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
2
Q
Criteria of FS
A
GAAP in the Philippines (PIC, PFRS, PFRS for SME)
IAS
other authoritative and comprehensive financial reporting framework
3
Q
Level of Assurance and Content of Report: Audit
A
High but not absolute
A positive assurance on assertions
4
Q
Level of Assurance and Content of Report: Review
A
Moderate assurance
A negative assurance on assertions
5
Q
Level of Assurance and Content of Report: Agreed Upon Procedures
A
No Assurance
Factual findings of procedures
6
Q
Level of Assurance and Content of Report: Compilation
A
No Assurance
Identification of information compiled
7
Q
The framework does not apply to?
A
other services such as taxation, consultancy, and financial and accounting advice
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
9
Q
What is the level of assurance in the Audit of FS?
A
High, but not absolute
10
Q
What is the purpose of the Audit of FS?
A
Enhance the credibility of the financial statements
11
Q
Why is the assurance in the audit of FS not absolute?
A
- need for judgment
- the use of testing
- inherent limitations
- most evidence is persuasive rather than conclusive
12
Q
Financial Statement Assertion
A
assertions by management, explicit or otherwise, that are embodied in the financial statements
13
Q
Types of FS Assertions (PERCV)
A
- Presentation and Disclosure
- Existence and Occurrence
- Rights and Obligations
- Completeness
- Valuation and Measurement
14
Q
FS assertions where an asset or liability exists at a given date
A
Existence
15
Q
FS assertions where an asset or liability pertains to the entity at a given date
A
Rights and Obligations
16
Q
FS assertions where a transaction or event took place which pertains to the entity during the period
A
Occurrence
17
Q
FS assertions where there are no unrecorded assets, liabilities, transactions, or events, or undisclosed items
A
Completeness
18
Q
FS assertions where an asset or liability is recorded at an appropriate carrying value
A
Valuation
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
20
Q
FS assertions where an item is disclosed, classified, and described in accordance with the applicable financial reporting framework
A
Presentation and Disclosure
21
Q
Classification of FS Assertion according to PSA 315
A
- Assertions about classes of transactions and events for the period under audit
- Assertions about account balances at the period end
- Assertions about presentation and disclosure
22
Q
Occurrence is (PSA 315)
A
transactions and events that have been recorded have occurred and pertained to the entity
23
Q
Completeness is (PSA 315) (T&E)
A
all transactions that should be recorded have been recorded
24
Q
Accuracy is (PSA 315)
A
amounts and other data pertaining to transactions have been recorded appropriately
25
The cutoff is (PSA 315)
transactions and events have been recorded in the correct accounting period
26
Classification is (PSA 315)
transactions and events have been recorded in the proper accounts
27
Existence is (PSA 315)
assets, liabilities, and equity interests exist
28
Rights and Obligations is (PSA 315)
the entity holds the right to assets, and the liabilities are the obligation of the entity
29
Completeness is (PSA 315) (A)
all assets, liabilities, and equity interests that should have been recorded are recorded
30
Valuation and Allocation is (PSA 315)
ALOE interests are included in the FS and appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded
31
Occurrence and Rights and Obligations is (PSA 315)
disclosed events, transactions, and other matters have occurred and pertain to the entity
32
Completeness is (PSA 315) (D)
all disclosures that should have been disclosed are disclosed
33
Classification and Understanding is (PSA 315)
FI is appropriately presented and described, and disclosures are clearly expressed
34
Accuracy and Valuation is (PSA 315)
financial and other information are disclosed fairly and in appropriate amounts
35
Forward-oriented Tracing is used for what FS Assertion?
Completeness
36
Backward-oriented Tracing is used for what FS Assertion?
Existence and Occurrence
37
What type of account is used in Existence assertions?
Balance Sheet
38
What type of account is used in Occurrence assertions?
Income Statement`
39
Inspection of titles and debt contracts to verify ownership and indebtedness is used for what FS Assertion?
Rights and Obligations
40
Recalculation, Remeasurement, and recomputation of account balances are used for what FS Assertion?
