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Auditing Assurance and Principles > Audit Process > Flashcards

Audit Process Flashcards

1
Q

The framework of PSA applies to:

A

audit of financial statements
audit of other information and to related services, if necessary
material matters
in exceptional circumstances, the auditor can depart from PSA if necessary but with reasonable justification

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2
Q

Criteria of FS

A

GAAP in the Philippines (PIC, PFRS, PFRS for SME)
IAS
other authoritative and comprehensive financial reporting framework

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3
Q

Level of Assurance and Content of Report: Audit

A

High but not absolute

A positive assurance on assertions

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4
Q

Level of Assurance and Content of Report: Review

A

Moderate assurance

A negative assurance on assertions

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5
Q

Level of Assurance and Content of Report: Agreed Upon Procedures

A

No Assurance

Factual findings of procedures

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6
Q

Level of Assurance and Content of Report: Compilation

A

No Assurance

Identification of information compiled

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7
Q

The framework does not apply to?

A

other services such as taxation, consultancy, and financial and accounting advice

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8
Q

What is the objective of the Audit of FS?

A

express an opinion whether the FS is prepared, in all material aspects, in accordance with identified GAAP

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9
Q

What is the level of assurance in the Audit of FS?

A

High, but not absolute

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10
Q

What is the purpose of the Audit of FS?

A

Enhance the credibility of the financial statements

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11
Q

Why is the assurance in the audit of FS not absolute?

A
  1. need for judgment
  2. the use of testing
  3. inherent limitations
  4. most evidence is persuasive rather than conclusive
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12
Q

Financial Statement Assertion

A

assertions by management, explicit or otherwise, that are embodied in the financial statements

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13
Q

Types of FS Assertions (PERCV)

A
  1. Presentation and Disclosure
  2. Existence and Occurrence
  3. Rights and Obligations
  4. Completeness
  5. Valuation and Measurement
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14
Q

FS assertions where an asset or liability exists at a given date

A

Existence

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15
Q

FS assertions where an asset or liability pertains to the entity at a given date

A

Rights and Obligations

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16
Q

FS assertions where a transaction or event took place which pertains to the entity during the period

A

Occurrence

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17
Q

FS assertions where there are no unrecorded assets, liabilities, transactions, or events, or undisclosed items

A

Completeness

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18
Q

FS assertions where an asset or liability is recorded at an appropriate carrying value

A

Valuation

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19
Q

FS assertions where a transaction or event is recorded at the property amount and revenue or expense is allocated to the proper period

A

Measurement

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20
Q

FS assertions where an item is disclosed, classified, and described in accordance with the applicable financial reporting framework

A

Presentation and Disclosure

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21
Q

Classification of FS Assertion according to PSA 315

A
  1. Assertions about classes of transactions and events for the period under audit
  2. Assertions about account balances at the period end
  3. Assertions about presentation and disclosure
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22
Q

Occurrence is (PSA 315)

A

transactions and events that have been recorded have occurred and pertained to the entity

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23
Q

Completeness is (PSA 315) (T&E)

A

all transactions that should be recorded have been recorded

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24
Q

Accuracy is (PSA 315)

A

amounts and other data pertaining to transactions have been recorded appropriately

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25
Q

The cutoff is (PSA 315)

A

transactions and events have been recorded in the correct accounting period

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26
Q

Classification is (PSA 315)

A

transactions and events have been recorded in the proper accounts

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27
Q

Existence is (PSA 315)

A

assets, liabilities, and equity interests exist

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28
Q

Rights and Obligations is (PSA 315)

A

the entity holds the right to assets, and the liabilities are the obligation of the entity

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29
Q

Completeness is (PSA 315) (A)

A

all assets, liabilities, and equity interests that should have been recorded are recorded

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30
Q

Valuation and Allocation is (PSA 315)

A

ALOE interests are included in the FS and appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded

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31
Q

Occurrence and Rights and Obligations is (PSA 315)

A

disclosed events, transactions, and other matters have occurred and pertain to the entity

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32
Q

Completeness is (PSA 315) (D)

A

all disclosures that should have been disclosed are disclosed

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33
Q

Classification and Understanding is (PSA 315)

A

FI is appropriately presented and described, and disclosures are clearly expressed

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34
Q

Accuracy and Valuation is (PSA 315)

A

financial and other information are disclosed fairly and in appropriate amounts

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35
Q

Forward-oriented Tracing is used for what FS Assertion?

