Audit Set 2 Flashcards
Compare materiality to performance materiality
Materiality - FS as a whole determined in planning stage
Performance materiality - assertion level, determined when assessing risk of material misstatement and planning audit procedures.
Performance materiality is always less than materiality of FS.
How does the auditor ensure all fixed assets are capitalized and not expensed
Review repairs and maintenance account. By nature all debits in this account are expensed and not capitalized, therefore by reviewing major expenses the auditor can consider if an expense should have been captalised.
The depreciation account would not be reviewed because all expenses in this account are from assets already capitalized so you’re not catching expenses that are not capitalized.
When counting cash, why should the auditor should have control over cash and negotiable instruments?
to prevent subtitution/double counting.
What are the five interrelated components of internal control?
Control environment
Risk assessment
Information and communication systems
Control activities
Monitoring
See wiley text book page 139 - 140
aicpa.aq.ic.standard1.001_19
What factors does the auditor consider for new engagements in terms of quantity, type and content of audit documentation
- nature of the audit
- type of REPORT (not opinion..silly) to be issued
- nature of whatever documents the auditor is auditing
- nature and condition of clients records
- assessed level of control risk
- supervision and review needs
Name an example of non attest enagement
Preparing tax returns of CEO
Management consulting engagements
For attest engagements which engagements require independence?
Assurance engagements - independence required - review and examination
Non- assurance - no independence- compilation - disclose non independence
What does planned reliance on internal control mean?
Control risk is assessed at less than maximum level.
Control may prevent or detect material misstatement.
Tests of control is going to be performed to determine effectiveness of controls.
What does wholly substantive audit approach mean?
Assessing control risk at maximum therefore decreasing detection risk. Tests of control is not performed.
Another reason is internal control could be deemed to be reliable, but performing the test of control is not cost beneficial so perform wholly substantive.
Anyways, sufficient appropriate audit evidence can never be obtained with just test of control.
What type of claims does the auditor need to specifically ask about management (not the attorney) regarding litigation, claims and assessments?
Unasserted claims, as the attorney is not required to disclose this to the auditor but is required to disclose it to management.
What happens to detection risk when control risk decreases.
If control risk decreases then detection risk is increased, perform tests of control and substantive tests.
How is DR affected when RMM (CRxIR) is high?
Inverse relationship to DR, drop DR more substantive.
