AUD Deck #1 Flashcards
What are the Elements of Quality Control
“HELP ME”
Human resources
Engagement/client acceptance
Leadership
Performance of the engagement
Monitoring
Ethical requirements
What are the main financial statement ASSERTIONS?
“COVERUP”
Completeness (all transactions are properly recorded, review repair/maint listing for FA)
CutOff
Valuation, allocation, and accuracy (recalc of depreciation for FA)
Existence and occurrence (vouching documents, tracing recorded assets to actual assets)
Rights and obligations
Understandability of Presentation and classification
What are the Inherent limitations on Internal Control?
1) Management Override
2) Human error related to Internal Control or complex accounting
3) Deliberate collusion by employees
Elements of the Control Environment?
CRIME:
1) Control environment - assignment of authority, responsibility and accountability, HR policies
2) Risk assessment - adoption of new accounting principles, hiring new personnel, new technology, restructuring
3) Info & Tech - transact and disclose information
4) Monitoring - Internal Audit function
5) Existing controls - authorization of transactions, segregation of duties, pre-numbering of documents, performance reviews
What are the 5 different Computer Assisted Auditing Techniques (CAATs)?
1) Transaction Tagging - tag transactions and trace them in the system
2) Embedded Audit Modules - app code that collects transaction data (usu built into the application program)
3) Test Data - Uses auditors input data on client’s system, off-line
4) Integrated Test Facility - Uses auditors input data on client’s system, on-line
5) Parrallel Simulation - reprocess of client’s data using auditor software
What are procedures used in assessing control risk?
1) Inquiry of entity personnel
2) Inspection of documents/reports
3) Observation
4) Reperformance
What are the Standard Auditing Procedures?
C FIVE CARROT WARS
1) Confirm
2) Footing
3) Inquiry
4) Vouching
5) Examination/Inspection
6) Cutoff
7) Analytical Procedures
8) Reperformance
9) Reconciliation
10) Observations
11) Tracing
12) Walk-through
13) Auditing
14) Rep Letter
What is the relationship between tolerable misstatement and sample size?
Inverse relationship - opposite
Increase in tolerable misstatement = decrease in sample size
What affects the sample size in Variable Sampling?
1) Variability in the population
2) Acceptable level of risk
3) Tolerable misstatement
4) Expected misstatement
What determines the relevance of audit evidence by PCAOB Standards?
1) Timing of audit procedures
2) Audit procedures designed to directly test an assertion
3) Audit procedures designed to test for an under/over statements
What are the categories for ADA Techniques?
1) Describe (Descriptive Analytics) - describes what happened within the data
2) Diagnose (Diagnostic Analytics) - explains why something happened
3) Predict (Predictive Analytics) - provide expected or predictive outcomes based on historical data
4) Prescribe (Prescriptive Analytics) - prescribes or recommends actions to be taken based on the analytics to reach a desired goal
What are the differences in the Risks associated with an audit?
1) Audit Risk - “unknowingly” fail to modify appropriately the opinion on financial statements that are materially misstated
2) Fraud Risk - risk of material misstatement of the financial statements due to fraud
3) Detection Risk - risk that the auditor will not detect a material misstatement that exists in an assertion (generally relates to audit procedures)
4) Inherent Risk - complex calculations, management override, collusion
5) Control Risk - Risk based on lack of internal controls of the entity - not due to audit procedures (independent from the audit)
What is Kiting?
When one deposit is duplicated in another account; therefore, showing 2 deposits. If the receipt date per bank less than the disbursement date per books.
Difference between “Emphasis of Matter” and “Other Matter” Paragraphs?
Emphasis of Matter - emphasize a matter that is presented fairly in the F/S
Other Matter - refer to matters that are not presented or disclosed
Negative confirms for A/R are usually sent when?
When Inherent and Control Risks are low for A/R
What reports are referred under SSARS?
1) Compilation
2) Preparation
3) Review of historical financial statements for non-issuers
What reports are referred under SSAE?
Includes an exam, review or agreed-upon procedures on:
1) Agreed-upon procedures (only AU procedures)
2) Financial forecasts and projections (Examine or AU procedures)
3) Pro forma F/S (Examine or Review)
4) Compliance (Examine or AU procedures)
5) MD&A (Examine or Review)
6) Service Organizations (Examine)
What factors should the auditor consider when assessing the efficiency and effectiveness of analytical procedures?
1) Nature of assertions being tested
2) Are data relationships plausible and predictable
3) Is the data being used reliable and available
4) Precision of expectation
What is the sample deviation rate, upper deviation rate, and sampling risk?
Sample deviation rate = # deviations/sample size (1/100)
Upper deviation rate = (per table) # deviations by sample size
Allowance for sampling = Upper deviation rate - sample deviation rate
If upper deviation rate>Tolerable deviation rate = auditor cannot rely on the control.
What are mitigating factors for an auditors concern about an entity’s ability to continue as a going concern?
1) Increase ownership equity
2) Borrow money
3) Restructure debt in order to sell assets
4) Reduce or delay expenditures
What are the threats of Independence for GAGAS?
1) Self-interest - inappropriate influence on auditor judgement (auditor having financial interest in the client)
2) Self-review - auditor will not evaluate judgements/services appropriately
3) Bias - auditor takes a non-objective position
4) Familiarity
5) Undue Influence
6) Management participation
7) Structural
How do you calculate projected error?
Projected Error = Tainting % x Sample Interval = Recorded Amount - Audit Amount
*If recorded amount is > sample interval, just use the recorded-audit amount for the projected error.
What is the MPU and Ratio Estimation calculations?
Mean-per-Unit estimation = (Audit Value/Sample) × Number of items in population
Ratio estimation = (Audited value of sample / Book value of sample) × Total Book value
How do you calculate the sampling interval and Sample Size?
Sampling interval = Tolerable misstatement/Reliability factor (given in question)
Sample Size = Population / Sampling Interval
