Audit General Issues Flashcards
To succeed in an action against the auditor, the client must be able to show that
(1) the CPA had a duty to perform
(2) the CPA breached the contract,
(3) the client suffered losses and
(4) there is a close causal connection between the auditor’s behavior and the damages suffered by the client
Quality control
is a process to provide the firm with reasonable assurance that its personnel comply with the applicable professional standards
The elements of a system of quality control are
- independence, integrity and objectivity;
- personnel management;
- acceptance and continuation of clients;
- engagement performance; and
- monitoring.
Supervision and Review is what part of quality control
Engagement Performance
auditor should consider the methods the entity uses to process accounting information because
such methods influence the design of the internal control structure.
Ways an auditor can sustain knowledge of a continuing client’s industry
Prior year Work papers
audit guides,
industry publications,
financial statements of other entities in the industry,
textbooks,
periodicals,
and individuals knowledgeable about the industry
Common Law Liability to client’s include
auditor not discovering misappropriation of assets.
Since the CPA had a duty to perform, which require him/her to exercise ‘due profession care’, the misappropriation of assets by one employee should have been uncovered through an audit program which revealed the lack of separation of duties with regard to the employee.
Risk
is the basic fundamental concept that underlies the audit process.
The audit committee of the board of directors should be composed of
independent directors who are not officers or employees of the organization and do not have other relationships that impair independence.
Difference between Covered Member and close relative
Close relative = Parent, Sibling & Non Dependent child
Covered member = Dependents and Immediate Family
Covered member general rules
covered member as well as a member of the person’s immediate family can have no financial interest in the audit client.
The immediate family includes the person’s spouse and any dependents.
Close relative general rules
A close relative can have a financial interest in an audit client as long as that interest is immaterial to the person.
A close relative can work for the audit client as long as the position is not in accounting or financial reporting (such as head of payroll accounting).
If the close relative works for the audit firm, the person is not a covered member unless the person works on the engagement team or is in a position to influence the members of the engagement team or the audit.
General standards refer to
the training and proficiency of the auditor.
auditor must be certain that he or she has the ability to make the critical judgments that are necessary. If that ability is lacking (or cannot be obtained in a reasonable time), the engagement should not be taken.
