What is unconditional requirement and what is presumptively mandatory requirement?
Unconditional requirement- must, is required to
Presumptively mandatory requirement- should.
What are the 10 GAAS?
Training and Proficiency Independence Professional Care Planning and supervision Internal Control Corroborative Appropriate Audit Evidence Accounting Principles in Accordance with GAAP No new Principles-Consistency Omitted Disclosures- None Express an Opinion
Attestation Engagements Independence needed:
Compilations (unless lack of independence indicated) Agreed upon procedures Reviews Examinations (audits) Special Reports
Need not be independent for:
Other non attest services (bookkeeping/payroll)
Inquiries of predecessor auditor RIDC
Reasons for change
Integrity of mgmt
Disagreements during audit
Communication with mgmt or those charged with governance.
Communicated to those charged with governance: DISAPPROVE
Disagreements with mgmt Noncompliance with applicable laws and regulations (illegal acts) Significant accounting policies Adjustments Prior discussions with mgms Problems Responsibilities Other info View of other accountants Estimates
What are the elements of an engagement letter? FACSIMILE
Fees Auditor's responsibility Confirmation of engagement Scope and Objective of engagement Internal Control Mgmt's responsibility irregularities-Fraud illegal Acts Errors.
What are the steps in planning an audit? BRAINSTOPS
Basic discussions with the client Review of audit documentation Ask about recent developments Interim FSs Non audit personnel Staffing Timing Outside assistance Pronouncements Scheduling with the client.
What are the elements of audit risk and how does reliance impact RMM, DR, Substantive procedures?
AR=IRxCRxDR (IR and CR=RMM)
if reliance low, RMM high, DR low, Sub High
If reliance high, RMM low, DR high, Sub Low
The elements of Fraud Triangle?
What are the elements of quality control? HEAL ME
Human resources (personnel mgmt)
Ethical Requirements (independence)
Acceptance and continuance of client relationships and specific engagements
Leadership responsibilities for quality within the firm
independence should be maintained in:
In fact (state of mind) and in appearance (How it appears to the public)
What are the mgmts assertions? PERCV
Presentation and disclosure Existence or occurrence Rights and obligations Completeness Valuation or allocation
Substantive tests? ICORRIIA
Inquiry Confirmation Observation Recalculation Re performance Inspection of tangible assets Inspection (examination) of records or documents Analytical Procedures
What is the documents completion time period for AICPA and PCAOB?
AICPA: document completed within 60 days of report release date
PCAOB: document completed within 45 days of report release date
Management is responsible for the establishment and maintenance of ICs. We want reasonable assurance that ICs are achieving certain Objectives: ACE
Accurate and reliable financial reporting
Compliance with laws and regulations
Effectiveness and efficiency of operations.
What are the elements of IC? CRIME
Control Environment Risk assessment Control Activities Information and communication Monitoring
What are the elements of Control Environment? CHOPPER
Commitment to competence HR policies and practices Organizational structure Participation of those charge with governance Philosophy of mgmt and operating style Ethical value and integrity Responsibility assignment.
What are the elements of Control activities: PIPS ARCC
Performance reviews Info processing Physical controls Segregation of duties Authorization of transactions Recording (posting) of transactions) Custody of assets Comparisons
What are the 2 elements of Info and communication?
What are the 6 steps in obtaining an understanding of IC:
- Obtain an understanding of the design of IC (perform risk assessment procedures CRIME)
- Document the understanding of IC
- assess risk of material misstatement (RMM=IRxCR)
- Perform tests of controls
- Reassess risk of Material Misstatement and evaluate results
- Document conclusions and determine the effect on the planned substantive procedures.
What are the ways to document IC? FIND
Narrative or memo
What procedures are used in Tests of Controls? RIIO
What are the inherent limitations? COCO
Override by mgmt
What are the 4 personnel in the payroll cycle?
Personnel (Authorize) Hire, Fire, Salary RAtes
Payroll (recording) Calculate payroll
Treasurer (Custody) signs and distributes checks, custody of cash
Controller (Comparison) Bank reconciliation.
No audit can be performed without Test of details: ICORRIIA
Inquiry Confirmation Observation Recalculation Reperformance Inspection of records Inspection of documents Analytical procedures
What is Tracing and what is Vouching?
Tracing: Completeness: Trace from source document into books
Vouching: Existence or occurrence: Vouching from books to source.
So for Substantive Testing:
ICORRIIA -> UPERCV
For Internal Control:
Distinguish between positive/negative/blank confirmations:
Positive: need response
Negative: No response needed
Blank: Customer asked to provide amt without being told value on client records.
Loss contingencies: accrue/disclose:
Remote-Slight=no not disclose or accrue
Reasonably possible= Disclose, but do not accrue
Probable and estimable= Disclose and accrue
Probable and not estimable=Disclose, but do not accrue.
What are the 2 types of risks in sampling?
Nonsampling risk (human error) Sampling Risk (bad sample, sample is not representative of population)-risk of drawing wrong conclusion.
What are the 2 types of sampling risk?
Type 1: Efficiency error: Population is ok, but based on the sample, don’t rely. Incorrectly reject
Type 2: Less effective: Population is bad, but base on the sample, the auditor believes everything is ok. Incorrect acceptance.