A2-Planning

Question 1

what is the auditor required to do during the planning stage?

Answer 1

1. obtain knowledge of the client’s business and industry
2. develop the audit strategy
3. develop the audit plan
4. perform risk assessment procedures to obtain an understanding of the entity and its environment, including its internal control, sufficient to assess the risks of material misstatement and design further audit procedures

Question 2

What may an auditor do to obtain knowledge of the client’s business?

Answer 2

1. tour client facilities
2. review the financial history of the client
3. obtain and understanding of client accounting
4. inquire of client personel

Question 3

what is an audit strategy? what is an audit plan? and their relationship?

Answer 3

An audit strategy is REQUIRED and outlines the scope of the audit engagement, reporting objectives, timing of the audit, required communication, and preliminary assessment of materiality and tolerable misstatement.

Audit plan (not strategy) outlines the nature, extent, and timing of the audit procedures that will be performed

• Nature: factors that determine the focus of audit team’s effort include preliminary evaluations of materiality audit risk, and internal control
• Extent: scope of the audit includes size and complexity of the entity,…
• Timing: includes deadlines for interim and final reporting, key dates for meetings with management and those in charge of governance (required),…

Question 4

what are audit procedures?

Answer 4

Audit procedures are performed to obtain evidence on which to base the audit opinion. Includes
1. Risk assessment: required in all FS audits. to obtain an understanding of the entity and its environment to assess the risks of material misstatement and determine the NET for further procedures
2. Further audit procedures:
- test of controls: to evaluate the operating effectiveness of internal controls
- substantive procedures: test account balances = $ubstantive. tests of details (transaction classes, account balances, and disclosures) and substantive analytical procedures to detect material misstatement
- other audit procedures: a letter to the client’s attorney
3. Timing of audit procedures: management discussion

Question 5

what is financial statement ASSERTIONS and its 6 types?

Answer 5

• FS are NOT statement of facts. they are claims and assertions, made implicitly/explicitly by management about the recognition, measurement, presentation, and disclosure of in in the FS
• There are 6 main FS assertions: COVER UP
  1. Completeness: info has been covered
  2. cutOff: info has been recorded in the correct accounting period
  3. Valuation, allocation, and accuracy: info has been appropriately recorded
  4. Existence and Occurrence
  5. Rights and obligations: entity controls rights to the assets and obligation to pay debts
  6. Understandability of Presentation and classification: info has been recorded in the proper accounts

Question 6

what are examples of NET?

Answer 6

• Nature: “ perform a specified procedure (count, vouch, trade, compare, calculate, confirm, examine)
• Extent: “on [specified number of records from a specified population]
• Timing: “ as of [some interim date or year-end, either for entire period or from the date of interim fieldwork]

Question 7

what is an attest engagement?

Answer 7

It is one in which a CPA is engaged to or does issue an examination/audit, review, compilation, or agreed-upon procedures report on subject matter, or an assertion about subject matter, that is the responsibility of another party (usually management)