A

Completeness

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36
Q

Backward-oriented Tracing is used for what FS Assertion?

A

Existence and Occurrence

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37
Q

What type of account is used in Existence assertions?

A

Balance Sheet

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38
Q

What type of account is used in Occurrence assertions?

A

Income Statement`

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39
Q

Inspection of titles and debt contracts to verify ownership and indebtedness is used for what FS Assertion?

A

Rights and Obligations

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40
Q

Recalculation, Remeasurement, and recomputation of account balances are used for what FS Assertion?

A

Valuation and Allocation

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41
Q

Proper account classification and adequacy of notes to FS is used for what FS Assertion?

A

Presentation and Disclosure

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42
Q

Stages in the Audit of FS

A
  1. Accepting the Engagement
  2. Audit Planning
  3. Considering Internal control
  4. Performing substantive tests
  5. Completing the audit
  6. Issuing the report
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43
Q

Preliminary engagement activities

A
  1. continuance of the client relationships and the specific audit engagement
  2. evaluate compliance with ethical requirements
  3. understanding terms of engagement
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44
Q

What is the purpose of an overall audit strategy?

A
  1. set the scope, timing, and direction of the audit

2. guides the development of the audit plan

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45
Q

Contents of an audit plan

A
  1. NET of planned risk assessment procedures
  2. NET of planned further audit procedures at the assertion level
  3. other planned audit procedures
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46
Q

What is an audit strategy? (documentation)

A

documentation that records the key decisions considered necessary in planning and communicating to the engagement team

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47
Q

Audit strategy is summarized in the form of?

A

Memorandum

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48
Q

What is an audit plan? (documentation)

A

record of NET of risk assessment procedures and further audit procedures at assertion level in response to assessed risk

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49
Q

The audit plan is utilized in the form of?

A

Standard audit programs and audit completion checklist

50
Q

what other changes are documented in audit planning?

A

any significant changes made during audit engagement and the reason for such changes

51
Q

What are the other considerations done in initial audit engagements?

A
  1. procedures required by PSA 220 regarding the acceptance of client relationship and the specific audit engagement
  2. communicating with the predecessor auditor
52
Q

What is audit risk?

A

the risk that the auditor gives an inappropriate audit opinion when the FS is materially misstated

53
Q

Components of audit risk

A
  1. Inherent risk
  2. Control Risk
  3. Detection Risk
54
Q

What is Control risk?

A

the risk that a misstatement could occur in an account balance or class of transactions that could be material

55
Q

What is Inherent risk?

A

susceptibility of an account balance or class of transactions to misstatement that is material

56
Q

What is detection risk?

A

the risk that an auditor’s substantive procedures will not detect a material misstatement that exists

57
Q

Audit Risk Formula

A

Audit Risk = IR x CR x DR

58
Q

What risks is the function of the audit client?

A

Inherent and Control risk

59
Q

What risk is the function of the auditor?

A

Detection risk

60
Q

What is the relationship between planned detection risk to inherent and control risk?

A

Inverse

61
Q

What is the relationship between materiality and the level of audit risk?

A

inverse relationship

62
Q

If there is a high audit risk and more extensive and effective audit tests, what level of materiality is accepted?

A

Low level of materiality

63
Q

If there is a low audit risk and more extensive and effective audit tests, what level of materiality is accepted?

A

High level of materiality

64
Q

When is materiality and audit risk considered throughout the audit?

A
  1. Identifying and assessing the risk of material misstatement
  2. determining the NET of further audit procedures
  3. Evaluating the effect of uncorrected misstatements
65
Q

What are the risk assessment procedures? (UAA)

A
  1. Understanding client’s business and industry
  2. Assess client business risk
  3. Assess the risk of material misstatement
66
Q

If the planned detection risk is low, what would happen to the auditor and the inherent and control risk?

