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AUD Becker > A-3 Engagement Acceptance, Planning, and Risk Assessment > Flashcards

A-3 Engagement Acceptance, Planning, and Risk Assessment Flashcards

1
Q

To vouch is to test for what?

A
  1. Existence
  2. Support
  3. Occurrence
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2
Q

To trace is to test for what?

A
  1. Completeness

2. Coverage

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3
Q

What are the required contents of an engagement letter?

A
  1. Objective & Scope
  2. Responsibilities of auditor
  3. Responsibilities of management
  4. Statement regarding inherent limitations of audit and risk that some material misstatements may not be detected
  5. Identify applicable financial reporting framework
  6. Reference to expected form and content
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4
Q

Information to be communicated with the predecessor auditor includes what?

A
  1. Information on management integrity
  2. Disagreements with management
  3. Reason for change in auditor
  4. Communication of predecessor auditor to management/those charged with governance regarding fraud, noncompliance, and internal control
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5
Q

What is the engagement partner responsible for in an audit?

A
  1. Planning the audit
  2. Supervising the work of engagement team members
  3. Compliance with relevant auditing standards
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6
Q

What steps are included in developing the audit strategy?

A
  1. Overall audit strategy
  2. Scope of audit
  3. Reporting objectives, timing and required communication
  4. Factors determining focus of audit
  5. Materiality and tolerable misstatement
  6. Small entities
  7. Communication with those charged with governance
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7
Q

What are the six main financial statement assertions? (non PCAOB)

A

COVER U

  1. Completeness
  2. cutOff
  3. Valuation, allocation, and accuracy
  4. Existence and occurrence
  5. Rights and obligations
  6. Understandability and classification
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8
Q

What are the financial statement assertions for PCAOB standards?

A

CEO APROVED

  1. Completeness
  2. Existence
  3. Occurrence
  4. Allocation
  5. Presentation
  6. Rights
  7. Obligations
  8. Valuation
  9. E
  10. Disclosure
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9
Q

What is the formula for risk of material misstatement?

A

RMM = Inherent Risk x Control Risk

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10
Q

What is the formula for audit risk?

A

AR = RMM x Detection Risk

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11
Q

What are the three characteristics of fraud?

A
  1. Incentives/Pressure
  2. Opportunity
  3. Rationalization/Attitude
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12
Q

What are the two risks that are presumed to exist in every audit and should be addressed by the auditor in evaluating overall fraud risk?

A
  1. Improper revenue recognition

2. Management override of controls

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13
Q

The auditor is required to respond to the results of the fraud risk assessment on what three levels?

A
  1. Overall, general response
  2. Response encompassing specific audit procedures (“NET”)
  3. Response addressing risks related to management override
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14
Q

When does a duty to disclose fraud information to outside parties exist?

A
  1. To comply with legal and regulatory requirements
  2. To a successor auditor (with permission from client)
  3. In response to a subpoena
  4. To a funding agency or specified agency with requirements for entities that receive governmental financial assistance
  5. In some circumstances, authorities
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15
Q

What are the steps taken by the auditor to assess the risk of material misstatement and responding appropriately?

A

IM A CPA

  1. obtain understanding of entity environment, including Internal control.
  2. assess risks of Material misstatement (ID types of potential misstatement).
  3. respond to Assessed level of risk by designing further audit procedures based on this assessment.
  4. test internal Controls to evaluate their operating effectiveness.
  5. Perform substantive procedures.
  6. evaluate sufficiency and appropriateness of Audit evidence obtained.
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16
Q

What are the five components of internal control?

A

CRIME

  1. Control environment (tone at the top)
  2. Risk assessment
  3. Information and communication
  4. Monitoring
  5. Existing control activities (policies and procedures)
17
Q

What are the seven factors of the control environment?

A
  1. Integrity and ethical values
  2. Commitment to competence
  3. Participation of those charged with governance
  4. Management’s philosophy and operating style
  5. Organizational structure
  6. Assignment of authority and responsibility
  7. Human resources policies and practices
18
Q

What three circumstances would raise concerns regarding management’s philosophy and operating style?

A
  1. Management consumed with meeting the budget
  2. Management dominated by one person
    3 Management compensation contingent upon the entity’s financial performance
19
Q

What are control activities that exist in a strong internal control system?

A

PAID TIPS

  1. Prenumbering documents
  2. Authorization of transactions
  3. Independent checks
  4. Documentation
  5. Timely and appropriate performance reviews
  6. Information processing controls
  7. Physical controls for safeguarding assets
  8. Segregation of duties
20
Q

What three duties should be segregated in internal controls?

A

ARC

  1. Authorization
  2. Record keeping
  3. Custody of related assets
21
Q

What are the four types of documentation made by an auditor?

A

FIND

  1. Flowchart
  2. Internal control questionnaire or check list
  3. Narrative
  4. Documentation from the client, including copies of procedures manuals and organizational charts
22
Q

What are the five functions that need to be segregated in an IT system?

A

COPAL

  1. Control group
  2. Operators
  3. Programmers
  4. Analyst (system)
  5. Librarian
23
Q

What are the three elements of further audit procedures that can be varied by the auditor?

A

NET

  1. Nature
  2. Extent
  3. Timing
24
Q

What is the audit evidence hierarchy? (More reliable to least reliable)

A

AEIOU

  1. Auditor knowledge
  2. External evidence
  3. Internal evidence
  4. Oral evidence
  5. U
25
Q

What are the three substantive procedures?

A
  • Dollar balances
  • Analytical procedures
  • Ratios

AUD Becker (4 decks)

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