Audit Standards & Engagement Planning

Question 1

Compliance Audit

Answer 1

Are they following laws & regulations?

Question 2

Operational Audit

Answer 2

Is the company operating correctly?

Are they doing the right thing, correctly, within the proper budget?

Done by internal auditors, typically.

Question 3

Financial Statement Audit

Answer 3

examination for the purpose of giving an objective opinion as to the fairness of financial statement presentations, in all material respects, that are free from material misstatement, whether due to fraud or error, in conformity with AFRF, such as GAP

Question 4

Absolute assurance,

Answer 4

looking at everything

Question 5

Scope

Answer 5

items that are considered material (what we are looking at) ((Reasonable assurance))

Question 6

Professional Skepticism

Answer 6

attitude that includes a questioning mind and a critical assessment of audit evidence

Question 7

AFRF

Answer 7

Applicable Financial Reporting Framework

like GAAP, IFRS, or OCBOA

Question 8

Substantive testing

Answer 8

If reliance on internal controls is high, less subst testing
if reliance is low, more subst testing

(it means the scope is bigger/you will test more stuff/more stuff is considered material)

Question 9

Non-issuer

Answer 9

non-public entity; not required to provide audited financial statements to the SEC

governed by ASB?AICPA

Question 10

Publicly traded company (issuer) is governed by whom?

Answer 10

PCAOB

Question 11

ASB imposes 2 types of requirements on auditors

Answer 11

Unconditional Requirements

Presumptively mandatory requirement

Question 12

Unconditional requirement

Answer 12

required; will say “must” or “is required to”

Question 13

Presumptively mandatory

Answer 13

expected but in rare cases may depart from if ineffective; must document how an alternate procedure was sufficient to achieve the objective of the standard

keyword: “SHOULD”

Question 14

Unqualified = unmodified

Answer 14

unqualified: clean opinion
unmodified: not modified aka clean

Question 15

10 GAAS

Answer 15

measure of the quality of the auditor

broken up into:

General standards
Fieldwork Standards
Reporting Standards

Question 16

General Standards

Answer 16

Should i accept the job? am i qualified?
(qualification/quantity)

apply from acceptance to completion
--
Training and proficiency
Independence
Due professional care

Question 17

TIP PIC ANOE

10 GAAS

Answer 17

General
Training
Independence
Professional care

Fieldwork
Planning/supervision
Internal controls
Professional Care

Reporting 
  Accounting principles in accordance with GAAP
  No new principles - consistency
  Omitted disclosures - none
  Express an opinion

Question 18

Independence CARES

Answer 18

Must be independent for:

Compilation (unless mentioned in disclosures)
Agreed upon procedures ( leads to findings, client says do this or that, not that)
Review (you’re giving limited assurance)
Exam aka audit
Special reports

Question 19

RID-C

Answer 19

get RID of them, C you later!

Reasons for change - whyd they change auditor?
Integrity of management
Disagreements during audit

Communication with management or those charged with governance

Question 20

Stuff auditor should communicate to those charged with governance

audit committee would DISAPPROVE of an auditor who failed to inform them about these matters

Answer 20

Disagreements with management
Illegal acts (noncompliance with laws/reg)
Significant accounting policies
Adjustments
Prior discussions with management
Problems or significant difficulties
Responsibilities
Other information
Views of the accountant
Estimates

Question 21

Management is responsible for the DIM of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error

Answer 21

Design
Implementation
Maintenance

Question 22

Inherent risk

Answer 22

the risk of a material misstatement due to the nature of an element of the financial statements

Question 23

Control risk

Answer 23

risk that a material misstatement will not be prevented or detected and corrected on a timely basis due to lack of effective internal controls

Question 24

Risk of Material Misstatement (RMM)

Answer 24

Control and inherent risk

Question 25

Planning Procedures (BRAINSTOPS)

Answer 25

Basic discussions with the client
Review of audit documentation
Ask about recent developments
Interim financial statements
Non-audit personnel
Staffing
Timing
Outside assistance
Pronouncements
Scheduling with the client

Question 26

Audit Risk

Answer 26

a clean opinion on dirty numbers
--
Made up of 
RMM - inherent and control risk
Detection Risk
--
IR*CR*DR

Question 27

Detection risk

Answer 27

consists of Test of details risk and Substantive analytical procedures risk
–
AR divided by (IR+CR)

Question 28

Fraud Triangle

Answer 28

Reason or motivation (incentive/pressure)
Opportunity
Rationalization

Question 29

Misappropriation of assets

Answer 29

like stealing, could happen at any level

Question 30

Fraudulent FInancial Reporting

Answer 30

usually happens at highest level

Question 31

Elements of Quality Control at Firm Level (HEAL-ME)

Answer 31

Human Resources (personnel management)
Ethical REquirements (independence)
Acceptance and continuance of client relationships and specific engagements
Leadership responsibilities for quality within the firm (tone at the top)
Monitoring
Engagement Performance