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Flashcards in Kaplan AUD engagement Deck (36):

What are the 5 management F/S assertions about classes of transactions and events?



What are the 4 management F/S assertions about account balances?

Rights and Obligations
Valuation and allocation


What are the 4 management F/S assertions about presentation and disclosure?

Rights and Obligations
Accuracy and Valuation


What are the basic rules that establish at least the appearance of auditor independence?

Covered Member = any individual who participates in an attest function for a particular client and/or anyone who can influence the attest function

Covered members + Spouse + Immediate Family

No Direct Financial Interest

No material indirect Financial Interest


What is the standard for evaluating due professional care?

Must observe field work and reporting standards

Must exercise reasonable care to ensure that the audit is performed as well as the average auditor.


What is the overall goal of an Audit of client F/S?

The auditor seeks to gain sufficient appropriate evidence that no material misstatements in the F/S so that reasonable assurance can be given that the F/S presentation is presented fairly US GAAP.


What is meant by the word MATERIAL?

The presence of an item of a dollar magnitude or type that would influence the judgement of a reasonable party relying on those F/S?


What are the 3 General Standards?

1. Adequate Technical Training

2. Independence

3. Due professional care


Describe the education and experience that should be possessed by an auditor in a particular audit engagement.

Formal education in auditing or accounting.

Adequate practical experience for the work being performed.


Understanding of Industry and specific company.


At what point does the auditor need to acquire technical training and experience per GAAS for audit engagements?

No later than the date the audit engagement is accepted.


How does an auditor document that an audit has been adequately supervised?

Supervisor sign offs on assistant prepared working papers


What is the independent auditor's responsibility in connection with management assertions about the F/S information?

obtain sufficient appropriate evidence to substantiate that no material misstatements exist in any of the relevant assertions


An account is overstated due to extra transactions that have been discovered by the auditor. What assertions should be tested?

Existence, Cut-off


Several transactions have been omitted from an account balance. What assertions should be tested?



Who should hire an entity's independent auditor?

The audit committee made up of independent members of the BOD. If a non-public company w/o audit committee then the BOD.


What are the principal standards that currently provide practitioner guidance for attestation engagements other than an audit?

Statements on Standards for Attestation Engagements (SSAE)


What is meant by the term MATERIAL MISSTATEMENT?

An omission or misstatement of accounting information that makes it probable that the judgement of a reasonable party relying on the info would be changed.

3 types
Error - unintentional

Fraud - intentional

Direct-effect illegal act - immediate impact on F/S


What are the 2 types of illegal acts that an auditor might encounter in an audit engagement?

Direct- effect illegal act - actual amounts able to be discerned

indirect-effect illegal act - creates a contingency on F/S should be disclosed if known and material


A company has evaded paying income taxes and also has polluted a river. are these direct-effect or indirect-effect illegal acts?

Income tax evasion - direct-effect

polluting a river - indirect-effect


How does the auditor know which accounting principles should apply?

Accounting Standards Codification (ASC) is the sole source of US GAAP.


To avoid an independence issue unpaid audit fees must be paid by a client when?

Must be paid by the issuance of opinion for following year.


What are 2 distinct types of fraud?

Fraudulent Financial Reporting - Managment
Misappropriation of assets - employee


What is the auditor's responsibility in connection with misstatements on a client F/S?

gain sufficient appropriate evidence to provide reasonable assurance no material misstatement.

material misstatements include errors, fraud and the impact of direct-effect illegal acts


What is the auditor's responsibility regarding indirect-effect illegal acts?

No responsibility to search for them.

If discovered, auditor must investigate and disclosure may be required.


Who is responsible to produce a client's F/S?

Company Management


Does an auditor always have to follow SAS as a requirement for rending an unqualified opinion?

No, though justification of a departure from auditing standard rests with the auditor.


What is an attestation?

CPA reports on reliability of info or on at least one assertion being made by another party.


What are the principal standards that currently comprise GAAS for non-issuers?

10 basic standards (general, field work, reporting)



Two errors one fraud and one an error both the same dollar magnitude. Are these both seen as having the same material impact on the F/S in the auditor's judgement?

Fraud is intentional and therefore more significant than an error of the same magnitude.


What are the 3 standards of fieldwork?

1. Planning and Supervision

2. understanding the entity and its environment

3. Sufficient appropriate evidence


What are the 4 standards of reporting?

1. State F/S in accordance w/ GAAP

2. Identify lack of consistency with GAAP

3. Identify lack of disclosure

4. Express an opinion on the F/S taken as a whole


How does the auditor document that an audit has been adequately planned?

Develop and overall audit strategy and an audit plan, which documents and details the nature, timing and extent of audit procedures to be performed


What are the 6 elements of a Quality Control system for a CPA firm?

1. Leadership responsibilities for quality within the firm (tone at the top) - quality is essential to performing engagements

2. Relevant ethical requirements - reasonable assurance of compliance

3. Acceptance of client relationships and specific engagements - competence, comply legally, integrity of client

4. Human resources - personnel with competence, capabilities and commitment

5. Engagement performance - engagements are performed in accordance with professional standards

6. Monitoring - relevancy, adequate, operationally effective


When does an auditor establish the quantitative component of materiality?

early stages of planning however this is continually reassessed as evidence is gathered


Which reporting standards are explicit and which implicit?

Consistency - Implicit
Disclosure - Implicit
Opinion - Explicit
GAAP - Explicit


What is a peer review?

A review of a CPA firm's compliance with its quality control system by another CPA firm.