A

the auditor is strict in auditing as there is high inherent and control risk

67
Q

If the planned detection risk is high, what would happen to the auditor and the inherent and control risk?

A

the auditor is not strict in auditing as there is low inherent and control risk

68
Q

why do we perform risk assessment procedures? (UAD)

A

understand internal control
to assess the risk of material misstatements
.to design the NET of further audit procedures

69
Q

Tools used in procedures for understanding internal control (PIIO)

A
  1. previous experience with the entity
  2. inquiries
  3. inspection
  4. observation of entity activities
70
Q

Documentation of Understanding Internal Control

A
  1. Questionnaire
  2. Memoranda
  3. Flowchart
71
Q

What influences the documentation of understanding internal control?

A
  1. size and complexity of the entity

2. nature of the entity’s internal control

72
Q

Why do we perform procedures for assessing the risk of material misstatement?(IA)

A

to identify and. assess the risks of material misstatements

73
Q

when should the auditor perform a risk assessment of material misstatement? (LEVEL)

A

at the financial statement level and at the relevant assertion level for classes of transaction, account balances, and disclosures

74
Q

what are the procedures for risk assessment for internal control? (IIOAT)

A
  1. inquiries of management and other w/in entity
  2. observing the application of specific controls
  3. inspecting documents and record
  4. tracing transactions through an information system
  5. analytical procedures
75
Q

why does an auditor perform understanding internal control?

A

to see if internal control is operating effectively

76
Q

if internal control is operating effectively what would the auditor do?

A

perform tests of control

77
Q

if internal control is not operating effectively what would the auditor do?

A

start performing substantive audit procedures

78
Q

Classification of Audit Procedures

A

Substantive Procedure and Test of Control

79
Q

What is the substantive procedure?

A

audit procedure designed to detect material misstatements at the assertion level

80
Q

types of substantive procedure

A

test of details

substantive analytical procedures

81
Q

2 types of tests of details?

A

substantive test of transactions and substantive tests of balances

82
Q

what is a substantive test of transactions?

A

used to verify the peso value of transactions

83
Q

a substantive test used to audit the ending balance of a general ledger account

A

substantive tests of balances

84
Q

what is a substantive analytical procedure?

A

analysis of significant ratios and trends

85
Q

what is the purpose of a test of controls?

A

evaluate the operating effectiveness of controls in preventing, or detecting, and correcting material misstatement at the assertion level.

86
Q

When does an auditor perform tests of control?

A

if the risk assessment includes an expectation of operating effectiveness of controls and when substantive procedures alone do not provide sufficient audit evidence

87
Q

if a test of control shows that the system operated as expected…

A

there would be no change in the scope of planned substantive procedures

88
Q

if the test of control shows that the system did not operate as expected…

A

the scope of planned substantive procedures for the relevant assertions will increase

89
Q

Analytical procedures are…

A

evaluation of FI through analysis of plausible relationships among financial and non-financial data

90
Q

When are analytical procedures used?

A
  1. Audit planning
  2. as substantive procedure alone or with combination with tests of details
  3. overall conclusion or overall review stage
91
Q

What is the nature of the analytical procedure

A
  1. Consideration of comparisons of the entity’s financial information
  2. comparisons of relationships
  3. various methods may be used to perform analytical proceudres
92
Q

Consideration of comparisons of the entity’s financial information…

A
  1. for prior periods
  2. Anticipated results of the entity
  3. similar industry
93
Q

Summary of Audit Procedures

A
  1. Obtain and document understanding of internal control
  2. assess the risk of material misstatement and design further audit procedures
  3. perform tests of control and evaluate
  4. perform substantive tests of details
94
Q

What is the NET of the substantive test if the control risk is high?

A

Nature - More Effective
Extent - Increase sample size
Timing - Year-end

95
Q

What is the NET of the substantive test if the control risk is low?

