1B Flashcards
Aggregate Audit % of low-risk vs non low-risk of federal financial support?
20% low risk and 40% non low risk
Objectivity
Obligation to be impartial, intellectually honest, and free of conflicts of interest.
Assertion Categories
Account Balances & Transactions and Events
Six Account Balance Assertions
Existence, Rights and Obligations, Completeness, Accuracy, Valuation, and Allocation, Classification, & Presentation
Six Transactions and Events Assertions
Occurrence, Completeness, Accuracy, Cutoff, Classification, & Presentation
Existence Assertion
That the Assets, Liabilities and Equity Interests actually exist.
Rights and Obligations Assertion
That the entity holds or controls the rights to assets and that the liabilities are the obligations of the entity.
Completeness Assertion
That all assets, liabilities, and equity interest that should have been recorded have been recorded and all related disclosures that should have been included in the financial statements have been included.
Accuracy, Valuation, and Allocation Assertion
That Assets, Liabilities, and Equity Interests have been included in the financial statements at appropriate amounts.
Classification Assertion
That Assets, Liabilities, and Equity Interests have been recorded in the proper accounts.
Presentation Assertion
That Assets, Liabilities, and Equity Interests are appropriately aggregated or disaggregated and clearly described, and related disclosures are relevant and understandable in the context of the requirements of the applicable financial reporting framework.
Occurrence Assertion
That Transactions and Events that have been recorded or disclosed have actually occurred.
Completeness Assertion
That all Transactions and Events that should have been recorded have been recorded, and all related disclosures that should have been included in the financial statements have been included.
Accuracy Assertion
Amounts and other data relating to recorded transactions and events have been recorded appropriately, and related disclosures have been appropriately measured and described.
Cutoff Assertion
That Transactions and Events have been recorded in the correct accounting period.
6 Elements to a Firms Quality Control System
Leadership Responsibilities, Relevant and Ethical Requirements, Acceptance and Continuance of Clients and Specific Engagements, Human Resources, Engagement Performance, & Monitoring
Leadership Responsibilities Quality Control
Does the work comply with professional standards?
Relevant and Ethical Requirements Quality Control
Does the firm have practical ethical requirements?
Acceptance and Continuance of Clients and Specific Engagements Quality Control
So Firms only accepts engagement work that it is qualified to perform and to minimize the chances of working with a client whose management lacks integrity.
Human Resources Quality Control
Ensure that the firm has sufficient, competent personnel to handle the firm’s engagements in accordance with the applicable requirements and issue reports required by the engagements.
Engagement Performance Quality Control
Ensure that engagements are adequately supervised and needs to provide elements to support consistency of engagement performance, supervision, and review functions.
Monitoring Quality Control
Are the QC procedures appropriate, relevant, and operating effectively?
Loss Contingency Requirements
If it’s Probable and Reasonably Estimates
Supplementary Information Include applying audit procedures?
Auditor has no obligation to apply audit procedures but auditor may choose to modify or redirect certain procedures to express an opinion.
Emphasis of Matter Paragraph
Material change in accounting principles or FS are prepared using a special purpose framework.
Disclaimer of Opinion Reason
1) Auditor is not independent
2) Scope has been severely limited
3) unresolved uncertainty that is far reaching and serious.
Control Risk
Could a material misstatement occur that will not be prevented, detected, and corrected on a timely basis by internal control?
GAGAS Threats to Independence
Self-Interest Threat
Self-Review Threat
Bias Threat
Familiarity Threat
Management Participation Threat
Structural Threat
Self-Interest Threat
Financial Reason or other personal interests will inappropriately influence the auditor’s judgement or behavior.
Self-Review Threat
Auditor might not appropriately evaluate previous judgements or services that they provided before the audit.
Bias Threat
Auditor might take a position or make a judgement that is not objective based on political, ideological, social, or other personal convictions.
Familiarity Threat
That a relationship with management or personnel of an audited entity might result in judgements that are not objective.
Management Participation Threat
The Auditor taking on a role in management or performing management functions on behalf of the audited entity could result in judgments that are not objective.
Structural Threat
The placement of the audit organization within a government entity, in combination with the structure of the government entity being audited could affect the audit organization’s ability to perform work and report results objectively.
Significant Deficiency in Internal Control
A deficiency or combination of deficiencies in the design or operation of a control that doesn’t prevent, detect, or correct misstatements on a timely basis.
Material Weakness in Internal Control
A deficiency or combination or deficiencies that results in a reasonable possibility that a material misstatement will result as a result of the deficiency.
5 Elements of Internal Control
Control Environment
Risk Assessment
Information and Communication Systems
Control Activities
Monitoring
Control Environment
Policies and Procedures to establish overall control of the organization.
Risk Assessment
Policies set to identify and analyze relevant risks so that they can be managed.
Information and Communication Systems
Policies and Procedures to identify, capture, and exchange relevant information so that employees can meet their responsibilities in a timely manner.
Control Activities
Policies and procedures set so that managements objectives will be achieved.
This includes segregation of duties, physical controls, and authorization.
Monitoring
Policies and procedures to measure the effectiveness of internal controls as time goes on.
Risk Assessment Procedures
Inquire of Management
Observation and inspection of documents
Analytical planning procedures
The review of information from prior periods
Audit Team discussing the risks identified
Substantive Procedures
Tests of Transaction details and account balances and analytical procedures performed to detect material misstatements in account balances, transaction class, and disclosure components of the financial statements. Used to test the financial statement assertions.
Test of Controls
Provides evidence on a sample basis about the presence or absence of a control condition
Tolerable Misstatement
If an error or misstatement is below the TM, it won’t impact the fair presentation of the financial statements.
Attribute Sampling
Test used to perform a test of control. Meaning the auditor is looking at transactions to determine if a control was either performed or not performed.
Detection Risk
1) The risk that analytical procedures and other relevant substantive tests would fail to detect misstatements.
2) The allowable risk of incorrect acceptance for the substantive test of details.
Inherent Risk
The risk posed by an error or omission in a financial statement, which could be material, due to a factor other than a failure of control.
TM vs PM
Performance materiality is often used in analytical procedures and Tolerable misstatement is the application of performance materiality to a particular sampling procedure.
Opinion Paragraph Items
1) Identifies the entity whose financial statements have been audited.
2) States that the financial statements have been audited.
3) Identifies the title of each statement that the financial statements comprise.
4) Refer to the notes.
5) Specifies the dates of or periods covered by each financial statement that the financial statements comprise.
