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CFE Prep > Audit & Assurance > Flashcards

Audit & Assurance Flashcards

1
Q

Factors to include when considering audit approach?

A
  • Types of approach
  • Definition of combined approach
  • Definition of purely substantive approach
  • Impact of audit timing on combined approach
  • If first time audit, need to consider understanding of and document controls
  • Assessment of control environment (discuss factors such as: hands-on approach/ overall business involvement, control weaknesses, limited accounting knowledge, processes oversight, etc.)
  • Are there any opening balance concerns?
  • Impact on approach from any FR issues identified?
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2
Q

What is a combined audit approach?

A

Includes both of the following

  • Test of controls: Audit procedure designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level.
  • Substantive testing: An audit procedure designed to detect material misstatements at the assertion level. Includes test of details and substantive analytical procedures.

A combined audit approach considers the operating effectiveness of controls and whether or not the operating effectiveness of controls can be relied upon to reduce detection risk to an acceptably low level.

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3
Q

What is a purely substantive audit approach

A

A substantive audit approach places no reliance on the operating effectiveness of controls. Under this approach, only substantive procedures, including either tests of details or substantive analytical procedures, are performed.

Substantive testing includes test of details, and substantive analytical procedures.

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4
Q

What is a purely substantive audit approach?

A

A substantive audit approach places no reliance on the operating effectiveness of controls. Substantive testing includes test of details, and substantive analytical procedures.

This approach is typically selected and applied when the financial reporting system or internal controls over financial reporting are either not reliable or have not yet been established and implemented.

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5
Q

Which special reports can be used for financial info rather than F/S?

A
  • CAS 805 (audit-level)
  • CSRE 2400 (review)
  • HB 9100 (no opinion) - in archived pronouncements
  • CSRS 4400 (no opinion) -
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6
Q

Which special reports can be used for non-financial information?

A
  • CSAE 3000/ CSAE 3001

direct engagements: CSAE 3000
attest engagements: CSAE 3001

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7
Q

Which special reports can be used for compliance?

A
  • CSAE 3530 (direct - report on whether entity complied)

- CSAE 3531 (attest - report on whether management’s statement of entity’s compliance is fairly stated)

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8
Q

Which special reports can be used for application of accounting principles?

A

HB 7600 (audit-level)

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9
Q

Which special reports can be used for financial forecasts or projections?

A
  • AuG-16 (no opinion)

- AuG-16 (opinion)

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10
Q

Which special reports can be used for internal controls?

A
  • CSAE 3416 (opinion)
  • HB 9110 (no opinion) - in archive pronouncements
  • CSRE 4400 (no opinion)
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11
Q

Which special reports can be used for offering documents?

A

HB 7150:

  • auditor’s consent to use of audit report in offering document
  • review for material inconsistencies and accurate reproduction
  • perform procedures over intervening period events (between date of issuance of report and inclusion in offering document)
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12
Q

Which special reports can be used for interim F/S

A
  • HB 7060 (review-level/ limited assurance)
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13
Q

What are the responsibilities of the auditor when disclosure document/ other information required/ requested? (how to address question)

A

Follow the steps below:

  1. Identify what the auditors responsibilities are - refer to CAS 720.14 (Reading and Considering the Other Information)
  2. Review the document for inconsistencies with the F/S
  3. Review the document for inconsistencies with the auditor’s knowledge of business
  4. If inconsistencies identified, auditor to discuss with management and, if necessary, perform other procedures (to conclude if material misstatement exists, understanding of entity and its environment needs to be updated)
  5. If material misstatement exists, next steps: discuss with management to update the document, determine if any additional information needs to be reviewed/ added to the audit report - refer to CAS 720.21 (reporting)
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14
Q

How can you evaluate if internal audit findings are reliable?

A

Refer to CAS 610

  1. Objectivity
  2. Competence
  3. Systemic and disciplined approach
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15
Q

What are the steps to follow (items to consider) when determining materiality?

A
  1. Identify the users of the financial statements (lenders, shareholders, potential investors, management*)
    * only if compensation is tied to financial results
  2. Identify the users’ objectives (i.e., to earn a return on their investment? to see if entity can repay borrowed funds, etc.)
  3. Determine the base for materiality (use users, their objectives, YE results, professional judgement)
  4. Identify the % threshold for materiality.
  5. Determine overall materiality (note: remember to review unusual, non-recurring items; normalize out) by applying threshold.
  6. Determine performance materiality (generally 60-75% of materiality)
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16
Q

What are common bases for materiality, and their % threshold?

A

for-profit entities:

  • normalized net income before tax (3-7%) - users are interested in profitability
  • revenue or expenses (1-3%) - could use if company is in loss position or volatile
  • total assets (1-3%)
  • equity (3-5%)

non-for-profit entities:

  • revenues or expenses (1-3%) - users may be interested in responsible spending
  • total assets (1-3%)
17
Q

What are the characteristics of CAS 805?

A

Purpose: financial info other than FS
* used to audit single financial statements, or specific elements, accounts or items with a FS

i.e., only I/S, gross revenues for a product

18
Q

What are the characteristics of CSRE 2400?

A

Similar in nature of CAS 805; however, review level

19
Q

What are the characteristics of HB 9100?

A
  • no opinion given
  • provides results of applying specified auditing procedures to financial information
  • procedures and the results of procedures are stated directly in the report
20
Q

What are the characteristics of CSRS 4400?

A
  • provides results of applying procedures that have been agreed upon by management and the practitioner to financial or non-financial information
  • procedures performed and the findings from each procedure, including details on exceptions found, are stated directly in the report
21
Q

What are the characteristics of CSAE 3531?

A
  • reporting on entity’s compliance with specified requirements
  • can be a portion of or the entirety of agreement, legislation, etc.
  • must identify or development criteria to assess compliance
  • direct - report on whether the entity complied
22
Q

What are the characteristics of CSAE 3530?

A
  • reporting on entity’s compliance with specified requirements
  • can be a portion of or the entirety of agreement, legislation, etc.
  • must identify or development criteria to assess compliance
  • attest - report on whether management’s statement of the entity’s compliance is fairly stated
23
Q

What are the characteristics of CSAE 3001?

A
  • reporting in items other than FS or other historic financial information
  • must identify or develop criteria to assess the information that are relevant, reliable, neutral, understandable and complete
  • direct - report on results of testing the specific criteria
24
Q

What are the characteristics of CSAE 3000?

A
  • reporting in items other than FS or other historic financial information
  • must identify or develop criteria to assess the information that are relevant, reliable, neutral, understandable and complete
  • attest - report on validity of another party’s test of the criteria
25
Q

What are the characteristics of HB 7600 (audit)?

A
  • provides written report or oral advice on application of accounting principles to specific transaction, or impact of a specific transaction on opinion to be rendered on the FS
  • cannot be a hypothetical transaction
26
Q

What are the characteristics of AuG-16?

A
  • no opinion provided

* compilation - limited to preparing the forecast or projection based on information provided by management

27
Q

What are the characteristics of AuG-6?

A

Provides opinion on:

  • whether assumptions suitably supported and consistent with plans of entity; forecast reflects assumptions
  • for forecasts included in prospectus or other public offering documents
  • disclaimer that actual results may vary materially from forecast
28
Q

What are the characteristics of HB 7150?

A
  • auditors consent to use of auditor’s report in offering document
  • review for material inconsistencies and accurate reproduction
  • perform procedures over intervening period events (between the date of issuance of report and inclusion in offering document)

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