AUD 2 Flashcards
In assessing internal auditor objectivity, the independent auditor should …
Consider the organizational level to which the internal auditor reports
The external auditor cannot rely on what of the internal auditor?
Professional judgement -all judgement calls must be made by thr external or indepenet auditor
If the auditor intends to use the information produced by the client they do NOT need to make sure that..
The info is consistent with prior year’s audit
The ultimate purpose of assessing control risk is
To evaluate that material misstatements may exist in the financial statements
The lower the assessed level of control risk, do we need more or less evidence that controls are operating effectively?
More assurance since we are relying on that the controls are operating effectively
Document completion date is how many days from the report release date based on PCAOB vs Auditing standards?
45 days for PCAOB
60 days for auditing standards
Most persuasive evidence is defined as what?
Something not prepared by the client. Such as bank statements that are obtained from the client but created by independent sources
Audit documentation should
Show that accounting records agree or reconcile to the financial statements
Audit documentation is not the support for the financial statements -the client’s books and records are FS support.
Analytical procedures are what?
Evaluations of financial information made by studying the relationships among data and comparing it between CY and PY
An unjustified accounting change may result in what type of opinion ?
Qualified or adverse
A material weakness in internal control may result in what type of opinion?
Unmodified opinion. Although it must be reported to management and those charged with governance. It would not need to be disclosed in emphasis of matter paragraph.
Regardless of control risk level, and auditor would do what?
Still perform substantive tests.
They would not do test of controls if it is not sufficient to do so.
Detection risk is inversely related to control risk. So an auditor uses control risk to what?
Determine acceptable level of detection risk for financial statement assertions.
To test controls for balance sheet date at an interim date and auditor must
Do substantive tests for the period between the interim date and the balance sheet date
The objective of test of details is
To evaluate whether internal controls are operated effectively
Internal control over safeguarding of assets may include controls relating to what ?
Financial reporting objectives (like use of lockbox for collecting cash or using passwords) and Operations objectives (prevent the excess use of materials in production)
The risk of material misstatement includes
The auditor’s assessment of:
- inherent risk (material misstatement may occur due to complex situation or faulty estimates or high volume of testing)
- control risk (material misstatement will not be detected by the entity’s internal controls)
Benefit of information technology used for internal control
Enchanted timeliness of information
Independent auditor can assign what task if any, to the internal auditor ?
Allow internal auditor to perform test of internal controls but their involvement should be limited
Directional testing or testing the existence assertion is testing what exactly and how ?
Testing to make sure something isn’t overstated by vouching to source documentation
Document release date
Date on which financials are delivered to the client, client has permission to use the report and the retention period starts.
Date of completion
Date after which existing documentation must not be deleted and additions to the file must be documented
Variable sampling
Used to estimate numerical measurement of a population such as the dollar value of inventory. This is used in substantive testing.
Discovery method sampling
Type of attribute sampling or control testing. Used when looking for a critical characteristic like fraud
Attribute sampling
Used to estimate the rate of occurrence of a specific characteristic. Used in control testing.
Days sales in accounts receivable =
Accounts receivable / (net sales/365)
Auditor would consider what ratio at end of audit
COGS/ average inventory
The better the inventory ratio, the better the turnover so the company is doing good
Testing bank balances at EOY is an example of what assertion?
Completeness
Valuation
Allowance
Not cutoff
Inherent and control risk are both part of what?
Auditors risk of material misstatement
Auditor is not responsible for determining what in relation to FMV?
The future conditions impact on the FMV
If illegal acts are made in the past but immaterial to financial statements the auditor should be skeptical of what now for the current audit?
Reconsider the intended degree of reliance of the management rep letter
Confirmations of accounts receivable is what assertion.
Existence
Nonstatistical sampling requires …
Judgement to select a sample