Valuation and Allocation
41
Proper account classification and adequacy of notes to FS is used for what FS Assertion?
Presentation and Disclosure
42
Stages in the Audit of FS
1. Accepting the Engagement
2. Audit Planning
3. Considering Internal control
4. Performing substantive tests
5. Completing the audit
6. Issuing the report
43
Preliminary engagement activities
1. continuance of the client relationships and the specific audit engagement
2. evaluate compliance with ethical requirements
3. understanding terms of engagement
44
What is the purpose of an overall audit strategy?
1. set the scope, timing, and direction of the audit
| 2. guides the development of the audit plan
45
Contents of an audit plan
1. NET of planned risk assessment procedures
2. NET of planned further audit procedures at the assertion level
3. other planned audit procedures
46
What is an audit strategy? (documentation)
documentation that records the key decisions considered necessary in planning and communicating to the engagement team
47
Audit strategy is summarized in the form of?
Memorandum
48
What is an audit plan? (documentation)
record of NET of risk assessment procedures and further audit procedures at assertion level in response to assessed risk
49
The audit plan is utilized in the form of?
Standard audit programs and audit completion checklist
50
what other changes are documented in audit planning?
any significant changes made during audit engagement and the reason for such changes
51
What are the other considerations done in initial audit engagements?
1. procedures required by PSA 220 regarding the acceptance of client relationship and the specific audit engagement
2. communicating with the predecessor auditor
52
What is audit risk?
the risk that the auditor gives an inappropriate audit opinion when the FS is materially misstated
53
Components of audit risk
1. Inherent risk
2. Control Risk
3. Detection Risk
54
What is Control risk?
the risk that a misstatement could occur in an account balance or class of transactions that could be material
55
What is Inherent risk?
susceptibility of an account balance or class of transactions to misstatement that is material
56
What is detection risk?
the risk that an auditor's substantive procedures will not detect a material misstatement that exists
57
Audit Risk Formula
Audit Risk = IR x CR x DR
58
What risks is the function of the audit client?
Inherent and Control risk
59
What risk is the function of the auditor?
Detection risk
60
What is the relationship between planned detection risk to inherent and control risk?
Inverse
61
What is the relationship between materiality and the level of audit risk?
inverse relationship
62
If there is a high audit risk and more extensive and effective audit tests, what level of materiality is accepted?
Low level of materiality
63
If there is a low audit risk and more extensive and effective audit tests, what level of materiality is accepted?
High level of materiality
64
When is materiality and audit risk considered throughout the audit?
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
What are the risk assessment procedures? (UAA)
1. Understanding client's business and industry
2. Assess client business risk
3. Assess the risk of material misstatement
66
If the planned detection risk is low, what would happen to the auditor and the inherent and control risk?
the auditor is strict in auditing as there is high inherent and control risk
67
If the planned detection risk is high, what would happen to the auditor and the inherent and control risk?
the auditor is not strict in auditing as there is low inherent and control risk
68
why do we perform risk assessment procedures? (UAD)
understand internal control
to assess the risk of material misstatements
.to design the NET of further audit procedures
69
Tools used in procedures for understanding internal control (PIIO)
1. previous experience with the entity
2. inquiries
3. inspection
4. observation of entity activities
70
Documentation of Understanding Internal Control
1. Questionnaire
2. Memoranda
3. Flowchart
71
What influences the documentation of understanding internal control?
1. size and complexity of the entity
| 2. nature of the entity's internal control
72
Why do we perform procedures for assessing the risk of material misstatement?(IA)
to identify and. assess the risks of material misstatements
73
when should the auditor perform a risk assessment of material misstatement? (LEVEL)
at the financial statement level and at the relevant assertion level for classes of transaction, account balances, and disclosures
74
what are the procedures for risk assessment for internal control? (IIOAT)
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
why does an auditor perform understanding internal control?
to see if internal control is operating effectively
76
if internal control is operating effectively what would the auditor do?
perform tests of control
77
if internal control is not operating effectively what would the auditor do?
