A2 - Quality Control, Engagement Acceptance, Planning, and Internal Control Flashcards
What is the primary purpose of a second partner or wrap-up review?
To evaluate significant judgements made by the engagement team and the related conclusions rached in forming the overall conclusion.
What is the purpose of establishing policies and procedures to accept/continue a client relationship?
To provide reasonable assurance that the firm:
- Minimizes the likelihood of association with a client that lacks integrity.
- Undertakes only those engagements that the firm can reasonably expect to complete with professional competence.
- Can comply with legal and ethical requirements.
What are the policies and procedures to withdraw from an engagement?
- Documentation of significant issues.
- Discussion with the client of appropriate action to be taken by the firm based on facts and circumstances.
- Consideration of any regulatory requirements for the firm to remain open or for the firm to report the withdrawal.
How can a firm be reasonably assured of meeting its responsibility to provide professional services?
By having appropriate QC system.
What are the standards that oversee QC?
AICPA Statements on Quality Control Standards.
What is the Audit Documentation (workpapers)?
Documentation that serves mainly to provide:
- Principal support for the auditor’s report.
- Assistance in the planning, conduct, and supervision of the audit.
- Accountability.
- Useful info.
What factor influences the form and extent of the auditor’s documentation of an entity’s internal control environment?
Size and complexity of the entity.
If an entity is small, it has less, simpler, procedures.
If an entity is bigger, more things come into play.
How long does an auditor must keep audit workpapers in their records for a PRIVATE client?
7 Years.
How long does an auditor must keep audit workpapers in their records for a PUBLIC client?
5 Years.
What’s the deadline to complete and assemble the final audit file for a PRIVATE company (SAS)?
60 days.
What’s the deadline to complete and assemble the final audit file for a PUBLIC company (PCAOB)?
45 days.
What is the level of detail that audit documentation must have?
Enough so an experienced auditor that has nothing to do with the engagement can understand the procedures performed and evidence obtained.
What do workpapers document?
Procedures that are applied and the conclusions reached in an audit engagement.
What additional column does the auditor’s working TB have?
A Reclassifications and Adjustments column.
What happens on report release date?
The date that:
- The auditor grants the client permission to use the report.
- The report is delivered to the client.
- The record retention starts.
What is the date in which existing documentation must not be deleted and additions to the documentation file must be documented as such?
The document completion date.
What are the factors that affect the nature and extent of audit documentation?
- Risk of material misstatement.
- Extent to which judgement was required in performing the work dand evaluating results.
- Nature of the specific auditing procedure.
- Significance of evidence obtained.
- Naute and extent of any problems identified.
- Need to document conclusions that may not be obvious.
What is the permanent file?
A file that includes audit documentation that never changes for an entity.
Like JCPA!!! - Articles of Inc, IRS elections, etc, contracts, org charts, debt agreements, etc.
What is the current file?
A file that includes all audit documentation applicable to the year under audit. Ex: FS, WTB, AJEs, reclass entries.
What are the REQUIRED contents of the engagement letter?
- Reference to the expected form and content of any reports, and that these may be subject to change.
- Objective and scope of the audit.
- Responsibilities of the auditor.
- Responsibilities of management.
- Identification of financial framework.
- State that there is unavoidable risk that some material misstatements may not be detected.
What are the factors the auditor must consider before accepting new clients?
- Firm’s ability to meet reporting deadlines.
- Firm’s ability to staff the engagement.
- Independence.
- Integrity of Client Management.
- Group Audits.
What would be a factor that would make the auditor conclude that the audit can’t be conducted?
Integrity of Client Management.
What are the preconditions of an audit?
- Financial reporting framework used must be acceptable.
- Management responsibility is clear.
- Management must not impose a scope limitation that will result in an disclaimer of opinion.
What are the specific inquiries of the predecessor auditor that a succesor auditor should make?
- Integrity of client management.
- Disagreements with management as to accounting principles, auditing procedures, etc.
- Communications with those charged with governance regarding fraud, noncompliance, internal control, etc.
- Predecessor’s understanding as to the reasons for the change of auditors.