A

Nature - Less Effective
Extent - Decrease sample size
Timing - Interim

96
Q

What are the elements of an audit report? (10)

A 
Title
Addressee
Introductory Paragraph
Management's responsibility for the FS
Auditor's responsibility
auditor's opinion
Other reporting responsibilities
signature of the auditor
date of the auditor's report
auditor's adress
97
Q

What are the types of audit opinions?

A

Unqualified opinion
qualified opinion
adverse opinion
disclaimer of opinion

98
Q

An audit opinion wherein the FS is in accordance with the identified framework

A

Unqualified Opinion

99
Q

An audit opinion where an unqualified opinion cannot be expressed due but the effect of mismanagement or limitation on the scope is not so material or pervasive

A

qualified opinion

100
Q

An audit opinion where the effect of mismanagement or limitation on the scope is so material or pervasive that qualification of another report is not adequate

A

Adverse opinion

101
Q

An audit opinion where the effect of mismanagement or limitation on the scope is so material or pervasive that the auditor cannot obtain sufficient appropriate audit evidence and is unable to express an opinion

A

Disclaimer of opinion

102
Q

why do we put the emphasis of matters in the independent auditor’s report?

A

in the auditor’s judgment, the emphasis is fundamental to users’ understanding of the FS and the matter is appropriately presented or disclosed in the FS

103
Q

when is it necessary to include the emphasis of matter? (4)

A
  1. uncertainty to a future outcome of exceptional litigation or regulatory action
  2. early application of accounting standards that has a pervasive effect on the FS
  3. a major catastrophe has a significant effect on the entity’s financial position
  4. significant subsequent event
104
Q

why do we put the emphasis of other matters in the independent auditor’s report?

A

it is relevant to users’ understanding of the audit, the auditor’s responsibilities, or the auditor’s report. and which is related to matters other than those disclosed or presented in the FS

105
Q

what is comparative information?

A

amounts or disclosures included in the FS with respect of one or more prior periods in accordance with the financial reporting framework

106
Q

comparative information where the amounts and disclosures for the prior period are integral parts of the current FS.

A

Corresponding figures

107
Q

what are comparative financial statements?

A

amounts and disclosures for the prior period are included for comparison with the FS of the current period.

108
Q

If inconsistency, going concern, and emphasis of matter is material the auditor will issue a?

A

Unqualified opinion with an explanatory paragraph

109
Q

If inconsistency, going concern, and emphasis of matter is highly material the auditor will issue a?

A

Unqualified opinion with an explanatory paragraph

110
Q

If another auditor’s opinion is material or highly material the auditor will issue an?

A

Unqualified opinion with a modified wording

111
Q

If the departure from GAAP is material the auditor will issue an?

A

report expressing a qualified opinion

112
Q

If the departure from GAAP is highly material the auditor will issue an?

A

adverse opinion

113
Q

If the scope limitation is material the auditor will issue an?

A

report expressing a qualified opinion

114
Q

If the scope limitation is highly material the auditor will issue an?

A

disclaimer opinion

115
Q

If lack of independence is material or highly material the auditor will issue an?

A

disclaimer

116
Q

if the auditor expresses an unqualified opinion, what would happen to the emphasis of matters and other matters?

A

it is not necessary to include an emphasis of matter and emphasis of other matter paragraphs in the auditor’s report

117
Q

if the auditor expresses a qualified opinion, adverse opinion, or a disclaimer of opinion, what would happen to the emphasis of matters and other matters?

A

it is necessary to include an emphasis of matter and emphasis of other matter paragraphs in the auditor’s report

118
Q

what are other information( PSA 720)

A

the financial and non-financial information included in an entity’s annual report

119
Q

what are the auditor’s responsibilities to other information?

A

consider if there is a material inconsistency between other information and the FS, and the auditor’s knowledge obtained in the audit

120
Q

if there is material inconsistency the auditor shall discuss and conclude whether…

A
  1. a material misstatement of other information exists
  2. a material misstatement of FS exists
  3. the auditor’s understanding of the entity and its environment needs to be updated
121
Q

what are subsequent events?

A

events that occurred between the date of the FS and the date of the auditor’s report, and the facts that become known to the auditor after the date of the auditor’s report.

Auditing Assurance and Principles (2 decks)

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