Substantive Procedures & Audit Completion Flashcards by Nicole Aufiero

Q

What are the two types of audit evidence?

A

Accounting records
Supporting documentation

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Q

What does sufficiency of audit evidence mean?

A

Quantity of audit evidence

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Q

What are the two factors of appropriateness of audit evidence?

A

Relevance and reliability

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Q

What are three factors of reliability of audit evidence?

A

Source of audit evidence
Form of audit evidence
Original vs copies

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Q

What are the 6 assertsions?

A

Completeness
Cutoff
Valuation, allocation, & accuracy
Existence / occurrence
Rights & obligations
Understandability & classification

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Q

Completeness assertion on classes of transactions

A

All transactions & events that should have been recorded are recorded

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Q

Completeness assertion on account balances

A

All assets, liabilities & equity interests that should have been recorded are recorded

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Q

Completeness assertion on presentation and disclosure

A

All disclosures that should have been included in the FS have been included

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Q

Cutoff assertion on classes of transactions

A

Transactions & events have been recorded in the correct accounting period

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Q

Valuation, allocation & accuracy on classes of transactions

A

Accuracy: amounts and other data relating to recorded transactions have been recorded appropriately.

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Q

Valuation, allocation & accuracy on account balances

A

Allocation & Valuation: assets, liabilities, and equity interests are included at the appropriate amounts and any resulting valuation or allocation adjustments are recorded appropriately.

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Q

Valuation, allocation & accuracy on presentation and disclosure

A

Accuracy & Valuation: financial and other info is disclosed fairly and at appropriate amounts.

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Q

Existence or occurrence on classes of transactions

A

Occurrence: transactions & events that have been recorded have occurred and pertain to the entity

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Q

Existence or occurrence on account balances

A

Existence: assets, liabilities, and equity interests exist.

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Q

Existence or occurrence on presentation and disclosure

A

Existence & occurrence: disclosed transactions & events have occurred and pertain to the entity

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Q

Rights & obligations on account balances

A

The entity holds or controls the rights to the assets and the liabilities are the obligations of the entity

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Q

Rights & obligations on presentation and disclosure

A

The entity holds or controls the rights to the assets and the liabilities are the obligations of the entity

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Q

Understandability & classification on classes of transactions

A

Classification: transactions & events have been recorded in the proper accountsC

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Q

Understandability & classification on account balances

A

Classification: financial info is categorized correctly in the FS

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Q

Understandability & classification on presentation and disclosure

A

Financial info is appropriately presented and described, and info in disclosures is expressed clearly.

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Q

What are examples of test of details?

A

Re-performance
Inquiry
Observation
Confirmation
Asset inspection
Reconciliation
Inspection
Recalculation, footing & cross-footing
Auditing related account simultaneously
Cut-off procedures
Events subsequent to balance sheet date

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Q

What are common types of substantive analytical procedures?

A

Trend analysis
Ratio analysis
Reasonableness testing
Regression analysis
Vertical analysis
Horizontal analysis
Non-financial analysis
Industry comparison
Budget vs actual analysis

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Q

What are the steps in performing substantive analytical procedures?

A

Develop an expectation
Define a threshold
Compare and analyze differences
Document

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Q

Are analytical procedures required during the planning stage of an audit?

A

Yes. Preliminary analytical procedures are mandatory.

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Are analytical procedures required during the fieldwork stage of an audit?

No. Substantive analytical procedures are optional.

Are analytical procedures required during the review stage of an audit?

Yes. Final analytical procedures are mandatory.

When the auditor is unable to obtain sufficient appropriate audit evidence regarding opening balances, what audit opinion is necessary?

Qualified due to GAAS or disclaimer of opinion

When opening balances contain a misstatement that materially affects the current FS, what audit opinion is necessary?

Qualified due to GAAP or adverse opinion

When the current period's accounting policies are not consistently applied regarding opening balances, what audit opinion is necessary?

Qualified due to GAAP or adverse opinion

When the predecessor's audit report includes a modification, what audit opinion is necessary?

Modify current audit report accordingly.

Does an auditor provide assurance about compliance with laws & regulations?

No.

In regards to compliance with laws & regulations, the auditor should obtain an understanding of...

the legal and regulatory framework applicable to the entity and its industry, as well as the entity's compliance mechanisms with the applicable framework.

Who should the auditor discuss identified or suspected non-compliance with?

Management and TCWG. For management, it should be reported to individuals at least one level above those involved with the non-compliance

Is non-compliance disclosed?

No, non-compliance is not disclosed. The auditor should issue a qualified or adverse opinion due to a departure from GAAP

Should insufficient audit evidence be disclosed?

No. Auditor should issued a qualified opinion due to GAAS or a disclaimer of opinion.

Should non-compliance be reported to outside parties?

No, it should not be reported to outside parties. Exceptions: legal & regulatory compliance; subpoena response; successor auditor communication; governmental financial assistance.

What are the audit procedures for related party transactions?

Obtain sufficient appropriate audit evidence to confirm appropriate identification, accounting, and disclosure of the RP transactions in the FS. Inquire of management regarding RP relationships & transactions. Inquire of management as to any significant transactions which are outside the entity's normal course of business (i.e. transactions not carried out at arm's length).

What should the auditor do if they identify previously undisclosed related party relationships or transactions?

Communicate the relevant info to the engagement team. Request management identify all transactions with newly identified related parties. Inquire why I/C failed to identify/disclose such RP relationship/transactions. Perform substantive procedures relating to newly identified relationships/transactions.

When there is a remote possibility for a loss contingency, should it be disclosed, accrued, or both?

It should not be disclosed nor accrued.

When there is a remote possibility for a gain contingency, should it be disclosed, accrued, or both?

