ACCT260 - Audit Exam 1 Flashcards
What are the three types of auditors
Internal, governmental, internal revenue service agents
What is the structure of internal auditors
Mainly operational audits, employed by large organizations, government and non-profits
What is the structure of GAO auditors
Created by congress, audit governmental agencies to determine spending programs
What is the purpose of Internal revenue agents
Responsible for enforcement of federal tax laws, conduct compliance audits of income tax returns
What is auditing?
Systematic process of obtaining evidence by an independent party to verify management assertions
What type of assurance do auditors provide
Reasonable assurance - low level of risk remaining that the auditors express an opinion that the financial statements are properly stated
What is the audit formula?
AR = IR * CR * DR
What are assertions?
A representation or declaration made by the responsible party, typically management of the entity
What is attestation?
means to provide assurance as to its reliability
Which paragraphs relate to GAAP GAAS
Paragraph 1 regarding management responsibility Paragragh 2 related to auditor’s responsibility
What is the PCAOB?
Public Company Accounting Oversight Board - responsible for regulating CPAs and Accounting firms. Established by Congress in 2002. enforced by SEC. 5 member board
What is it important to communicate to predecessor auditor?
Should happen with first year audit to inform new auditor of any pertinent information
What is in the engagement letter?
name of entity, management responsibility, auditor responsibilities
What are analytical procedures and when are they used?
Comparison of relationships among financial and non financial data. Used to provide evidence regarding one or more financial statement assertions
What are the types of audits?
Financial, Compliance and Operational
What does a financial audit entail?
Audit of the financial accounting information of an entity in accordance with GAAP
What is a compliance audit?
An audit dependent on the verifiable data recognized standards. ex. IRS tax return audit
What is an operational audit?
An audit of a specific unit of organization for measuring its performance
What is an integrated audit?
An audit providing assurance on financial statements and the effectiveness of internal control
Which two parts are the audit program divided into?
Test of controls and substantive test (financial statements)
How is the audit program divided?
Plan the audit, obtain the understanding of the client and its environment, assess the risk of misstatement and design further audit procedures, perform further audit procedures, complete the audit and form an opinion
What are related party transactions?
A transaction between the party and company other than normal compensation arrangements, expense allowances.
Define a lead schedule
A working paper with columunar heading similar to those in a working trial balance set up to combine similar ledger accounts
What is materiality?
means some matters are important to fair presentation of financial statement and others are not
Five components of internal control?
plan the engagement, use a top-down approach to identify controls to test, test and evaluate design effectiveness, form an opinion on the effectiveness of internal control
