
Q
Auditing around the computer = manual
A
- simple batch systems with a good audit trail
- risk = insufficient paper-based evidence and insufficient audit procedures
16
Q
Auditing through the computer = CAAT
A
- transaction tagging
- embedded audit modules: collects transaction data for the auditor/auditor must be involved
- test data: the result is already known/invalid #/excess pay rate/excess hours
- integrated test facility: commingled with live data
- parallel simulation: audit reprocess data and compare the result with the client file
- generalized audit software packages: allow the auditor to perform tests of controls and substantive tests directly on the client’s system
17
Q
Test data
A
processed by the client’s computer programs under the auditor’s control
18
Q
Control risk assessment procedure
A
inquiry, inspect, observation, and reperformance
19
Q
Understanding IC
A
- obtaining an understanding of IC
- determine whether IC has been implemented
allowed, not required = evaluate operating effectiveness of controls
20
Q
Benefits - computerized environment (IT)
A
- improve consistency
- greater management supervision
21
Q
Presumed Fraud Risk
A
- improper revenue recognition
- management override of controls
22
Q
Audit procedures to address fraud risk
A
- discuss with appropriate people
- identify specific fraud
- assess fraud risk and develop an appropriate response
- document
- evaluate audit evidence regarding fraud
23
Q
Fraud brainstorming session
A
- significant decisions reached
- how and when the discussion occurred
- audit team members who participated
24
Q
Fraud
A
- error and fraud deserved the same amount of attention
- ineffective controls
- justification of fraudulent behavior
- existence of all 3 fraud risk factors is not an absolute indication that fraud has occurred
25
Obtaining an understanding of control
- evaluating the design of controls and determining whether they have been implemented
**PCAOB: require the auditor to obtain an understanding of the company's selection and application of accounting principles**
26
Control Risk assessed below maximum
controls appear to be implemented
27
Risk assessment discussion
consideration of the risk of management override of controls
28
Inherent Risk
- new guidance
- hedge activities
- fixed asset
- entity keeps a large amount of cash on hand
- do not require to use estimates
29
Control Risk
- control
- a system not password protected
- supervisory oversight
30
Detection Risk
auditor plans/will obtain
31
Increase RMM
- internal auditor reports to top management rather than the audit committee
- turnover
-
32
Decrease RMM
- separate headquarter
33
Significant Risk
Inherent risk at high level
34
The overall response to increase in FS level risk
- increase the level of supervision
35
Materiality Definition
- the amount of error or omission that would affect the judgment of a reasonable person
(make a preliminary judgment)
- specific amount
- qualitative and quantitative
- smallest level of misstatement
- XXX expected change in the economy XXX
- impacted by factors (FS benchmarks, final results, industry)
36
Tolerable Misstatement
- deals with sampling
- uncorrected and undetected misstatements goes up, tolerable misstatement goes down
37
Using the work of others
- consider their competence and objectivity
- systematic and disciplined approach (quality control policies and documented internal audit procedures)
38
Using the work of others - specialist
- complex and challenging issues
- auditor should review the work of the specialist
evaluate the adequacy
obtain knowledge of the specialist's qualification
39
Competency and Objectivity
- discussion with management personnel
- external quality reviews of the internal auditor's work
- previous experience with the internal auditor
40
Related Party Transactions
- disclosure in accordance with GAAP
41
Accounting Estimates
- appropriate practices are used to develop estimates
- reasonable
- GAAP
- properly disclosed
- management bears the responsibility for making reasonable estimates and including them in the FS
42
FV Measurements
- management is responsible for making FV measurements and disclosures in accordance with GAAP
