A4 Audit Evidence PT 3 Flashcards
What are eight common audit procedures related to the debt (financing cycle)
- Obtain a listing of all debt outstanding and agree to GL
- Confirm notes and bonds directly with creditors
- Recompute amortization of bond premiums or discounts
- Test a sample of debt receipts and payments and compare interest expense to debt balance for reasonableness.
- Review debt activity shortly before and after YE to ensure that trans are reported in the proper period.
- Review Board minutes for evidence of new debt
- Trace all new debt contracts to the F/S
- Compare debt disclosures to other audit evidence to ensure that all disclosed info related to debt has occurred.
What are some five audit procedures related to SH equity and treasury stock?
- Vouch stock transactions to supporting docs
- Review minutes from the B.O.D meetings for authorization of stock trans
- Analyze the RE account since the last audit
- Verify authorization issued and outstanding shares of stock by confirming with the stock transfer agent or reviewing the stock certificate book
- Review the articles of incorporation.
Define related parties.
Related parties may include reporting entity’s affiliations, principal owners, and mngmnt, as well as any member of their immediate families.
How would an auditor determine whether RP exist?
- Evaluate the company’s procedures for identifying and accounting RP transactions
- Asking management
- Reviewing the reporting entity’s filing with the SEC
- Reviewing mat’l trans for RP evidence
- Reviewing PY audit documentation of inquiring of the predecessor auditor.
What is the auditor’s primary concern with respect to RP trans?
Proper disclosures of RP trans in accordance with GAAP
What are five auditor’s responsibility when evaluating estimates?
- Assess mngmnt written policies & practices
- Evaluate the degree of estimation uncertainty with the acctg estimate
- Verify that all mat’l est have been developed.
- Determine that accounting est are reasonable
- Ensure that acctg estimates are properly disclosed in conformity with GAAP
What three procedures might an auditor use to evaluate an estimates?
- Revieing and testing mngmnt procedures
- Developing an indep estimate for comparative purpose.
- Reviewing subsequent events and transactions that corroborate the estimate value.
Explain the auditor’s responsibility when auditing Fair Value?
Auditor should obtain sufficient appropriate evidence to provide reasonable assurance that the FV measures disclosed by the client are in conformity with the applicable financial reporting framework.
The Auditor is not responsible for predicting future conditions, but must base his or her evaluation on information available at the time of the audit.
What are five common audit procedures related to contingencies including pending litigation of possible future litigation?
- Obtaining and reviewing the response from a letter of inquiry to the client’s attorney.
- Inquiry of mngmnt
- Reviewing minutes of meetings of SH, BOD, and other executive committees.
- Reviewing correspondence and invoices from lawyers.
- Reviewing contracts, loan agreements, loan guarantees, leases and correspondence from taxing authorities.
What is the effect on the Auditor’s opinion if a client refused to permit inquiry of its attorney or if the attorney refuses to respond?
- If a client does not permit inquiry of its attorney, the auditor would generally disclaim an opinion or WD from the audit.
- If a lawyer has devoted substantial attn to litigation but refuses to respond to the Auditor’s letter of inquiry, a scope limitation is sufficient to preclude an unmodified opinion exists (ie a qualified opinion or disclaimer of opinion would be issued, depending on materiality)
what is the purpose of applying AP during the overall review stage of the audit?
To evaluate the overall F/S presentation, to assess the conclusion reached and to assist in forming an opinion on whether the F/S are free of MM.
What five circumstances would increase the likelihood of a misstatement being considered material?
- Affects trends in profitability, masks trends, or changes a loss to income
- Affects compliance with loan covenants, contracts, or regulatory provisions.
- Increases management compensation
- Affects significant F/S elements
- Can be determined objectively.
