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aud concep 1 > audit objectives and responsibilities > Flashcards

audit objectives and responsibilities Flashcards

1
Q

Steps to develop audit objectives

A
  1. Understand audit objectives and responsibilities
  2. Divide financial statements into cycle
  3. Know management assertions
  4. Know general audit objectives
  5. Know specific audit objectives
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2
Q

Responsible for adopting sound accounting policies, maintaining adequate internal control, and making fair representations in the FS

A

Management

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3
Q

Because they operate the business daily, a company’s management knows more about the company’s transactions and related assets, liabilities, and equity than the auditor

A

True

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4
Q

Management’s representations are also called

A

Assertions

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5
Q

What will the auditor do if management insists on FS disclosures that the auditor finds unacceptable

A

Either issue an adverse or qualified opinion/withdraw

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6
Q

Requires the CEO and CFO of public companies to certify the quarterly and annual FS submitted to SEC

A

Sarbanes-Oxley Act

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7
Q

SOX provides for criminal policies including significant monetary fines or imprisonment for up to 15 yrs

A

False. 20 yrs

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8
Q

Overall objectives of the auditor in conducting an audit of FS are (2)

A
  1. obtain reasonable assurance
  2. report on the FS
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9
Q

It would be extremely costly and probably impossible for auditors to have responsibility for finding all immaterial errors and fraud

A

True

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10
Q

Measure of the level of certainty that the auditor has obtained at the completion of the audit

A

Assurance

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11
Q

Auditor is not an insurer or guarantor of the correctness of the FS

A

True

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12
Q

Audit that is conducted in accordance with auditing standards may fail to detect material misstatements

A

True

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13
Q

The auditor’s best defense when material misstatements are not uncovered is to have conducted the audit in accordance with auditing standards

A

True

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14
Q

Intentional misstatement

A

Fraud

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15
Q

Unintentional misstatement

A

Error

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16
Q

Often called defalcation or employee fraud

A

Misappropriation of assets

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17
Q

Often called management fraud

A

Fraudulent financial reporting

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18
Q

Fraud is often more difficult to detect because management or the employees perpetrating the fraud attempt to conceal the fraud

A

True

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19
Q

Harms users by providing them incorrect FS information for their decision making

A

Fraudulent financial reporting

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20
Q

Stockholders, creditors, and others are harmed because assets are no longer available to their rightful owners

A

Asset misappropriation

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21
Q

Referred to as illegal acts

A

Noncompliance with laws and regulations

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22
Q

The provisions of laws and regulations are unlikely to have a direct effect on the FS

A

True

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23
Q

If the noncompliance has a material effect and has not been adequately reflected in FS

A

Auditor should express a qualified and adverse opinion

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24
Q

If the auditor is precluded by management or TCWG from obtaining a sufficient appropriate evidence to evaluate regarding noncompliance

A

Auditor should express a qualified/disclaim opinion

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25
Q

Consists of two primary components (1) questioning mind (2) critical assessment of the audit evidence

A

Professional skepticism

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26
Q

Disposition to inquiry with some sense of doubt

A

Questioning mindset

27
Q

Withholding judgment until appropriate evidence is obtained

A

Suspension of judgment

28
Q

Desire to investigate beyond the obvious, with a desire to corroborate

A

Search for knowledge

29
Q

Recognition that people’s motivations and perceptions can lead them to provide biased or misleading info

A

Interpersonal understanding

30
Q

Self-direction, moral independence, and conviction to decide for oneself

A

Autonomy

31
Q

Self-confidence to resist persuasion and to challenge assumptions

A

Self-esteem

32
Q

Professional skepticism is one component of professional judgment

A

True

33
Q

Elements of an effective judgment process (5)

A

Identify and define the issue

Gather the facts and info and identify the relevant literature

Perform the analysis and identify alternatives

Make the decision

Review and complete the documentation and rationale for the conclusion

34
Q

Tendency to put more weight on information that is consistent with inital beliefs

