A3 Flashcards
(185 cards)
If the client is an issuer, then the auditor must perform an
integrated audit of the client’s FS and IC over financial reporting. Integrated audits may also be performed for nonissuers
As a part of the pre-acceptance phase of the engagement, the auditor should consider and document compliance with the firm’s quality control policies and procedures related to client acceptance and continuance. Specifically, the auditor should assess the following:
- Firm’s ability to meet reporting deadlines
- Firm’s ability to staff the engagement
- Independence
- Integrity of client management
- Group Audits
The auditor should obtain the agreement of management that it acknowledges and understands its responsibility to:
- For the preparation and fair presentation of the FS
- For the design, implementation, and maintenance of IC
- To provide the auditor with:
- Access to all the information
- Unrestricted access to persons
What are some management imposed scope limitations?
- Audit required by law or regulation - if the entity is required by law or regulation to have an audit and a disclaimer of opinion is acceptable, such as in audit of an employee benefit plan, the auditor is permitted but not required, to accept the engagement.
- Scope Limitations that do not Preclude Engagement Acceptance -If a management imposed scope limitation will result in a qualified opinion, or if the scope limitation is imposed by circumstances beyond management’s control, the auditor may still accept the engagement.
Required Contents of an Engagement Letter:
- Objective and scope of the audit
- Responsibilities of the auditor
- Responsibilities of management
- Statement that because of the inherent limitations of an audit
- Identification of the applicable financial reporting framework
- Reference to the expected form and content of any reports
What are some other things that the engagement letter may also refer to?
- Elaboration of the scope of the audit
- Form of any other communication
- Arrangements regarding planning and audit performance
- Written representations
- Agreement of management to make info available
- Subsequent events
- Fees and billing arrangements
- Arrangements concerning the involvement of other auditors, specialists, internal auditors, or other staff of the entity
- Arrangements with predecessor auditor
- Any restriction on the auditor’s liability
- Additional services
On recurring audits, the auditor should assess whether circumstances require the terms of the engagement to be revised. The following factors may make it appropriate to revise the terms of the engagement:
- Management misunderstands the objective
- Special engagement terms
- Change in senior management
- Significant change in ownership
- Significant change in the nature or size of the entity’s business
- Change in legal or regulatory requirements
- Change in financial reporting framework
What is a requirement of initial audit?
Communication with the predecessor auditor before engagement acceptance - mandatory
Inquiries include:
- management integrity
- disagreements with management
- Reasons for change
- Communication with management regarding fraud
Initial Audits - Opening Balances
- Auditors Responsibilities
- Audit Procedures
- Auditor Should obtain sufficient appropriate audit evidence:
- Opening balances contain misstatements
- Accounting policies reflected in opening bal have been consistently applied in the current period - Auditor should;
- Read the most recent FS, if any, and the predecessor auditor’s report
- if a modification was made to the predecessor auditor’s opinion, the auditor should consider the effect of the matter giving rise to the modification on the current period assessment of the risks of material misstatement
- Request management to authorize the predecessor to allow a review of the predecessor auditor’s documentation related to the most recently completed audit
The inability of the auditor to obtain sufficient appropriate audit evidence regarding opening balances may result -
GAAS issue
A qualified opinion or a disclaimer of opinion
When would a qualified or adverse opinion be expressed regarding opening balances?
- opening balances contain a misstatement
- Acct policies not consistently applied regarding open bal
- A change in accounting policy is not properly accounted for or adequately presented or disclosed.
If, during the audit, the successor auditor becomes aware of the information indicating that the FS reported on by the predecessor auditor may require revision, he or she should…
request the client to arrange a meeting among the three parties to discuss the info and attempt to resolve the matter
Planning and Supervision: The engagement partner is responsible for:
- Planning the audit
- Supervising the work of engagement team members
- Compliance with relevant auditing standards
What does the auditor use to cover the clients records and IC?
Nature, Extent and Timing of Supervision
What is a requirement once the audit engagement is accepted?
the auditor must obtain an understanding of the client’s industry and business
To gain knowledge of the client’s business, the auditor may:
- Tour Client facilities
- Review the Financial History of the Client
- Obtain an understanding of client accounting
- Inquire of client personnel
What is involved in developing the audit strategy-
A. Overall audit strategy - written (Nature, Extent, Timing)
B. Scope of the Audit (Extent)
C. Reporting Objectives, Audit Timing, and Required Communications (Timing)
D. Factors that determine the focus of the audit (Nature)
-Preliminary evaluations of materiality, Audit risk, and IC-to develop an overall audit strategy
PCAOB standards state that when establishing an overall audit strategy:
- Knowledge of the company’s IC
- Matters Affecting the industry
- The extent of recent changes in the company
- The auditor’s preliminary judgments
- Control deficiencies previously communicated
- Legal or regulatory matters
- Relative complexity of the company’s operations
What should the auditor use when assessing materiality?
The auditor should use the smallest level of misstatement that could be material to any one of the FS
Who is the auditor required to communicate the planned scope and timing of the audit?
Those charged with governance
What is required when developing an audit plan
An written audit plan
Audit procedures are performed to obtain evidence on which to base the audit opinion. Audit procedures may be categorized as:
- Risk assessment procedures - req in all FS audits
- Further audit procedures
- Test of Controls - Audit test IS (used to evaluate the operating effectiveness of IC in preventing or detecting material misstatements)
- Substantive procedures - Substantive Testing - (are used to detect material misstatements. They include tests of details (as applied to transaction classes, account bal, and disclosures) and substantive analytical procedures - at end of audit - Timing of Audit procedures
What are the six main FS assertions?
COVER U
C-Completeness O-cutOff V-Valuation, allocation and accuracy E-Existence and Occurrence R-Rights and obligations U-Understandability and classification
What are relevant assertions?
Transactions and Events
Account Balances
Presentation and Disclosure