A3 Flashcards
A CPA wishes to determine how various publicly-held companies have complied with the disclosure requirements of a new financial accounting standard. Which of the following information sources would the CPA most likely consult for this information?
The AICPA’s Accounting Trends & Techniques is an annual survey of accounting practices followed in 600 stockholders’ annual reports.
Bearer bonds
Bearer bonds represent the highest risk of misappropriation of assets by an entity because they are unregistered with no records kept of the owner(s) or transactions involving ownership. Bearer bonds is defined as a fixed-income instrument that is owned by whoever is holding it, rather than having a registered owner. Historically, bearer bonds have been used to facilitate money laundering, tax evasion, and to conceal business transactions (this is part of fraud risk question)
Information and Communication system
Auditor should obtain information and communication system. Info & comm system supports the identification, capture, exchange information, in a timely and useful manner.
During the planning phase of the audit, the auditor obtains an understanding of the internal control system by considering:
a) The types of misstatements that may occur.
b) The risk that misstatements may occur.
c) Factors that influence the design of tests of controls and substantive tests.
d) The assessment of inherent risk.
e) Judgments about materiality.
f) The complexity and sophistication of the entity’s operations and systems.
g) The use of manual vs. computerized control procedures.
Such knowledge may be obtained by appropriate inquiry, inspection, or observation. Knowledge may also be obtained based on previous experience with the client and/or an understanding of the industry in which the entity operates.
Assessing risk based on the effective operation of controls involves
(1) identifying specific internal controls relevant to specific assertions that are likely to prevent or detect material misstatements in those assertions, and
(2) performing tests of such controls to evaluate their effectiveness.
What to do with non-compliance?
1) Auditor needs to make sure whether the non-compliance occur or not by applying audit procedures
2) If occur then is it material? if not material just report to management 1 level above the those who involved. If material and consequential to the F/S then talk with above mgmt and those charged with governance.
3) if those charge with governance can’t show proof that compliance exists or those with governance involved in the act, then seek for client’s or external legal advice.
What does assertions mean?
Assertions are representations by management that are embodied in financial statement components. They can be either explicit or implicit and can be classified according to the following broad categories:
Existence or occurrence Completeness Rights and obligations Valuation or allocation Presentation and disclosure
