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Audit 1 > Audit 1 > Flashcards

Audit 1 Flashcards

1
Q

a principal is…

A

an owner

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2
Q

an agent is…

A

a hired manager to run the business

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3
Q

the difference in business knowledge between the principal and agent is referred to as…

A

information asymmetry:
means the manager generally has more information about the true financial position of the company than does the absentee owner.

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4
Q

audits lend credibility to information by reducing….

A

information risk

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5
Q

Material misstatements may occur due to:

A

Accidental (clerical) errors
Lack of knowledge of specific accounting standards
Unintentional bias
Deliberate falsification

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6
Q

The three A’s

A

1.2 Audit, 1.1 attest, 1 assurance

from least encompassing to most

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7
Q

Assurance Services

A

Emphasis is decision making
Improving the quality (relevance and reliability) of information or its context (usefulness)
A level of independence is necessary (e.g. objectivity)

examination, review, and agreed upon procedures

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8
Q

3 basic concepts of financial statement auditing

A

1) Audit risk
2) Materiality
3) Evidence on A&M

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9
Q

Risk has an ______ relationship with materiality

A

inverse

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10
Q

Major audit phases

A

Client Acceptance/Continuance
Preliminary Engagement Activities
Planning the Audit
Consider and Audit Internal Control
Audit Business Processes and Related Accounts
Complete the Audit
Evaluate Results and Issue an Audit Report

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11
Q

Audit report contains…

A 
Title
Addressee(s)
Introductory Paragraph
Scope Paragraph
Opinion Paragraph (see next slide)
Explanatory / ICOFR Paragraph
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12
Q

Types of audit reports/opinions

A

Unqualified (“Clean”)
Qualified
Adverse
Disclaimer of Opinion (NO opinion)

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13
Q

Different types of auditors

A

1) External———
- —Sole providers or members of a CPA firm who are hired by third parties
2) Internal———
- —–Employees of individual companies or partnerships who perform work solely for that entity
3) Government——–
- —-Employed by federal, state or local agencies, typically considered a subset of internal auditors
4) Forensic———-
- —-Sole providers or specially trained members of a CPA firm (typically) who are specially trained to investigate white collar crime

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14
Q

Different Types of Audit services

A 
Financial Statement Audit (Assurance)
Internal Control Audit (Assurance)
Compliance Audits (Non-Assurance)*
Operational Audits (Non-Assurance)*
Forensic Audits (Non-Assurance)*
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15
Q

auditing is not one size fits all…describe the pyramid of differences within businesses

A 
#
           business
        #########
    ##I.n.d.u.s.t.r.y##
###############
Economic Environment
##################
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16
Q

Five Component Model

A 
Financing
Purchasing 
HR
Inventory MGMT
Revenue Process
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17
Q

Generally Accepted auditing standards

A

1) General Standards (3)
2) Standards of Fieldwork (3)
3) Standards of Reporting (4)

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18
Q

General standards

A

1) auditor must have technical training and proficiency
2) auditor must have independence
3) must exercise due professional care

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19
Q

Standards of Fieldwork

A

1) auditor must adequately plan and supervise assistance
2) The auditor must obtain a sufficient understanding of the entity and its environment
3) The auditor must obtain sufficient appropriate audit evidence

20
Q

Standards of reporting

A

1) Must state if FR’s are in accordance with GAAP
2) Must report inconsistencies and how they might effect future reports
3) Must report problems and how they might effect future reports
4) The auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed, in the auditor’s report.

21
Q

Shall

A

Unconditional Responsibility (“must/is required/shall”): Auditors must fulfill responsibilities.

22
Q

Should

A

Presumptively Mandatory Responsibility (“should”): Auditors must comply with requirements unless auditors demonstrate and document that alternative actions were sufficient to achieve the standards’ objectives.

23
Q

Might/Could

A

Responsibility to Consider (“might/could”): Auditors should consider; whether the auditors comply with the requirements depends on the exercise of professional judgment in the circumstances.

24
Q

CPA standards

A

Professional competence

Due professional care

Planning and supervision

Sufficient relevant data

25
Q

Quality Control Elements

A

Review responsibilities
Engagement Performance
Supervision

26
Q

Independence is important….

A

in fact and appearance

27
Q

Covered Members

A

1) An individual on the attest engagement team
2) An individual in a position to influence the attest engagement
3) A partner or manager who provides nonattest services to the attest client beginning once he or she provides 10 hours of nonattest services
4) A partner in the office in which the lead attest engagement partner primarily practices in connection with the attest engagement
5) The firm, including the firm’s employee benefit plan
6) An entity whose operating, financial, or accounting policies can be controlled by any of the individuals or entities described above or by two or more such individuals or entities if they act together

28
Q

Immediate Family Members

A

Spouses, spousal equivalents and dependents are viewed as extensions of the individual CPA and must meet more stringent independence criteria applicable to the CPA him/herself.

29
Q

Close Relatives

A

Parents, siblings and nondependent children (in addition to other relatives and friends on a case-by-case basis) of covered members also impair firm independence if they are employed in a key position by the client or hold a material investment in the client, and the CPA is aware of that investment.

30
Q

Independence threats

A 
self review
advocacy
adverse interest
familiarity
undue influence
financial self interest
31
Q

Audit risk=

A

inherant riskcontrol riskdetection risk

32
Q

risk of material misstatement=

A

inherent risk*control risk

33
Q

Evidence on Management assertions

A

CEAVOP

34
Q

CEAVOP

A 
completeness
existence
accuracy
valuation
obligations
presentation
35
Q

PCAOB made

A

AS, SAS, GAAS

for public companies

36
Q

Integrated audit is…

A

financial statements and internal control by external auditor

37
Q

ASB

A

Non public, AICPA made the ASB

They altered GAAS.

38
Q

Attest engagements include

A

financial statement audits, reviews, and examinations of prospective financial information

39
Q

what does GAAS accomplish?

A

standards that measure the quality of the auditor’s performance

40
Q

holding out

A

letting people know of your CPA status

41
Q

close relative

A

parent, sibling , nondependent child

42
Q

immediate family

A

spouse, spouse equivalent, dependent (even unrelated)

43
Q

“key position”

A

primary responsilibit for acct functions, fs prep, or has control over fs contents

44
Q

safeguard

A

a way to combat independence threats

45
Q

six quality control elements

A

i. Leadership / Tone at the Top
ii. Relevant Ethical Requirements
iii. Client Acceptance and Continuance
iv. Human Resources
v. Engagement Performance
vi. Monitoring

Audit 1 (4 decks)

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