AUDIT Flashcards
Use of Auditor Expert
COO
CED
Competence, objectivity, obtain understanding of work
agree in writing
Do not mention in audit report
capabilities, evaluate appropriateness, determine the need of expert
What do you do if you’re read the Management Discussion and Analysis and noted inconsistencies with findings?
1) Discuss with management first
2) discuss with audit committee or board of directors if they continue to disagree
3) consider legal counsel if not resolved
What happens if you think a modification to the report is required?
a) discuss with management first - if they don’t respond appropriately
b) inform audit committee - “”
c) modify the report or resign from the engagement
What is the difference from a review of Interim FS from a year end FS audit?
1) objectives are different - audit is to issue an opinion, interview review there is no opinion
It is also typically used for reporting purposes (audit) which is public, but an interim review is typically used by management and is not public
What is the difference between an interim review and FS year-end review
1) restricted. an interim FS is restricted soley for the audit committee. a YE FS review is unrestricted
2) Internal controls - may need to do more inquiries at YE if only doing a review on the YE
3) The time frame interim reviews are much tighter than YE reviews
What is the purpose of an audit?
To enhance confidnce in intended users
obtain reasonable assurance
does not consider the future viability of the entity or effieicny of management
What are the principles of a CPA?
Ethnical - independence
- integrity
-objectivity
- professional competence and due care
- confidentiality
- professional behaviour
Professional skepticism
- assess validity of audit evidence
- be alert to contradiction
- do not be obsessively sceptical or suspivcious
Professional Judgement
Sufficient appropriate audit evidence and risk
Conduct an audit in accordance with CAS
What is the responsibilites of those charged with Governance
- preparatino of FS in accorddance with framework
- internal controls
- provide auditor with access to relevant info, additional info auditor request, unrestrcited access to persons who ahve audit evidence.
What are examples of factors that may increase risk
Complex transactions
related parties
subjectivity
unusual or outside normal course o fbusiness
Fraud
Major eocnomic, accounting or other developement
What is sections are there in an audit report?
Title that indicates that the report is an independent matter
An addresse
introductory paragraph that identifies FS audited
Description of auditor’s responsibilities
opinion paragraph
Report on other legal and regulatory requirements (if ncessary)
Emphasis of matters paragraph (if necessary)
Auditor signature
Date of auditors report
auditor’s address
What should an auditor assess when an expert is used?
Expert qualificatinon
Evaluate why an expert isneeded - qualifications
How the auditor relies of the expert - what work are they doing and why
Additional procedures auditor needs to perform
- recalc
- reperform
-check reasonable assumptions
how auditor will review work
-check reasonable
-check reasonable assumptions
-check market prices
What are the common independence conficts/threats
self review threat - reviewing your own work
self interest threat - finacial interes tin the client
advocacy threat (business relationships, loans) - perceived to promote/actually promote
familiarity hreat - close relationship with client
intimidatino threat - threaten to change practioner, reduce hours, etc.
What can you do if you want to accept a job but thhere are some threats
1) identiy threat
2) explain threat and why it is a threat
3) explain safeguards to address threats
What are some key ratios used in assurance?
Current Ratio:
Current assets / Current Liabilities
Working Capital:
Current Assets - Current Liabilities
Quick Ratio: Aslo called acid test - 90 days or less
Current Assets - Inventory / Current liabitilies
What are the different types of special reports and what do they do?
CSAE 3531/3530 - Engagement to report on compliance . Limited - reasoonable assurance
CAS 805 - Audit of single FS and special accounts. REasonable assuraunce
Section 4400 - Application of specified procedures - no assurance][
What are considertions you need to do before accepting/continuing with a client?
Assess the following:
1) Integrity of owners, management and governance
2) Competence of engagement team and resources/time
3) whether firm & engagement team can comply w/ ethical requirements
4) Existence of sig-matters in current/previous engagements and implications for continuing
5) approriate framework
also need to consider whether they have agreed to responsiblities in writing
What are some factors you can access for integrity/
reputation
attitude towrads risk
cooperation
attitude towards audit fees
frequency in switching of audit firms
You have a friend that wants to start an audit firm. He asks what are the procedures for auditors to perform prior to accepting a client
- communicate with prevous auditors
- communicate with 3rd party independents - lawyers and creditors
- perform background checks
- obtain and review prior FS for opinions, key audit matters and other matters.
What are the key principles of professional conduct?
1) Obectjvity
2) intergrity and due care
3) professional competence
4_ confidentiality
5) professional behaviour
What are the different risks contained in risk of material misstatement?
intherent and control risk
What is audit risk?
The risk that the auditor expresses an inappropriate opinion. It consists of control, inherent and detection risk.
Detection risk is the only risk that the auditor can contorl and ti is the likelihood that a material misstatement may not be caught.
What is included in an engagement letter?
Objectives and scope
responsibilities (all parties)
framework
expected form and content
basis for fee and fee arrangement
What are the two different paragraphs that can be added to the auditor’s report?
Emphasis of matter:
- draws attention to key areas of the FS
- can be a result of singificant subsequent events
- application standard changes
- material impacts that happened in the year
- litigation
Other Matters
- Key audit matters (KAMS)
- If auditor is unable to withdraw and there are limitations to scope
- specific use/users
