AUD 1: Audit Standards & Engagement Planning Flashcards
What is one procedure that a CPA would most likely preform in the planning of a financial statement audit?
Compare recorded financial information with anticipated results from budgets and forecasts or comparing current year account balances for conformity with predictable patterns.
By comparing these results, the auditor can identify any unexpected amounts or relationships in determining the nature, timing and extent of the audit procedures to be applied.
A disagreements between the auditor and management do not have to be communicated by the auditor to those charged with governance when?
Any item that may affect the audit opinion should be communicated to those charged with governance.
Examples: Disagreements regarding the estimate of goodwill and disagreements about the scope of the audit
What matters is an auditor required to communicate to an entity’s audit committee (governance)?
The auditor will communicate with governance regarding matters that impact the financial statements, the auditor’s report, or may reflect the competence or integrity of management.
An auditor’s engagement letter would most likely include a statement that:
- Limits the auditor’s responsibly to detect error or fraud.
- Management’s responsibility to provide written representations since their refusal to do so would prevent the auditor being able to form an opinion.
This understanding between the auditor and the client would indicate that the prevention and detection of errors and fraud are the responsibilities of management and that the auditors responsibility is limited.
Prior to commencing fieldwork, an auditor usually discusses the general audit strategy with the client’s management. Which of the following matters does the auditor and management agree upon at this time?
The client and auditor should agree on the coordination of the assistance of the client’s personnel in data preparation as the client will need to make staff available to prepare the data and the auditor’s work will depend on its availability.
When applying analytical procedures during an audit, which of the following is the best approach for developing expectations?
Developing expectations means anticipating what evidence will reveal before looking at the evidence. If, upon preforming analytical procedures, the auditor becomes aware of an unusual relationship among various items on the financial statements, the auditor might anticipate the causes for the unusual relationship based on the auditor’s understanding of the entity and its environment.
When using the work of a specialist the auditor is required:
To understand the objectives and scope of the specialists work.
An auditor finds several errors in the financial statements that the client prefers not to correct. The auditor determines that the errors are not material in the aggregate. What action by the auditor is most appropriate?
Document the errors in the summary of uncorrected errors, and document the conclusion that the errors do not cause the financial statements to be misstated.
Documenting the errors enables one to understand what issues were detected and documenting the reasons the conclusion do not cause the financial statements to be misstated would allow an experinced auditor to have an understanding.
The auditor’s should do what when there is consideration of the possibility of noncompliance (illegal acts) by clients?
When the auditor has reason to believe that an illegal act may have occurred, the auditor should preform procedures to determine if, in fact, it has and, if so, whether or not it is more than inconsequential.
Attestation Risk
The risk that the CPA will not identify and report on something that should be identified and reported upon.
Examination of evidence is a way to minimize attestation risk.
Generally Accepted Auditing Standards (GAAS)
Benchmark against which to measure the quality of the auditor’s performance.
Contingent Fee Acceptance
An accountant may not accept a contingent fee for the performance of any service for a client for whom the accountant preforms an audit or review.
Can be accepted for a private letter ruling.
Attestation Engagement
Include reporting on financial projections and forecasts or providing a form of assurance.
Primary objective of assessing Control Risk
To determine the risk that material misstatement exists in the financial statements. The higher the control risk, the more likely financial statements are misstated.