A

Confirmation

Strategy to avoid (make the opposing case and consinder alternative explanations)

35
Q

Tendency to overestimate one’s own abilities to perform tasks or to make accurate assessments

A

Overconfidence

Strat to avoid (challenge opinions and experts)

36
Q

Tendency to make assessments by starting from an initial value and then adjusting insufficiently away from that initial value

A

Anchoring

Strat to avoid (Solicit input from others)

37
Q

Tendency to consider information that is easily retrievable or easily accessible

A

Availability

Strat to avoid (obtain and consider objective data)

38
Q

There are different ways of segmenting an audit. One approach is to treat every account balance on the statements as a separate segment

A

True

39
Q

Keeping closely related types of transactions and account balances in the same amount

A

Cycle approach

40
Q

Ties to the way the transactiond are recorded in journals and summarized in the general ledger and FS

A

Cycle approach

41
Q

Implied or expressed representations by management about classes of transactions and the related accountd and disclosures in FS

A

Management assertions

42
Q

5 categories of management assertions

A
  1. existence/occurence
  2. completeness
  3. valuation or allocation
  4. rights and obligation
  5. presentation and disclosures
43
Q

Presentation and disclosures is treated as a single assertion

A

True

44
Q

Assertions about classes of transactions and events (6)

A
  1. Occurence
  2. Completeness
  3. Classification
  4. Accurate
  5. Cutoff
  6. Presentation
45
Q

Assertiond about account balances and related disclosure (6)

A
  1. existence
  2. completeness
  3. accuracy, valuation and allocation
  4. classification
  5. rights and obligation
  6. presentation
46
Q

Accounting records to source documents

A

Vouching (occurence-overstatement)

47
Q

Source document to accounting records

A

Tracing (completeness-understatement)

48
Q

Transaction related audit obj (7)

A

occurence
completeness
accuracy
posting and summarization
classification
timing
presentation

49
Q

Balance related audit obj (9)

A

existence
completeness
accuracy
rights and obligations
detail tie in
realizable value
classification
cutoff
presentation

50
Q

Have a meaningful bearing on whether the account is fairly stated and are used to assess the risk of material misstatement

A

Relevant assertions

51
Q

Reason for using audit objective, rather than the assertions is to provide a framework to help auditor accumulate sufficient appropriate evidence and decide the proper evidence to accumulate given the circumstances of the engagement

A

True

52
Q

At least one specific transaction related audit objective should be included for each general transaction related audit objective

A

True

53
Q

Such example of specific audit obj. class of transactions

A

sales, cash receipts, acquisitions of goods and services, and payroll

54
Q

Applied to account balances such as AR and inventory rather than classes of transactions such as sales transactions and purchases of inventory

A

Balance related audit objectives

55
Q

Balance related audit objectives are almost always applied to the ending balance in the balance sheet accounts

A

True

56
Q

Phases of the audit process (4)

A

Plan and design audit approach

Perform tests of controls and substantive test of transactions

Perform substantive analytical procedured and tests of details of balances

Complete the audit and issue an audit report

57
Q

Critical component to planning and designing an audit approach

A

Risk assessment procedures

58
Q

Evaluation of financial information through analysis of plausible relationships among financial and nonfinancial data

A

Analytical procedures

59
Q

When analytical procedures are used as evidence to provide assurance about an account balance

A

Substantive analytical procedures

60
Q

Specific procedures intended to test for monetary misstatements in the balances in the FS

A

Test of details of balances

61
Q

audit procedures performed to obtain an understanding of the entity and its environment, including the entity’s internal control to identify and assess the risks of material misstatements

A

Risk assessment procedures

62
Q

An analytical procedure in which the auditor develops an expectation of recorded amount or ratios

A

Substantive analytical procedure

63
Q

audit procedures testing for monetary misstatements to determine whether the seven transaction related audit objective have been satisfied

A

Substantive test of transactions

64
Q

audit procedures to test the effectiveness of controls in support of a reduced assessed control risk

A

test of controls

aud concep 1 (1 decks)

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