AUD - all subjects Deck 4 Flashcards
Reporting standards for financial audits under Government Auditing Standards (the Yellow Book) differ from reporting under generally accepted auditing standards in that Government Auditing Standards requires the auditor to
GAS requires that auditors present the results of the auditor’s tests of control
For effective I/C what should the A/P department ordinarily should do?
The accounts payable department is responsible for matching the vendor’s invoice against the corresponding purchase order and receiving report.
In which instances will an auditor choose between expressing a qualified or adverse opinion?
For misstatements, including inadequate disclosures. If the misstatement is not pervasive, the auditor should express a qualified opinion.
As the acceptable of detection risk increases what may an auditor do?
1) The auditor may change the timing of substantive tests from year end to interim dates (from interim dates to year end)
2)The auditor may use smaller (larger) sample sizes and change the nature of substantive tests from more effective (less effective) to less effective (more effective) procedures.
As the acceptable of detection risk decreases what may an auditor do?
1) The auditor may change the timing of substantive tests from interim dates to year end
2)The auditor may use larger sample sizes and change the nature of substantive tests from less effective to more effective procedures.
What does it mean that detective risk is low (decreases)?
Detection risk is the risk that audit evidence will not capture material misstatements. When detection risk is low, it means that the risk of material misstatement is high. To reduce the risk of not detecting a material misstatement, the audit team needs 1) to perform substantive testing rather than test of controls 2) more testing rather than less 3) testing closer to YE rather than at interim dates
What is control risk?
Control risk is the risk that internal control will not timely prevent, or detect and correct, a material misstatement that could occur in an assertion.
What is detection risk?
Detection risk is the risk that the auditor’s procedures fail to discover MM either because the auditor chose the wrong procedures or chose the correct procedure but performed the test improperly.
What is the correlation between inherent risk, control risk and detection risk?
NOTE: Inherent risk x Control risk = RMM
If the auditor assesses inherent and control risk as “too high”, then the auditor must compensate by “decreasing” detection risk.
NOTE: Detection risk has an inverse relationship to RMM (Inherent & Control Risk)
Detection risk has a Direct risk to overall Audit risk
What is inherent risk?
Inherent risk is the susceptibility of an assertion about a class of transation, account balance, misstatements, before consideration of related controls.
When is a CPA required to comply with the provisions of SSAE (Standards for Attestation Engagements)?
SSAEs apply only to attest engagement for which no specific standards (e.g. SSARSs or SASs )apply.
What standards are applicable for a compilation of the historical f/ss of a nonissuer?
SSARSs - Statement on Stds for Accounting and Review Services
Who established Generally Accepted Auditing Stds?
Auditing Stds Board and the PCAOB
Which services are included in the scope of engagement reviews under the AICPA’s practice-monitoring program?
The scope only covers Accounting engagements NOT tax or consulting engagements
What is the purpose of the Single Audit?
The purpose is to ensure that entities receiving federal awards comply with applicable laws, regulations, and grant agreements. The Single Audit Act aims to provide assurance regarding compliance with requirements related to federal awards rather than relying solely on the fairness of the financial statements.
How does the OMB Audit requirements for federal awared define a sub-recipient?
As a non-federal entity that expends federal awards received from another entity, often another governmental body, to carry out a federal program.
What are the elements of a finding for a financial audit under Government Auditing Stds?
The elements needed for a finding depend on the objectives of the audit but include criteria, condition, cause, and effect or potential effect.
What are generally accepted auditing standards defined as?
SASs (Statements on Auditing Standards)
When does a nonattest service impair a CPA’s independence?
A nonattest service impair a CPA’s independence if it involves the performance of an appraisal, valuation, or actuarial services using significant assumptions not determined or approved by the client.
