Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Audit > Ch 2 > Flashcards

Ch 2 Flashcards

0
Q

Role of PCAOB (primary role)

A

Provide external and independent oversight over audits of

Public entities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
1
Q

What did the SOX Act create?

A

Public Company Accounting Oversight Board (PCAOB)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Public entity

A

One that offers registered securities (such as stocks or bonds)
For sale to the general public

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Other 3 roles the PCAOB plays

A

1 registering public accounting firms
2 establishing and enforcing standards for audit engagements
3 inspecting quality of audits conducted by registered public
Accounting firms

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

The PCAOB issues Auditing Standards, which are subject to formal approval of…

A

The SEC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Auditing standards: what is the primary source of guidance for public entities

A

Auditing Standards, PCAOB

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Auditing Standards: sole source of guidance for no public entities?

A

Statements of Auditing Standards ASB

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

When do Statements on Auditing Standards ASB apply to public entities?

A

Apply if stared issued before 2003 and content not superseded
By PCAOB

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Relevant pronouncements of AICPA and PCAOB are collectively referred to as…

A

General accepted auditing standards (GAAS)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

GAAS

A

Auditing standards that identify necessary qualifications and
Characteristics of auditors

Guide conduct if audit examination

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

2 objectives of audit examination under GAAS (AU 200.12)

A

1 obtain reasonable assurance about whether financial statements
As a whole are free of material misstatement whether from fraud
Or error

2 to issue report on financial statements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Unconditional requirements on auditors

A

They are expected to fully comply with provisions of standards

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Presumptively mandatory requirements

A

Auditors can depart from standards under appropriate

circumstances and with appropriate documentation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Interpretative publications in auditing standards literature

A 
Includes: 
1 Interpretations, 
2 exhibits, 
3 AICPA Audit and Accounting Guides
4 AICPA Auditing Statements of Position
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

GAAS: Fundamental Principles

A

Guide general conduct of audit engagements

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

GAAS: PCAOB Auditing Standards and ASB Statements on Auditing Standards

A

Provide requirements supporting fundamental principles

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

GAAS: Interpretive Publications

A

Provide guidance on application of GAAS

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Audit procedures

A

Particular and specialized actions that auditors take to obtain
Evidence in specific audit engagement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Auditing standards

A

Quality guides to audit that apply to all audits

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Convergence

A

Making standards coordinated if not uniform throughout world

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Public Entities: 1) Rule making body 2) standards

A

1) Public Company Accounting Oversight Board (PCAOB)

2) Auditing Standards (ASs)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Nonpublic Entities: 1) Rule making body 2) standards

A

1) AICPA Auditing Standards Board (ASB)

2) Statements on Auditing Standards (SASs)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Governmental Entities: 1) Rule making body 2) standards

A

1) US Government Accountability Office (GAO)

2) Government Auditing Standards (the Yellow Book)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Foreign Entities: 1) Rule making body 2) standards

A

1) IFAC International Auditing and Assurance Standards Board
(IAASB)

2 International Standards on Auditing (ISAs)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

3 categories of 10 basic GAAS standards

A

1 General standards
2 standards of fieldwork
3 standards of reporting

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

GAAS 10 basic standards: 3 General Standards

A

1 auditor must have adequate technical training and proficiency
To perform the audit
2 auditor must maintain independence in mental attitude in
All matters relating to audit
3 auditor must exercise due professional care in performance
Of audit and preparation of report

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

GAAS 10 Basic Standards: 3 standards of Fieldwork

A

1 adequately plan work and supervise assistance
2 understand entity and its environment
3 obtain sufficient evidence through performing audit procedures

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Understanding of entity and its environments: 3 things

A

Understanding:
1 internal control
2 risk of material mistatment
3 design nature, timing and extent of audit procedures

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

GAAS 10 Basic Standards: 4 standards of reporting

A

1 state auditors report whether financial statements presented
In accordance with GAAP
2 identify principles which haven’t been consistently observed
In current period compared to prior period
3 determine if disclosures aren’t adequate
4 give auditors opinion or why they can’t give opinion

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

GAAS Fundamental Principles: Responsibilities Principle 3 things auditors are responsible for?

