AUD2 Flashcards
What opinion does a scope limitation result in?
Qualified or disclaimer
If FS are prepared on income tax basis, where is it mentioned that differs from GAAP?
Notes to the FS
What are the 2 GENERAL purpose frameworks?
IFRS (Intl Fin Reporting Stds) and GAAP
What is an auditor’s responsibility for supplementary information which is outside the basic financial statements, but required by the FASB?
aud of nonissuer should apply certain limited procedures the info & add a separate section (“Required Supplementary Info”) to the FS aud report
The quarterly data required by SEC Regulation S-K have been omitted. What must be included in the aud report?
a statement that the company has not presented such data
Subsequently discovered facts that lead to a change in an audit opinion may be presented in what?
Emphasis-of-matter paragraph or Other-matter paragraph
5 Components of Internal Control
Control Environment
Risk Assessment
Information & Communication
Monitoring
(Existing) Control Activities
Which component of COSO is designed to ensure that internal controls continue to operate effectively?
Monitoring
Which component of internal control is considered the foundation for the other components?
Control environment
____ fees between the company & auditor cause loss of independence & are not allowed in connection w/ the audit
Contingent
related fundamental principles of Control Environment
commitment to (E)thics & Integrity.
(B)oard independence & oversight
(O)rganizational structure
(C)ommitment to Competence
(A)ccountability
related fundamental principles of Risk Assessment
(S)pecify Objectives.
Identify & analyze (R)isks.
Consider potential for (F)raud.
Identify & (A)ssess Changes.
related fundamental principles of Information & Communication
(O)btain & use information.
(I)nternally communicate information.
communicate w/(E)xternal parties.
related fundamental principles of Monitoring Activities
SOD
(O)ngoing & (S)eparate Evaluations.
communication of (D)eficiences.
3 categories of entity objectives
- reliability of financial reporting
- effectiveness & efficiency of operations
- compliance w/ laws and regulations
What are the factors of the Control Environment component of Internal Control?
includes the overall tone of the organization & is the foundation of other components of IC
- Commitment to Ethics & Integrity
- Board Independence & Oversight
- Organizational Structure
- Commitment to Competence - hiring, development, & retention of competent employees
- Accountability
What are the factors of the Risk Assessment component of Internal Control?
- Specify Objectives
- Identify & Analyze Risks
- Consider potential for Fraud
- Identify & Assess Changes
What are the factors of the Information & Communication systems component of Internal Control?
- Obtain & Use Information - applied when the org. obtains or generates & uses relevant, high-quality information to support the functioning of the control
- Internally Communicate Information
- Communicate w/External Parties
What are the factors of the Monitoring component of Internal Control?
- Ongoing and/or separate evaluations - which can consist of oversight, reviews, or inspections
- Communication of deficiencies
What are the factors of the Existing Control Activities component of Internal Control?
- Select and develop control activities
- Select and Develop Technology Controls
- Deployment of Policies & Procedures
define Audit Risk (AR) and give the formula
risk that the FS are MM, but the opinion is not appropriately modified (DR)
AR = RMM x DR … IR x CR x DR
define Risk of Material Misstatement
RMM is the risk that the FS are MM (IR x CR)
what is Inherent Risk?
the susceptibility of an assertion to a MM, assuming no related controls
what is Control Risk
risk that a MM that could occur in an assertion will not be prevented/detected (and corrected) on a timely basis by the entity’s system of internal control
