AUD 3 Outline/MCQs Flashcards
What does it mean to obtain an understanding of the entity and its environment
Understanding its objectives: FAR, Safeguard efficiency, REGs
What economic indicator occurs as a result of the economy
Average duration of unemployment
What is the primary objective of data security controls?
To ensure that storage media are subject to authorization prior to access, change or destruction
Define the 4 types of control procedures
1) Information processing - applies to individual transactions. 2) General - relates to many applications regarding info systems. 3)Physical - safeguard of assets like security devices or restricted areas. 4) Monitoring - controls to “Assess” qualify
What defines a control to be operating effectively
For a control to be “operating effectively,” it needs to be acted on by mgmt.
In obtaining an understanding of IC - what does the auditor have to
Required to obtain knowledge about the design, and whether the controls have been implemented. WE DO NOT NEED TO KNOW ABOUT OPERATING EFFECTIVENESS
What most impacts auditors’ documentation on understanding of internal control
The degree to which info tech is used in the accounting function
What does the auditor do if it is not possible to reduce DR by substantive tests alone
Increase the test of controls to support a lower level to control risk.
Define operating effectiveness and effectiveness of controls
“operating” effectiveness we dont have to know. However, we must evaluate the effectiveness of controls by testing them.
When do auditors test “operating effectiveness of controls”
When controls have changed and need to test them
What additional work is done to extend audit conclusions as of interm date
Substantive procedures for the period between the interim date and the B/S
What is the auditors responsibility regarding noncompliance with laws and regs
Design the audit to detect material misstatements due to noncompliance with laws and regs
How does noncompliance effect the report
If disclosed, noncompliance does not affect the report - can still be modified
How does an auditor evaluate accounting estimates?
Accounting estimates should be reasonable under the circumstances. To do so, first, evaluate how mgmt got the estimate.
Then: Review sub events, test estimate, and develop your own. We dont care about competitors
What the effect of a client not allowing the CPA to speak to mgmt before accepting a new engagement
Auditor would not take the engagement since refusal to get legal corroboration would result in a disclaimer
What does an audit inquiry letter TO LEGAL sound like?
In connection with an audit to our F/S mgmt has prepared and furnished to OUR auditors…
What would help identify sub doubt to continue?
Read min of the board, working capital shortage
What determines the relevance of evidence?
1)Timing of audit procedure, 2)Testing over/understatement, 3) designed to test an assertion
What is the best approach for developing expectations on analytical procedures?
Identify reasonable explanations for unexpected differences before talking to mgmt. Unaudited account balances are not reliable.
What impacts the efficiency of the analytical procedures
1) Data used to develop expectation is reliable. 2)There is a clear understanding of data. 3) A more precise expectation should be developed.
A/Ps do not have to be applied to assertions
What type of accounts yields the highest predictability
Expense accounts
How are oral responses considered when doing audit confirmations
Oral responses do not meet the criteria needs to be written
What is not a relevant assertion when testing transactions and events during a client audit
rights and obligations
What are the PCAOB assertions
Existence, Completeness, valuation or allocations, rights and obligations, presentation and disclosure
What impacts the sample size for “test of controls” and “ test of details”
The expected rate of deviation for test of controls and tolerable misstatement for test of details
Sample size for a test of controls is inversely related to what?
Inversely related to tolerable rate
When testing controls how does the population size correlate to the sample size?
Population size has little effect on the sample size
What is the main driver of sample size?
The level of sampling risk that the auditor is willing to accept will affect the sample size
What does stratified MPU do?
it produces an estimate having a desired level of precision with a “smaller” sample size
What is the projected sample formula?
Sample (/) total items = sample size. Then do overstatement (/) sample size