start performing substantive audit procedures
78
Classification of Audit Procedures
Substantive Procedure and Test of Control
79
What is the substantive procedure?
audit procedure designed to detect material misstatements at the assertion level
80
types of substantive procedure
test of details
| substantive analytical procedures
81
2 types of tests of details?
substantive test of transactions and substantive tests of balances
82
what is a substantive test of transactions?
used to verify the peso value of transactions
83
a substantive test used to audit the ending balance of a general ledger account
substantive tests of balances
84
what is a substantive analytical procedure?
analysis of significant ratios and trends
85
what is the purpose of a test of controls?
evaluate the operating effectiveness of controls in preventing, or detecting, and correcting material misstatement at the assertion level.
86
When does an auditor perform tests of control?
if the risk assessment includes an expectation of operating effectiveness of controls and when substantive procedures alone do not provide sufficient audit evidence
87
if a test of control shows that the system operated as expected...
there would be no change in the scope of planned substantive procedures
88
if the test of control shows that the system did not operate as expected...
the scope of planned substantive procedures for the relevant assertions will increase
89
Analytical procedures are...
evaluation of FI through analysis of plausible relationships among financial and non-financial data
90
When are analytical procedures used?
1. Audit planning
2. as substantive procedure alone or with combination with tests of details
3. overall conclusion or overall review stage
91
What is the nature of the analytical procedure
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
Consideration of comparisons of the entity's financial information...
1. for prior periods
2. Anticipated results of the entity
3. similar industry
93
Summary of Audit Procedures
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
What is the NET of the substantive test if the control risk is high?
Nature - More Effective
Extent - Increase sample size
Timing - Year-end
95
What is the NET of the substantive test if the control risk is low?
Nature - Less Effective
Extent - Decrease sample size
Timing - Interim
96
What are the elements of an audit report? (10)
```
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
What are the types of audit opinions?
Unqualified opinion
qualified opinion
adverse opinion
disclaimer of opinion
98
An audit opinion wherein the FS is in accordance with the identified framework
Unqualified Opinion
99
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
qualified opinion
100
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
Adverse opinion
101
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
Disclaimer of opinion
102
why do we put the emphasis of matters in the independent auditor's report?
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
when is it necessary to include the emphasis of matter? (4)
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
why do we put the emphasis of other matters in the independent auditor's report?
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
what is comparative information?
amounts or disclosures included in the FS with respect of one or more prior periods in accordance with the financial reporting framework
106
comparative information where the amounts and disclosures for the prior period are integral parts of the current FS.
Corresponding figures
107
what are comparative financial statements?
amounts and disclosures for the prior period are included for comparison with the FS of the current period.
108
If inconsistency, going concern, and emphasis of matter is material the auditor will issue a?
Unqualified opinion with an explanatory paragraph
109
If inconsistency, going concern, and emphasis of matter is highly material the auditor will issue a?
Unqualified opinion with an explanatory paragraph
110
If another auditor's opinion is material or highly material the auditor will issue an?
Unqualified opinion with a modified wording
111
If the departure from GAAP is material the auditor will issue an?
report expressing a qualified opinion
112
If the departure from GAAP is highly material the auditor will issue an?
adverse opinion
113
If the scope limitation is material the auditor will issue an?
report expressing a qualified opinion
114
If the scope limitation is highly material the auditor will issue an?
disclaimer opinion
115
If lack of independence is material or highly material the auditor will issue an?
disclaimer
116
if the auditor expresses an unqualified opinion, what would happen to the emphasis of matters and other matters?
it is not necessary to include an emphasis of matter and emphasis of other matter paragraphs in the auditor's report
117
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?
it is necessary to include an emphasis of matter and emphasis of other matter paragraphs in the auditor's report
118
what are other information( PSA 720)
the financial and non-financial information included in an entity's annual report
119
what are the auditor's responsibilities to other information?
consider if there is a material inconsistency between other information and the FS, and the auditor's knowledge obtained in the audit
120
if there is material inconsistency the auditor shall discuss and conclude whether...
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
what are subsequent events?
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.