It should not be disclosed nor accrued.

When there is a reasonable possibility for a loss contingency, should it be disclosed, accrued, or both?

It should be disclosed. It should not be accrued.

When there is a reasonable possibility for a gain contingency, should it be disclosed, accrued, or both?

It should be disclosed. It should not be accrued.

When a loss contingency is probable & non-estimable, should it be disclosed, accrued, or both?

It should be disclosed. It should not be accrued.

When a gain contingency is probable & non-estimable, should it be disclosed, accrued, or both?

It should be disclosed. It should not be accrued.

When a loss contingency is probable & reasonably estimable, should it be disclosed, accrued, or both?

It should be disclosed and accrued.

When a gain contingency is probable & reasonably estimable, should it be disclosed, accrued, or both?

It should be disclosed. It should not be accrued.

Auditor procedures to identify litigations, claims, and assessments

Inquiries within the entity Inspect minutes of meetings Inspect legal documents Obtain written representations Communication with in-house legal Communication with external legal counsel (letter of inquiry)

What does an auditor request from an entity's external legal counsel?

Information on known litigation, claims, and assessments involving the entity, as provided by management. Information on other litigations, claims, and assessments that the external legal counsel is aware of but not listed. The likely outcome and financial implications of each identified matter. The probability of unasserted claims that might be significant and the potential range of loss.

What are the procedures when litigations, claims, and assessments are identified?

Obtain audit evidence Legal consultation Review of subsequent events Disclosure check

What type of opinion is used if the litigation, claims, and assessments is appropriately accounted and disclosed?

Unmodified opinion

What type of opinion is used if the litigation, claims, and assessments is not appropriately accounted and disclosed?

Qualified due to GAAP or Adverse Opinion

What type of opinion is used if the entity's external legal counsel refuses to respond appropriately to letter of inquiry and auditor is unable to obtain sufficient appropriate audit evidence via alternative audit procedures?

Qualified due to GAAS or Disclaimer of opinion

What type of opinion is used if management refuses to give the auditor permission to communicate or meet with the entity's external legal counsel?

Disclaimer of opinion or withdrawal

What are the audit procedures for accounting estimates & fair value estimates?

Review management's measurement method Review of assumptions Auditor's independent estimate Subsequent event review

What type of opinion is used when estimates are reasonable and disclosed and accounted for properly?

Unmodified opinion

What type of opinion is used when estimates are not reasonable and/or not disclosed properly?

Qualified due to GAAP or Adverse opinion

What type of opinion is used when the auditor is unable to audit estimates due to lack of information?

Qualified due to GAAS or Disclaimer of opinion

What are the two types of subsequent events?

Recognized subsequent event - adjusting events Non-recognized subsequent event - non-adjusting events

What are the audit procedures for subsequent events?

Inquiry of management & TCWH Inquiry of legal counsel Inspect minutes of meetings Inspect interim FS Obtain written representations of management

What are the audit procedures after the audit report date when newly subsequently discovered facts are identified?

Discuss with management & TCWG regarding the newly subsequent discovered facts. Determine whether the FS need revision due to the new info, management might or might not revise FS. If management revises FS - dual date the report or date the report as of the later date. If management does not revise FS - the auditor can express a Qualified opinion due to departure from GAAP or an Adverse opinion if the misstatement is material and pervasive.

What is the required form of audit documentation?

Can be in paper, electronic, or other media forms. Oral explanations alone are insufficient. Written workpapers are essential for supporting the auditor's work and conclusions.

What is required for audit documentation?

Should be detailed enough to allow an experienced auditor, unfamiliar with the previous audit, to understand the following: Nature, timing, and extent of audit procedures Audit work details Audit procedure results Significant findings and issues Should include details of discussions with management & TCWG Addressing inconsistencies Engagement completion document

What are the two types of audit documentation?

Permanent file Current file

What is included in the permanent file of audit documentation?

Organizational documents Minutes Flowcharts of internal controls Long-term contracts Equity account analysis Depreciation schedules

What is included in the current file of audit documentation?

Audit plan Financial statements and auditor's report Working trial balance Lead schedules Audit workpapers Confirmation & representation letters Auditor's analysis & worksheets Entity's documents Significant audit findings or issues

What is the required documentation for departure from GAAS?

Justification for departure Alternative procedures

What revisions are allowed to audit documentation after the audit report date?

Administrative changes during final assembly. Clarifications to existing documentation due to comments from internal/external monitoring inspections. Performing omitted procedures in rare cases.

How long should audit documentation be retained?

Non-issuer 5 years Issuer 7 years

What are the key components of the management representation letter?

Written confirmation Managements responsibilities, including: FS preparation & presentation, internal controls, completeness of information Fraud-related representations Legal compliance Management should confirm that: the effects of uncorrected misstatements are immaterial to the FS as a whole; all known or possible litigation and claims affecting the FS are disclosed and accounted for according to GAAP; significant assumptions used in making accounting estimates are reasonable; all related party transactions and relationships are disclosed and account for according to GAAP. Management should disclose and adjust for all subsequent events per GAAP.

What are the types of misstatements?

Factual misstatement Judgmental misstatement Projected misstatement

What procedures are necessary for misstatements?

Accumulate misstatements Prompt communication to management Request for correction by management Evaluation of uncorrected misstatements

What type of opinion is used when misstatements are immaterial?

Unmodified opinion

What type of opinion is used when misstatements are material but not pervasive?

Qualified due to GAAP

What type of opinion is used when misstatements are material and pervasive?

Adverse opinion

What is engagement quality control review?

A rigorous review process wherein a concurring or second partner (EQCR partner) reviews the audit's quality and findings.