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CPA Flashcards > AUD 3 > Flashcards

AUD 3 Flashcards

1
Q

What are the risk assessment procedures by PCAOB?

A
  1. Obtain understanding of entity and environment
    Structure - including compensation
    How they use I.T.
    Gathers evidence manual and computerized
    Auditor assessment of control and inherent risk of IT
    Design tests of controls and $ubstantive testing to address that
    Nature of the entity
  2. Obtain an understanding of internal control over financial reporting
  3. Inquire the audit committee, management, BOD, internal auditors and others within the company about risks of material misstatement
    Helps identify processes in the company that have failed
  4. Perform analytical procedures to assist in planning by Identifying inconsistencies:

Unusual transactions or events
Trends that have audit implications
generally enhances the auditor’s understanding of the company
Procedures include:
Evaluations on financial information (Financial and Non-financial)
Year-to-year comparisons, budgeted vs actual results
Plan audit procedures to look for these trends or inconsistencies

  1. Conduct a discussion among engagement teams members regarding RMM
  2. Observation and inspection Support, corroborate or contradict inquiries of management
  3. Other procedures
    Reviewing external information (journals, Analysis reports)
    Results from fraud assessment
    Information obtained from client acceptance or continuance process
    Engagement information
    Prior period evidence
    May do $ubstative procedures, if efficient to do so
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2
Q

What are detective controls?

A

Applied after the process occurs
Examples:
Bank reconciliation

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3
Q

What are Preventative controls

A

Applied before the process occurs
Examples:
Hiring competent employees
Training
ARC

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3
Q

What are responses to areas of greater RMM for FSs risks?

A
  1. Communicate skepticism to team
  2. Assign staff with more specialization
  3. More supervision
  4. Greater level of unpredictability
  5. Make pervasive changes to audit strategy
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4
Q

What are responses to areas of greater RMM for Assertion level risks?

A

Design procedures that address NET of items:

Nature
Inquiries (Not enough), Observation, Inspection, reperformance (Tests operating effectiveness)

Extent
Sample size used
Frequency of performance is a large factor

Timing
When the tests are performed

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5
Q

What are the Standard Audit Procedures?

A
  1. Observation
    a. Auditor looks at a process being completed BY A PERSON
  2. Reperformance
  3. Inquiry (alone, not enough)
    a. Internal
    b. External
  4. Walkthrough
  5. Subsequent events review
    a. Type 1 - Provide evidence about conditions existed before BS date
    i. Requires disclosure in FSs
    b. Type 2 - Provide evidence about conditions that did not exist before BS date
    i. Requires disclosure in FSs
  6. Inspection
    a. Reviewing a DOCUMENT or a THING
  7. Reconciliation
  8. Recalculation
    a. Cross-footing
  9. Cut-off review
  10. Analytical procedures
    a. Relationships among data
    b. Verify internal consistency
    c. Scanning for unusual events
  11. Vouching - FSs → Source documents
    a. Testing for existence
  12. Tracing - Source documents → FSs
    a. Testing for completeness
  13. Confirmation - From external 3rd party
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6
Q

What are Standard Audit Procedures?

A
  1. Observation
    a. Auditor looks at a process being completed BY A PERSON
  2. Reperformance
  3. Inquiry (alone, not enough)
    a. Internal
    b. External
  4. Walkthrough
  5. Subsequent events review
    a. Type 1 - Provide evidence about conditions existed before BS date
    i. Requires disclosure in FSs
    b. Type 2 - Provide evidence about conditions that did not exist before BS date
    i. Requires disclosure in FSs
  6. Inspection
    a. Reviewing a document OR A THING
  7. Reconciliation
  8. Recalculation
    a. Cross-footing
  9. Cut-off review
  10. Analytical procedures
    a. Relationships among data
    b. Verify internal consistency
    c. Scanning for unusual events
  11. Vouching - FSs → Source documents
    a. Testing for existence
  12. Tracing - Source documents → FSs
    a. Testing for completeness
  13. Confirmation - From external 3rd party
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7
Q

When are analytical procedures done?

