AUDIT - MINE Flashcards
In what situations do SSARS apply?
situations in which an accountant submits unaudited financial statements of a nonissuer to a client (i.e., a compilation or review)
Can compilations be performed when the financial statements of the client can reasonably be expected to be used by a third party? If yes, are there any additional requirements?
Yes. A compilation report is required.
Is independence required for a compilation?
No
What does an auditor do when he uses “test data” to test the client’s computer system?
A set of dummy transactions is developed by the auditor and processed by the client’s computer programs.
What is an advantage of generalized computer audit packages?
They can be used for audits of clients that use different computer equipment and file formats.
What is “code review?”
This technique involves actual analysis of the program’s processing routines.
What is an advantage of code review?
detailed understanding of the program
What is a disadvantage of code review?
It is time consuming and requires a high level of computer expertise.
When are parallel simulation and controlled reprocessing likely to be more effective?
in an environment that does not involve continuous auditing
What are “embedded audit modules?”
programmed routines incorporated directly into an application program that will help auditors perform audit functions such as calculations
What type of test allows for continuous monitoring?
embedded audit modules
Is the rate of misstatements generally lower or higher than the deviation rate? Why?
Lower. A deviation from a control procedure does not necessarily result in a misstatement.
Risk assessments are based on expectations arising from… (5 things)
(1) prior period information, (2) budgets/forecasts vs. actual, (3) relationships among elements of financial information, (4) industry information, and (5) non financial information
What type of asset is NOT likely to be tested via confirmation?
PP&E
Relationships between _______(IS_or_BS)_____ accounts tend to be more predictable.
Income Statement accounts
Why are letters of audit inquiry sent to the client’s lawyer(s)?
as a means of obtaining corroboration of the information furnished by management concerning litigation, claims, and assessments
What do the two types of service auditor reports do?
(1) The first type of auditor service report says whether the service organization controls have been implemented. (2) The second type, which cannot be released until after the first type, is issued when the effectiveness of controls has been tested.
What is the point of the second type of service auditor report?
The opinion on the effectiveness of the controls provides the user auditor a basis for reducing the assessment of control risk.
If financial statements do not have appropriate names (e.g., a cash basis taxpayer has a “balance sheet” and “income statement”), what action should the auditor take?
Modify the report to disclose the reservations about the titles.
For non-public company standard audit reports, consistency of accounting principles is ___plicit while reasonableness of accounting estimates is ___plicit. (IMplicit or EXplicit)
implicit, explicit
International Auditing Standard require an opinion on financial statements. (True/False)
True
International Auditing Standards require an opinion on internal control. (True/False)
False
In order to establish the correctness of accounts payable cutoff, an auditor would be most likely to coordinate cutoff test with ___________. (What test?)
physical inventory observation
Who maintains records of debenture transactions?
the trustee
In a compilation, an auditor who is not independent _____ accept the engagement. (may or may not)
may
In a compilation, if the auditor is not independent, he _____ disclose the lack of independence and ____ disclose why he lacks independence. (must/may)
must, may
Is modification of the report necessary when changing a review to a compilation or visa versa?
no
What is an advantage of value-added network for EDI transactions?
You can review transactions submitted for processing and compare to the related output.
What does the “join” command mean?
combination of tables or parts of tables
What is data definition language used to do? (2 things)
(1) define a database, including creating, altering, and deleting tables and (2) establishing various constraints
What is the major reason the difference and ratio estimation methods would be expected to produce audit efficiency?
The variability of the populations of differences or ratios is less than that of the populations of book values or audit values.
When the population deviation rate increases, the sample size ______ while the planned assessed level of control risk ______. (increases/decreases/stays the same)
increases, stays the same
What is “precision?”
The auditor evaluates the sampling results by calculating the possible error in either direction.
What are the 4 categories of computer assisted audit techniques (CAAT) for tests of controls?
(1) program analysis, (2) program testing, (3) continuous testing, and (4) review of operating systems and other systems software
What are the five program analysis techniques?
(1) code review, (2) comparison programs, (3) flowcharting software, (4) program tracing and mapping, and (5) snapshot
Are program analysis techniques used often? Why or why not?
They are not used often, because they are relatively time consuming and require a high level of computer expertise.
What is the purpose of comparison programs?
to allow the auditor to compare computerized files
How is flowcharting software used?
to produce a flowchart of the program’s logic and may be used both in a mainframe and microcomputer environment
What is program tracing and mapping?
a technique in which each instruction executed is listed along with control information affecting the instruction. It identifies sections of code that can be “entered” and thus are executable.
What is the purpose of program tracing and mapping?
It allows the auditor to recognize logic sequences or dormant sections of code which may be a potential source of abuse.