Audit Flashcards
The auditors are specifically prohibited from drafting AND auditing the financials for SEC-regulated companies.
True, but they can draft and audit for non SEC companies.
10 original standards from GAAS?
TID-PIE-GCDO
Training; Independence; Due care (general standards); Planning; Internal control; Evidence (field work standards); GAAP; Consistency; Disclosure; Opinion (reporting standards)
What are the 4 themes of the 7 principles used as framework for audits?
(PR-PR)
Purpose/Premise
Responsibilities
Performance
Reporting
Which term identifies a requirement for audit evidence?
“sufficient appropriate audit evidence…”
The probability that a material misstatement would occur in the particular audit area in the absence of any internal control policies and procedures.
Inherent Risk
The probability that a material misstatement that occurred in the first place would not be detected and corrected by internal controls that are applicable.
Control Risk
The probability that a material misstatement that was not prevented or detected and corrected by internal control was not detected by the auditor’s substantive audit procedures (that is, an undetected material misstatement exists in a relevant assertion).
Detection Risk
What does a decision table do?
presents in tabular form the conditions and alternative actions related to making a particular decision.
If internal controls appear ineffective what do you do?
Use a wholly substantive audit approach, ie: assess control risk at max level.
If internal controls appear effective what do you do?
Rely on internal controls and perform “tests of control, “ ie: assess control risk at less than the max level.
What procedures are performed to evaluate control risk?
Inquiries of personnel, inspection of documents and records, observation of activities and operations, and reperformance of the control procedure.
What are 5 components of COSO’s Internal Control Integrated Framework?
Control Environment Risk Assessment Information & Communication Systems Control Activities Monitoring
At the assertion level, “audit risk” consists of what three component risks?
Inherent Risk
control risk
detection risk
What is Inherent Risk?
Inherent risk (IR) : The probability that a material misstatement would occur in the particular audit area in the absence of any internal control policies and procedures.
What is control risk?
Control risk (CR) : The probability that a material misstatement that occurred in the first place would not be detected and corrected by internal controls that are applicable.
What is detection risk?
Detection risk (DR) : The probability that a material misstatement that was not prevented or detected and corrected by internal control was not detected by the auditor’s substantive audit procedures (that is, an undetected material misstatement exists in a relevant assertion).
Adequate segregation of duties requires what three functions be separated?
Authorization, custodial, and recordkeeping
Current ratio
Current assets/current liabilities
How do you calculate inventory turnover?
Dividing average inventory into COGS
Sufficient Evidence refers to…
Quantity of Evidence
Appropriate evidence refers to….
quality of evidence in terms of relevance and reliability
U.S. professional standards now classify assertions in three separate categories for the auditor’s consideration:
- Account balances;
- Presentation and disclosure; and
- Classes of transactions and events.
four assertions specific to “account balances at period end”
- Existence
- Completeness
- Rights and obligations
- Valuation and allocation
four assertions about “presentation and disclosure”
- Occurrence and rights and obligations
- Completeness
- Classification and understandability
- Accuracy and valuation
