Review A2 (2) Flashcards Preview

AUD > Review A2 (2) > Flashcards

Flashcards in Review A2 (2) Deck (23):

In planning the audit, the auditor should obtain a sufficient understanding of the existing internal control, the primary objectives of obtaining such knowledge are

1. identify the types of material misstatement
2.consider factor that affect the risks of material misstatement
3.Design test of control substantive procedures.


An auditor's primary consideration regarding an entity's internal control is

Whether the control affect the F.S assertions ( to evaluate the risk that a material misstatement may exist in the F.S)


Internal control is relevant to

the entire entity, or to any of its operating units or business functions.


The entity's objectives are

1. Reliability of financial reporting
2.Effective and efficient of operation
3.Compliance with applicable laws and regulations.


Internal control over safeguarding of assets include controls related to
1. financial reporting objectives
2. operation objectives

Compliance objectives


1. The auditor generally is NOT required to determine whether the client's control operated EFFECTIVELY to prevent or detect material misstatement, such determination would ONLY be required for controls on which the auditor plans to rely.
2. Auditor are NOT required to perform tests of controls unless they plan to place reliance on a particular control, since auditors are NOT required to rely on the client's control.
3. Auditors are NOT required to search for significant deficiencies in the operation of internal control, they are merely required to report such conditions discovered during the audit to those charged with governance.

4. The auditor is REQUIRED to document KEY ELEMENT of the understanding of the entity and its environment, including each of the component of internal control.


1. An engagement letter includes discussion of both the AUDITOR'S RESPONSIBILITY and THE LIMITATION OF THE ENGAGEMENT.
2. A comfort letter provide NEGATIVE ASSURANCE on certain UNAUDITED financial info for the period from the last audit to the date of the registration of the securities.

3. The management representation letter is provided by management at THE END OF the engagement to confirm representations given to the auditor.


An auditor should consider WITHDRAWING from an engagement when the client DOES NOT take appropriate remedial action

Even if the act of noncompliance is immaterial, this would occur because the implications of the management's failure to act appropriately may affect the auditor's ability to rely on management's representations.


If the auditor has substantial doubt about the entity's ability to continue as a going concern, the auditor should exam the evidence obtained from the following procedures:

1. analytical
2. debt compliance
3. minutes
4. inquiry of the client's legal counsel
5. review the subsequent event
6. third party confirmation of the details of financial supporting arrangement.


When the auditor believe there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time, there is a responsibility

to consider the adequacy of the client's disclosure of such circumstances, and the auditor would be MOST concerned about the POSSIBLE EFFECTS on the entity's F.S


Positive assurance in provided in OCBOA ( other comprehensive basis of accounting) report, reports on specified elements, accounts, or items and reports on special-purpose F.S to comply with contractual agreements or regulatory provision

Negative assurance is provided in OCBOA report on compliance with aspects of contractual agreements or regulatory requirements related to audited F.S


When the auditor was asked to report on the single financial statement, the auditor should

1. perform procedures on interrelated items (sales/receivables, inventory/payable, fixed asset/depreciation)
2. perform the audit as a separate engagement or in conjunction with an audit of an entity's complete set of F.S
3. Obtain an understanding of the intended users or purpose of the statement.


A comfort letter
1. does NOT update the opinion on previously issued F.S
2. are NOT required by or filed with the SEC, and they are NOT considered to be part of the registration statement within the meaning of the Securities Act of 1933
A comfort letter must include a statement that the letter is SOLELY for the inf of the addressee(underwriter) and to assist the underwriters in conducting and documenting heir investigation.

A comfort letter provide
POSITIVE assurance
1. A CPA's independence
2. Compliance as to the form of the F.S with the SEC act, assuming the F.S are audited.
NEGATIVE assurance
1. Unaudited F.S, unaudited condensed interim F.S and capsule financial info, assuming a review of such info has been performed
2. changes in selected F.S
3. Whether certain Non-financial statement info included in the registration statement complies as to form in all material respects with regulation S-K


Attestation standards includes five general standards

1. Training and proficiency
2. Independence
3.Performance/due professional care in planning and performance
4. professional, adequate knowledge of subject matter
5.Your belief that the subject matter is capable of evaluation against criteria that are suitable and available to users.


Content of report based on examination (examination report)

1. a title that includes the word INDEPENDENT, the signature of the practitioner's firm and the date of the report
2. an identification of the responsible party and a statement that the prospective F.S are the responsibility of the responsible party
3. A statement that the practitioner's responsibility is to express an opinion on the prospective F.S based on his examination
4. A statement that the examination was conducted in accordance with attestation standards established by AICPA.
5. An opinion that the prospective F.S are presented in conformity with AICPA guideline and that the underlying assumption provide a reasonable basis for the forecast or the projection
6. a caveat that the prospective results may NOT be achieved.
7. A statement that the practitioner assumes NO responsibility to update the report due to subsequent events.
8. restrict use of the report.


When performing an attestation engagement related to client's prospective F.S, the accountant should

ensure that the client discloses ALL SIGNIFICANT ASSUMPTIONS that are used for the prospective F.S


Under SSAE which set by AICPA

the specified parties 1. take responsibility for the sufficiency of the procedures 2. defines the criteria to be used to determine findings.


An agree-upon procedures engagement is one in which

the practitioner is engaged to issue a report of findings based on specific procedures performed.


In an attest service, the practitioner is engaged to issue a report on subject matter or on an assertion about the subject matter

that is the responsibility of another party.


A practitioner may perform an agree-upon procedures engagement on prospective F.S provided that

the prospective F.S include a SUMMARY of significant assumption. and the use of report is restricted to specified parties.


An auditor's special report on F.S prepared in conformity with the cash basis of accounting should

include an emphasis-of-matter paragraph after the opinion paragraph that refers to the note to the F.S that describes the basis of accounting.


The compilation report and examination report of financial forecast 共同点

1. Statement that both engagement was conducted in accordance with attestation standards established by the AICPA
2. 警示 the prospective results may NOT be achieved.
3. Statement that the practitioner assumes NO responsibility to update the report for subsequent event.
4. Both include the purpose of the report and the restriction use of the report.


The compilation report and examination report of financial forecast 不同点

1. the compilation is limited in scope and does NOT enable the practitioner to express an opinion or any other form of assurance on the prospective F.S or the assumption
2. The examination report express an opinion that the prospective F.S are presented in conformity with AICPA guidelines and that the underlying assumptions provide a reasonable basis for the forecast or the projection.