A

1 appropriate competence and capabilities to perform audit
2 complying with ethical requirements
3 maintaining professional skepticism and professional
Judgement throughout audit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

GAAS Fundamental Principles: Performance Principle 4 things auditor does to obtain reasonable assurance financial statements are free from material misstatement

A

1 plans work and properly supervises assistants
2 determines/applies appropriate materiality levels throughout Audit
3 identifies and assesses risks of material misstatement
4 obtains audit evidence whether material misstatements exist

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Identifies and asses risks of material misstatement, what are possible causes? 2 things

A

1 fraud or error

2 insufficient internal control

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Reporting principle

A

Auditors opinion in written report according to evidence about
Whether financial statements are fairly presented

33
Q

5 stages of an audit

A 
1 obtain engagement
2 engagement planning
3 risk assessment
4 audit evidence
5 reporting
34
Q

Independence in mental attitude

A

Auditors are expected to be unbiased with respect to financial
Statements and other info they audit

35
Q

Independence in fact

A

Allows auditors to form an opinion on entity’s financial statements
Without being affected by influences that might compromise that
Opinion

36
Q

Independence in appearance

A

Relates to others’ (particularly financial statement users’)

Perceptions of auditors’ independence

37
Q

In 2001 the SEC issued rules that prohibited auditors from providing…

A

Financial systems implementation and internal audit services to
Their clients

38
Q

3 requirements of how SOX addresses auditor independence for audits of public entities

A

1 limiting service for engagement partner and engagement quality
Partner on client to max of 5 years
2 can’t conduct audit if client employee with financial oversight
Responsibility
3 1 year cooling off period before auditor is permitted to assume
Employment for client in key management position

39
Q

2 relationships that jeopardize independence

A

1 financial relationships (owning stock or having loan outstanding
Which client)

2 managerial relations (ability to make decisions on behalf of client)

40
Q

Due care

A

Reflects level of performance that would be exercised by

Reasonable auditors in similar circumstances

41
Q

Professional skepticism

A

State of mind that is characterized by appropriate questioning
And critical assessment of audit evidence

42
Q

When exhibiting professional skepticism, what 3 aspects do auditors evaluate and consider?

A

1 contradictory audit evidence obtained through different
procedures
2 reliability of documentary evidence
3 reliability of info obtained from management and those charged
With governance of entity (audit committee)

43
Q

Professional judgement

A

Application of relevant training, knowledge and experience in
Making informed decisions about appropriate courses of action
During audit

44
Q

The fundamental principle of: performance, sets forth what?

A

General quality criteria for conducting an audit

45
Q

What 5 elements does the performance principle contain

A 
1 reasonable assurance
2 planning and supervision
3 materiality
4 risk assessment
5 audit evidence
46
Q

Reasonable assurance 3 things

A

1 Recognizes that a GAAS audit may not detect all material misstatements

2 And auditors aren’t insurers or guarantors regarding fairness of
entity’s financial statements

3 auditors should provide high level of assurance regarding their
Work

47
Q

Professional standards for engagement planning 3

A

1 preparing audit plan and supervising audit work
2 obtaining knowledge of client’s business
3 dealing with differences of opinion among accounting firm’s
Own personnel

48
Q

Audit plan (required by GAAS)

A

List of audit procedures that auditors need to perform to gather
Sufficient evidence to base their financial statements

Must provide enough detail for assistants of work to be done

49
Q

Materiality

A

Recognizes auditors should focus on matters important to
financial statement users

Dollar amount that influences lending and investment decisions

50
Q

The risk assent process requires an understanding of the client’s… 3 things

A

1 Operating environment
2 industry
3 it’s internal controls

51
Q

Internal control

A

Policies and procedures implemented by entity to prevent
Or detect material accounting frauds or errors

And provide their correction on timely basis

52
Q

Risk of material misstatement

A

Combination of inherent risk and control risk

53
Q

Inherent risk

A

Probability that material misstatement, either error or fraud
Will occur

54
Q

Control risk

A

Probability that material misstatement either fraud or error won’t
Be prevented/detected on timely basis in entities internal controls

