2 Flashcards
Four procedures for testing controls
Reperformance
Inspection
Inquiry
Observation
Who is covered member?
Anyone who is in a position to influence an audit or who is closely associated with the firm performing the audit.
-Be in the same office
-Be more than as manager
-Attest firm itself and/or employee benefit plan
-Perform more than 10 hours in a given year
What report does auditor need when the prior year’s FS have not been audited?
Unmodified report with an Other-Matter Paragraph
Opinion states “except for” the issue
Qualified Opinion
Which paragraph Related party transactions are included?
Enphasis-of-matter (EOM)
3 Uses of analytical procedures
- Risk assessment (planning)
-Enhance understanding of entire
-Identify high risk accounts/assertions - Substantive tests
-Verify reasonableness of accounts/assertions - Overall review
-Confirm FSs are consistent with overall understanding of the entity
-Ensure all unexpected amount/relationships have been explained
Sampling risk
If setting control is too low, does it affect effectiveness or Efficiency?
If setting control is too high, does it affect effectiveness or efficiency?
Too low-effectiveness
Too high-efficiency
Variables sampling vs Probability proportional
Variables - understatement
Probability - overstatement
What is the stratification as the sampling method?
To decrease the effect of variance in the total population
Analytical procedures
To evaluate relationship among data-Develop expectations and acceptable ranges of deviation before comparing expectations to actual data.
Client vs industry
Related accounts
Actual vs budget
Financial vs nonfinancial
This year vs last year
Audit Data Analysis- Five-step approach
- Plan the ADA
- Access and prepare the data for purposes of the ADA
- Consider the relevance and reliability of the data used
- Perform the ADA
- Evaluate the results
If auditor concludes that the data is relevant and reliable, ADAs may be performed regardless of the circumstances (new client, volatility, inherent risk)
Appropriateness of audit evidence
Relevance and reliability
Steps of analytical procedures
-Develop expectation of amount based on other information
-Compare expectation to recorded amounts and consider whether differences are reasonable
-Investigate significant differences
Independent Auditor’s Report about going concern
Include “Substantial doubt about the entity’s ability to continue as going concern”
Changing report date vs dual date
-Change the date
auditors responsibility through the new report date (subsequent event date)
-Dual date
auditor’s responsibility through original report date and just one subsequent event date
Engaged to prepare the FS, but also compile, review, or audit
Consider a bookkeeping service and not SSARS
Attestation engagements
Examination-Opinion
Review-Conclusion
Agreed-upon procedures-findings
Accounting engagements
Assurance
-Audit
-Reviews-SSARS
No Assurance
-Compilation-SSARS
-Preparation-SSARS
-Bookkeeping, Tax, Consulting
Substantive procedures
Substantive analytical procedures -Test the reasonableness of amounts (trend analysis)
Tests of detail-Test directly for misstatements
Assertions in MD&A
MD&A is required by SEC
- Occurrence-The disclosed information has taken place during the period
- Consistency-The financial and nonfinancial information is aligned with F/S
- Completeness-All information needing disclosure has been disclosed
- Presentation and disclosure-Information is clearly presented and understandable
