Audit Evidence- Concepts and Standards Flashcards
Identify the 2 categories of substantive tests of details.
Tests of Ending Balances (verifying recorded amounts by directly testing)
Tests of Transactions (testing the change in the account balances throughout the year)
List the 2 broad categories of substantive procedures.
Tests of details
Substantive analytical procedures.
Define analytical procedures.
Evaluations of financial information through analysis of plausible relationships among both financial and non-financial data.
How might the auditor’s decisions about the timing of audit procedures lower detection risk?
Moving the auditor’s important substantive procedures away from an interim date (before year-end) to year-end will lower detection risk.
What are the AICPA’s guidelines to rank the reliability of audit evidence?
1-Direct personal knowledge by the auditor is the most reliable audit evidence.
2-Evidence obtained from an independent outside source is the next most reliable.
3-Evidence obtained from the entity under effective internal control is next.
4-Documentary evidence is more reliable than verbal responses to inquiries (and original documents are more reliable than faxes and photocopies).
What are substantive procedures?
Procedures performed to detect material misstatements at the relevant assertion level; these consist of tests of details and substantive analytical procedures.
What are risk assessment procedures?
Procedures performed to obtain an understanding of the entity and its environment, including internal control, to assess the risk of material misstatement, whether due to fraud or error.
What are tests of control?
Procedures performed to obtain information about the operating effectiveness of controls in preventing or detecting and correcting material misstatements at the relevant assertion level
List the three categories of audit procedures.
Risk assessment procedures;
Tests of control; and
Substantive procedures
Define report release date.
The date the auditor grants the entity permission to use the auditor’s report; (that date must be documented).
What is meant by the term documentation completion date under the AICPA and PCAOB standards, respectively.
Under AICPA standards (applicable to audits of “non-issuers”) - The auditor should complete the assembly of the final audit file no later than 60 days after the “report release date.”
Under PCAOB standards (applicable to audits of “issuers”) - The auditor should complete the assembly of the final audit file no later than 45 days after the “report release date.”
List 3 purposes of audit documentation.
1-Provides the principal support for the auditor’s report
2-Documents the auditor’s compliance with GAAS
3-Assists in controlling the audit engagement.
When might negative confirmations be justified?
1-The financial statement item involves a large number of small (immaterial) accounts;
2-Control risk is low (that is, internal control is viewed as effective);
3-Recipients are expected to pay attention to the request.
List 2 alternative procedures for a nonresponse to a positive confirmation (usually performed after a second request was sent, but no response was received).
First - verify subsequent cash receipts; or
Second - Examine underlying documents for apparent validity.
List some audit procedures that might be used to assess accounting estimates.
1-Inquire of management to understand how the estimate was developed;
2-Review and test management processes;
3-Develop an independent expectation for comparison to the entity’s estimate;
4-Review subsequent events for additional evidence.
5-Test effectiveness of IC related to estimates
What is meant by the term estimation uncertainty?
The susceptibility of an accounting estimate and related disclosures to an inherent lack of precision in its measurement. (The risks of material misstatement increase when there is high estimation uncertainty.)
