Audit Standards & Engagement Planning Flashcards
What are the 10 Generally Accepted Audit Standards?
Training and Proficiency Independence Professional Care (Due Care) Planning and Supervision Internal Controls Corroborative Audit Evidence (subst. proc.) Accounting Principles conform w/ GAAP No New Principles applied (consistency) Omitted Disclosures (NONE) Express an Opinion
“TIPPICANOE”
What inquiries should a first year successor auditor make of the predecessor auditor?
Reasons for Change
Integrity of Management
Disagreements during audit
Communication w/ Mgmt or governance
“RID-C” (ya later!)
What matters should be communicated with those charged with governance?
Disagreements w/ mgmt.
Illegal acts/noncompliance w/ laws and regulations
Significant accounting policies adopted/changed
Adjustments proposed by auditor
Prior discussions w/ mgmt.
Problems arising during audit
Responsibilities of auditor
Views of other accountants
Estimates in records and process to obtain them
“DISAPPRoVE”
What are the main elements of an engagement letter?
Fees Auditor's Responsibility (GAAS) Confirmation of Engagement Scope and Objective of Engagement Internal Control Management's Responsibility Irregularities/Fraud iLlegal acts Errors
“FACSIMILE”
What are the main Planning Procedures of an audit?
Basic discussions w/ client Review audit documentation Ask of recent developments Interim financial statements Non-audit personnel Staffing Timing Outside assistance Pronouncements Scheduling w/ client
“BRAINSTOPS”
What is audit risk comprised of?
AR = IR X CR x DR
-OR-
AR = RMM x DR
What is risk of material misstatement comprised of?
RMM = IR x CR
What is detection risk comprised of?
DR = AR / (IR x CR) -OR- DR = AR / RMM
What is the relationship between reliance, control risk/RMM, substantive testing, and detection risk?
If reliance on client’s assertions (financials/IC) is LOW, control risk is HIGH; thus, a HIGH amount of substantive testing is required, thereby creating a LOW detection risk.
If an auditor doesn’t trust management, what should an auditor do?
Since it will be impossible to rely on management representations, the auditor should refuse the engagement.
For which attestation engagements must an auditor maintain independence?
Examinations (Audits)
Reviews
Agreed-upon procedures
Special Reports
“ERAS”
***Compilations are also included when lack of independence is not indicated
What are the two types of fraud?
Fraudulent financial reporting
Misappropriation of assets (Defalcation)
What are the three conditions that comprise the fraud risk triangle?
Reason/Motivation (aka Incentive/Pressure)
Opportunity
Rationalization
What are a CPA firm’s elements of quality control?
HR (Personnel Mgmt.) Ethical Requirements Acceptance and continuance of client relationships Leadership's "tone at top" Monitoring Engagement Performance
“HEAL-ME”