55
Q

The process of risk assessment presumes 2 necessary relationships

A

1 effective internal control reduces control risk, auditors have
Reasonable basis for reducing necessary effectiveness of further
Audit procedures
2 ineffective internal controls increase control risk and increase
Work by auditors

56
Q

Substantive procedures

A

Audit procedures used to obtain evidence with respect to
Fairness of account balance

Reflected in determination of detection risk

57
Q

Auditing Standard No. 5

A

Standard requires auditor to evaluate and report public entity’s
Internal control over financial reporting

58
Q

Evidence

A

Information auditors use in arriving at conclusions on which
To base audit opinion

Includes underlying accounting data and all available corroborating
Info

59
Q

Appropriate evidence

A

Evidence must be trustworthy (reliable)

And provide audit team with information of interest (relevant)

60
Q

Reliability of evidence 4 things

A

1 evidence created by sources external more reliable than by entity
2 more reliable when directly received by external source
3 evidence from entities with more effective internal controls is
More reliable
4 evidence from original source documents is more reliable
Than evidence from photocopies, electronic documents

61
Q

Order of most reliable evidence 3

A

1 Most is auditors evidence
2 external parties
3 internal evidence (least reliable)

62
Q

Relevance

A

Nature of info provided by audit evidence

Ex. A/R evidence that sale took place, but not that account
Will be collected

63
Q

Appropriateness relates to evidence of

A

Quality

Affected by both relevance of evidence and its reliability

64
Q

Sufficiency relates to evidence of…

A

Quantity

Relates to number of transactions or components evaluated

65
Q

Detection risk

A

Represents risk that audit team’s substantive procedures will
Fail to detect material misstatement

66
Q

Sufficiency and appropriateness of audit evidence affect…

A

Detection risk

67
Q

What is the final stage of the audit process

A

Reporting

68
Q

Financial reporting framework

A

Set of criteria used to determine the measurement, recognition,
Presentation and disclosure of material items in financial statements

Ex. GAAP, IFRS or special purpose framework

69
Q

Unqualified opinion AKA unmodified opinion

A

Concludes entity’s financial statements present its financial
Condition, results of operations, cash flows in conformity
With GAAP

70
Q

Qualified opinion

A

Concludes except for relatively isolated departure, entity’s
financial Statements are presented in conformity with GAAP

71
Q

Order of auditor’s report for public company 6 things

A 
1Report title
2 addressee
3 intro paragraph
4 scope paragraph
5 opinion paragraph
6 internal control paragraph
72
Q

Disclaimer of opinion

A

Report where auditor chooses not to express his opinion

Has additional paragraph explaining why they have no opinion

73
Q

System of quality control, purpose is to provide the firm reasonable assurance that firm and its personnel… 2 things

A

1 comply with professional standards and applicable regulatory
And legal requirements

2 issue reports that are appropriate in the circumstances

74
Q

6 elements under the Statement on Quality Control Standards No. 8

A

1 Leadership responsibilities for quality within firm
2 relevant ethical requirements
3 acceptance and continuance of client relationships and
Specific engagements
4 human resources
5 engagement performance
6 monitoring

75
Q

Leadership responsibilities for quality within firm

A

Company promotes people based of quality of work

76
Q

Relevant ethical requirements

A

1 communicate independence requirements to personnel
2 identify circumstances and relationships that threaten
independence
3 obtain written confirmation form all firm personnel with respect
To compliance with independence requirements

77
Q

Engagement quality control reviews

A

An internal evaluation of significant judgements made by audit
Team

and conclusions reached in formulating its report on an
engagement conducted by that firm

78
Q

Inspection

A

Evaluation of accounting firm’s audit engagements and system of
Quality control conducted by PCAOB

and required for firms providing services to public entities

79
Q

Copies of the PCAOB’s inspection reports assessing the quality of audits can be found on a…

A

Firm by firm basis of the PCAOB’s website

Audit (36 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions