AUD Deck 1-Financial Statement Audits Flashcards
Auditing-
The auditors primary role is to provide an impartial (independent) report on the reliability of management’s financial statements.
Purpose of an audit-
“The purpose of an audit is to provide financial statement users with an opinion by the auditor on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. An auditor’s opinion enhances the degree of confidence that the intended users can place in the financial statements.
General Standards-There are 3 of these (TID). They are “personal” in nature as they relate to qualities that the auditor brings to the assignment:
1) Training-“The auditor must have adequate technical training & proficiency to perform the audit.”
2) Independence-The auditor must maintain independence in the mental attitude in all matters relating to the audit.
3) Due Care-Must exercise due professional care in the performance of the audit and the preparation of the report.
Field Work Standards-There are 3 of these (PIE). They are related to the evidence gathering activities that form the foundation for the auditors conclusions.
1) Planning & Supervision-The auditor must adequately plan the work and must properly supervise any assistants.
2) Internal Control-Must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the f/s whether due to fraud or error, & to design the nature, timing, & extent of further audit procedures.
3) Evidence-Must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the f/s under audit.
Reporting Standards-There are 4 of these (GCDO). Each of them says something about the language that is required in the auditors report. This flash card is for 1 & 2.
1) GAAP-The auditor must state in the auditor’s report whether the f/s are presented in accordance with GAAP.
2) Consistency-The auditor must identify in the auditors report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.
Reporting Standards-There are 4 of these (GCDO). Each of them says something about the language that is required in the auditors report. This flash card is for 3 & 4.
3) Disclosure-When the auditor determines that informative disclosures are not reasonably adequate, the auditor must so state in the auditor’s report.
4) The auditor must either express an opinion regarding f/s, taken as a whole, or state that an opinion cannot be expressed.
Statements on Auditing Standards (SASs)-
The SASs constitute GASS & must be followed by auditors when AICPA auditing standards are applicable.
1) The auditor is expected to have sufficient knowledge of the SASs to identify those applicable to the audit.
2) The auditor should be prepared to justify any departures from SASs.
3) Materiality & audit risks also underlie the application of the SASs, particularly those related to performing the audit (evidence gathering) & reporting.
Six elements of a Quality Control System-
1) Leadership responsibilities for quality
2) Relevant ethical requirements
3) Acceptance & continuance of client-relationships & engagements
4) Human resources
5) Engagement performance
6) Monitoring
Analytical Procedures-
Those evidence-gathering procedures that suggest “reasonableness” (or “unreasonableness”) based upon a comparison to appropriate expectations or benchmarks, such as prior year’s f/s comparability to industry data (including ratios) or other interrelationships involving financial and/or nonfinancial data.
Test of details-
Those evidence gathering procedures consisting of either of two types.
1) Tests of ending balances
2) test of transactions
Tests of ending balances-
where the final balance is assessed by testing the composition of the year-end balance.
Tests of transactions-
Where the final balance is assessed by examining those debits and credits that caused the balance to change from last year’s audited balance to the current year’s balance.
Auditor’s Report-Under the AICPA’s Clarified Standard’s, the auditor’s report has been reformatted & expanded to reflect 4 main sections: Sections 1 & 2 are:
A)The first section has no label, but identifies the nature of the engagement & the entity’s f/s involved. (1 sentence)
B)The second section is labeled “Management’s Responsibility for the Financial Statements”–1 sentence-it states that management is responsible for the fair presentation of the financial statements & the implementation of internal control.
Auditor’s Report-Under the AICPA’s Clarified Standard’s, the auditor’s report has been reformatted & expanded to reflect 4 main sections: Section 3 is:
The third section is labeled “Auditor’s Responsibility” which consists of 3 separate paragraphs.
1) The 1st consist of 3 sentences
a) responsibility to express an opinion
b) Conducted the audit in accordance with GAAS
c) Plan & perform the audit to provide reasonable assurance
2) The second consists of 5 sentences
a) perform procedures to obtain audit evidence about the amounts & disclosures
b) the procedures depend on the auditor’s judgement, including assessment of risks of material misstatement, whether due to fraud or error.
c) In making those risks assessments, the auditor considers internal control
d) the auditor expresses no such opinion (on internal control, when not engaged to report on internal control in an “integrated audit”)
e) An audit includes evaluating the appropriateness of accounting policies used & the reasonableness of significant accounting estimates.
3) The third consists of 1 sentence–expressing the auditor’s belief that the audit evidence is sufficient & appropriate to provide a basis for the opinion.
Auditor’s Report-Under the AICPA’s Clarified Standard’s, the auditor’s report has been reformatted & expanded to reflect 4 main sections: Section 4 is:
The fourth section is labeled opinion–1 sentence–it expresses the auditor’s opinion (in the same wording as that used in the previous AICPA standards.)
