AUD-Lesson 1 Flashcards
What is the goal of a F/S Audit?
Objective
Opinion
On Fairness
Of F/S Presentation
What framework most F/S conform to?
The Applicable Financial Reporting Framework (AFRF)
What are the Steps in an Audit?
PUR-CSOI
Prepare the Audit
Obtain Understanding of Client, its environment, including Internal Control
Asses Risks of Material Misstatement and Determine nature, timing & extend of further procedures
Perform Tests of Controls
Perform substantive procedures
Formulated an opinion
Issue audit report
Which entities are subject to the Clarity Standards?
The clarity standards are issued by the Auditing Standards Board (ASB), and apply to non-issuers (non-public companies)
What is the Nmemonic for the 10 Genrally Accepted Auditing Standards?
TIPPICANOE
TIP-PIE-All Cpas Do Ok
Training and Profeciency Independence Professional Care Planning and Supervision Internal Controls Corroborative Appropriate Audit Evidence Accounting Principles in Accordance with GAAP No New Principles - Consistency Omitted Disclosures - None Express Opinion
What are the General Standards?
TIP
Training and Profeciency
Independence
Professional Care
What are the Standards of Field Work?
PIC
PIE
Planning and Supervision
Internal Controls
Corroborative Appropriate Audit Evidence
What are the Reporting Standards?
All Cpas Do Ok
Accounting Principles in Accordance with GAAP
No New Principles - Consistency
Omitted Disclosures - None
Express Opinion
In the Risk of Material Misstatement formula, what two parts have an inverse relationship?
Inherent Risk and Control Risk are inversely related to Detection Risk.
What is Substantive Testing?
Substantive Appropriate (Corroborative) Evidence is obtained from Substantive Testing. The better internal controls, the less substantive testing is needed.
What is Reliance?
If Reliance on control is high, it means auditor thinks internal controls are being adhered to
What is the PCAOB?
Public Company Accounting Oversight Board
The auditor must maintain independence for attestation engagements if?
CARES
Involve any of the following:
Compliations (Unless lack of independence is indicated) Agree-upon procedure engagements Reviews Examinations Special Reports
What is needed to maintain appearance of independence as an auditor?
No Direct Financial Interest in the client
No material indirect financial interest in the client
What are the two preconditions that must be met before accepting an audit engagement?
The acceptabilty of the financial reporting framework being applied
Management’s agreement that it understands and accepts certain responsibilities
What inquiries does a successor auditor need to make when accepting a new client?
RID-C
Reasons for change
Integrity of management
Disagreements during audit
Communication with management or those charged with governance
What matters should be communicated to those charged with governance during the audit?
DISAPPROVE
Disagreements with management
Illegal Acts (Noncompliance with laws and regulations, including illegal acts)
Significant accounting policies; adopted or changed by management
Adjustments; proposed by auditor with a significant impact on financial records
Prior discussions with management; before acceptance of engagement
Problems ariding during the audit in obtaining evidience
Other information regarding responsibilities; regarding resposibilities
Views of other accountants; who were contacted by mangaement on significant matters
Estiamates; in the accounting records and the process used to obtain them.
Is an engagement letter required before an audit is performed?
No, but it is recommended. However, there must be a written agreement between both parties
What are the elements of the Engagement Letter?
FACSIMILE
Fees
Aduitor’s Responsibility
Confirmation of Engagement
Score & Objective of Engagement
Interal Control
Management’s Responsibility
What are the audit planning procedures?
BRAINSTOPS
Basic discussions with client
Review of audit documentation
Ask about recent developments
Interim Financial statements
Non-audit personnel
Staffing
Timing
Outside assistance
Pronouncements
Scheduling with client
What is audit risk?
The risk that financial statements are materially mistated and that auditors will fail to detect the risk.
What is Risk of Material Mistatement?
The risk that assertions related to financial statements are materially mistated.
What is the formula for Audit Risk?
Audit Risk = IRCRDR
Inherent Risk (IR) Control Risk (CR) Detection Risk (DR)
What is the formula for Risk of Material Mistatement (RMM)?
IR*CR
Inherent Risk (IR) Control Risk (CR)