A

Planning and review stage.

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8
Q

What procedures are used for completeness?

A
  1. Tracing - Source documents to JEs
  2. Analytical review
  3. Observation
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9
Q

What procedures do you use for valuation, allocation and accuracy?

A
  1. Inspection
  2. Footing
  3. Recalculation
  4. Reconciliation
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10
Q

What procedures do you use for valuation, allocation and accuracy?

A
  1. Inspection
  2. Footing
  3. Recalculation
  4. Reconciliation
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11
Q

What procedures are used for existence and occurrence?

A
  1. Vouching
  2. Confirmation
  3. Observation, inspection and examination
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12
Q

What are the procedures for rights and obligations?

A
  1. Inspection
  2. Confirmation
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13
Q

What is Incorrect acceptance?

A

Sample supports conclusion of the balance being not materially misstated, but it actually is.

Questions that use the word “misstatements”

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14
Q

What is Incorrect rejection?

A

Sample supports conclusion that the balance is materially misstated, but it actually is not.

Questions that use the word “misstatements”

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15
Q

Sampling risks in tests of controls = Too high = ?

A

Indicates a greater deviation rate in sample than tolerable rate

Does more work than necessary, inefficient

Questions that use the word “deviations”

16
Q

Sampling risks in tests of controls = Too low = ?

A

Assessed level of controls risk based on sample is too low than true risk

Indicates a lower deviation rate in sample than tolerable rate

Questions that use the word “deviations”

17
Q

What is the upper deviation rate?
When can an auditor rely on controls?

A

Upper deviation rate = Sample deviation rate + Allowance for sampling risk

If upper deviation rate < or = Tolerable rate = Auditor may rely on

If upper deviation rate > Tolerable rate = Auditor would not rely on

18
Q

RMM and expected misstatement have what effect on sample size?

A

Positive relationship

19
Q

Tolerable misstatement and acceptable level of risk have what effect on sample size?

A

Negative relationship

20
Q

When should auditor stratify sample?

A
  1. Sample has highly variable amounts
  2. Wants to reduce sample size
21
Q

How do you calculation misstatement using tainting factor?

A

Sample Error = # recorded - audited #

Tainting factor = Sample error / # recorded

Misstatement = Tainting factor * sampling interval

21
Q

What are diagnastic data analytic techniques?

A

Explains “Why”. Uncovers correlation, patterns, and relationships to explain outcome.

Examples:
Variance analysis
Period-over-period analysis
Data profiling
Clustering

22
Q

What are descriptive data analytic techniques?

A

Describes what happened within the data set. May be similar to dectective controls.

Examples:
Range, mean, median, dependence (correlation)

23
Q

What are predictive data analytic techniques?

A

Predictive analytics provide expected or predicted outcomes based on historical data.

Examples:
Predictive
Regression
Semtiment analysis

24
Q

What are prescriptive data analytic techniques?

A

Prescribes courses of action to help optimize decisions.

Examples:
What-if analysis
Decision support

25
Q

What are the formulas for Sampling interval and sample size using PPS?

A

Sampling interval = TM / Reliability factor

Sample size = Recorded amount is population / Sampling interval

26
Q

What is the formula for (MPU) Mean-per-unit Estimation = Average sample value * Number of items in population

A

Mean-per-unit Estimation = Average sample value * Number of items in population

27
Q

What is the formula for Ratio estimation?

A

Ratio estimation = (Audited value of sample / Book value) * Total Book Value

28
Q

What is the formula for Difference estimation?

A

Difference estimation
Calculate Projected error = ((Book value of sample - Audited value of sample) / # of items audited) * Population
Calculate Point estimate = Total book value of population - Projected error

CPA Flashcards (7 decks)

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