Audit 3 Flashcards
Before the auditor accepts an engagement, what communication between the predecessor and the auditor should be made?
- Obtain client’s permission to talk to predecessor auditor
- Inquire to predecessor auditor:
- information on management integrity
- desagreements with management
- reasons for the change
- issues regarding fraud or illlegal acts
After accepting the engagement, what communication between the auditor and the predecessor auditor can be made?
- specific inquiries regarding matters that may affect the audit
- review predecessors documentation on significant matters
Note: no reference to the work of the predecessor auditor should be made as basis for the auditor’s opinion
What should the auditor assess when considering the firm’s client acceptance and continuance policies?
- firm’s ability to meet reporting deadlines
- firm’s ability to staff the engagement
- Independence
- Integrity of client management
- group engagement’s ability to obtain appropiate sufficient audit evidence
What topics should be included in the agreement to audit engagement terms?
- objectives and scope of audit
- management’s responsibilities
- auditor’s responsibilities
- inherent limitations of engagement
- identification of applicable framework
- reference to expected form and content of any reports
What is the purpose of an engagement letter?
Reduce the risk of misunderstandings.
PCAOB requires documentation of the understandings.
name the six main F/S assertions for nonissuers and issuers
COVERU & CEO APROVED
Non issuer:
- Completeness
- Cut/Off
- Valuation, allocation and accuracy
- Existence and occurence
- Rights and obligations
- Understandability and classification
Issuer:
Add:
- Presentation
- Disclosure
Name the relevant assertions for “transactions and events”
- Completeness
- Cut/Off
- Accuracy
- Classification
- Occurence
Name the relevant assertions for “account balances”
- Completeness
- Allocation and Valuation
- Rights and Obligations
- Existence
Name the relevant assertions for “presentation and disclosure”
- Completeness
- Understandability and classification
- Rights and obligations, and occurence
- Valuation and accuracy
What the audit strategy?
- scope of engagement
- reporting objectives
- timing
- required communications
- factors that determine the focus of audit
- assessment of materialty and tolerable misstatement
Define materiality and torelable misstatement
Materiality: amount of error or omission that would affect the judgment of a reasonable person.
Tolerable misstatement: maximum error in a population that auditor is willing to accept.
- the application of performance materiality to a particular sampling procedure.
Is an auditor required to have prior experience with a client’s business or industry before accepting an engagement?
No, but once the engagement has been accepted the auditor must obtain an understanding of the client’s industry and business.
What is an audit plan?
A written plan (required for every audit) is a listing of audit procedures that the auditor believes are necessary to accomplish the objectives of the audit. The audit plan is often followed by the development of the audit strategy.
Provide some examples of factors that the external auditor may consider when assesing the competence of internal auditors.
- education of internal auditors
- professional certification of internal auditors
- experience of internal auditors
- performance evaluations of internal auditors
- documentation of internal audit plan, documentation and quality
What should be included in each step of the audit plan?
NET
- set out the procesure in detail
- reference to the assertion under consideration
- nature
- time
- extent
List three types of audit procedures and tell why each is used?
- Risk assessment procedures: understanding of the entity and its environment, including its internal control
- Test of controls: evaluate the operating efectiveness of internal control in preventing or detecting material misstatements
- Substantive procedures: detect material misstatements in the financial statements
What are the responsibilities of assistants when there are disagreements?
- bring any disageements to the auditor in charge
- document the disagreement and, if necessary, disassociate from the opinion.
What factors does the external auditor have to assess if he or she plan to use internal auditors to provide direct assistance?
- internal auditor’s objectivity and competence
- external auditor is solely responsible for the audit reports, and may not share judgment responsibility with the internal auditor.
What factors does the external auditor have to assess if the external auditor would like to use the work of the internal auditor function to reduce the extent of substantive procedures?
- competence and objectivity of the iunternal auditor
- assess whether the internal auditor applies a systematic and disciplines approach.
Provide some examples of factors that the external that the auditor may consider when assessing the objectivity of internal auditors.
- Organizational level to which the internal auditor reports
- Policies prohibiting audits of areas where the internal auditor lacks independence
- Whether any constrains or restrictions are placed on the internal audit function by management or those charge with governance
Provide some examples of factors that the external auditor may consider whern assessing whether the internal audit function applies a systematic and disciplined approach.
- existence, adequacy and use of documented internal audit procedures
- guidance covering risk assessment, work programs, documentation and reporting
- application of appropiate quality control policies and procedures
- standards set by relevant professional bodies
