Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

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Apply if stared issued before 2003 and content not superseded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
3 categories of 10 basic GAAS standards
1 General standards 2 standards of fieldwork 3 standards of reporting
25
GAAS 10 basic standards: 3 General Standards
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
26
GAAS 10 Basic Standards: 3 standards of Fieldwork
1 adequately plan work and supervise assistance 2 understand entity and its environment 3 obtain sufficient evidence through performing audit procedures
27
Understanding of entity and its environments: 3 things
Understanding: 1 internal control 2 risk of material mistatment 3 design nature, timing and extent of audit procedures
28
GAAS 10 Basic Standards: 4 standards of reporting
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
29
GAAS Fundamental Principles: Responsibilities Principle 3 things auditors are responsible for?
1 appropriate competence and capabilities to perform audit 2 complying with ethical requirements 3 maintaining professional skepticism and professional Judgement throughout audit
30
GAAS Fundamental Principles: Performance Principle 4 things auditor does to obtain reasonable assurance financial statements are free from material misstatement
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
31
Identifies and asses risks of material misstatement, what are possible causes? 2 things
1 fraud or error | 2 insufficient internal control
32
Reporting principle
Auditors opinion in written report according to evidence about Whether financial statements are fairly presented
33
5 stages of an audit
``` 1 obtain engagement 2 engagement planning 3 risk assessment 4 audit evidence 5 reporting ```
34
Independence in mental attitude
Auditors are expected to be unbiased with respect to financial Statements and other info they audit
35
Independence in fact
Allows auditors to form an opinion on entity's financial statements Without being affected by influences that might compromise that Opinion
36
Independence in appearance
Relates to others' (particularly financial statement users') | Perceptions of auditors' independence
37
In 2001 the SEC issued rules that prohibited auditors from providing...
Financial systems implementation and internal audit services to Their clients
38
3 requirements of how SOX addresses auditor independence for audits of public entities
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
2 relationships that jeopardize independence
1 financial relationships (owning stock or having loan outstanding Which client) 2 managerial relations (ability to make decisions on behalf of client)
40
Due care
Reflects level of performance that would be exercised by | Reasonable auditors in similar circumstances
41
Professional skepticism
State of mind that is characterized by appropriate questioning And critical assessment of audit evidence
42
When exhibiting professional skepticism, what 3 aspects do auditors evaluate and consider?
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
Professional judgement
Application of relevant training, knowledge and experience in Making informed decisions about appropriate courses of action During audit
44
The fundamental principle of: performance, sets forth what?
General quality criteria for conducting an audit
45
What 5 elements does the performance principle contain
``` 1 reasonable assurance 2 planning and supervision 3 materiality 4 risk assessment 5 audit evidence ```
46
Reasonable assurance 3 things
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
Professional standards for engagement planning 3
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
Audit plan (required by GAAS)
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
Materiality
Recognizes auditors should focus on matters important to financial statement users Dollar amount that influences lending and investment decisions
50
The risk assent process requires an understanding of the client's... 3 things
1 Operating environment 2 industry 3 it's internal controls
51
Internal control
Policies and procedures implemented by entity to prevent Or detect material accounting frauds or errors And provide their correction on timely basis
52
Risk of material misstatement
Combination of inherent risk and control risk
53
Inherent risk
Probability that material misstatement, either error or fraud Will occur
54
Control risk
Probability that material misstatement either fraud or error won't Be prevented/detected on timely basis in entities internal controls
55
The process of risk assessment presumes 2 necessary relationships
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
Substantive procedures
Audit procedures used to obtain evidence with respect to Fairness of account balance Reflected in determination of detection risk
57
Auditing Standard No. 5
Standard requires auditor to evaluate and report public entity's Internal control over financial reporting
58
Evidence
Information auditors use in arriving at conclusions on which To base audit opinion Includes underlying accounting data and all available corroborating Info
59
Appropriate evidence
Evidence must be trustworthy (reliable) And provide audit team with information of interest (relevant)
60
Reliability of evidence 4 things
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
Order of most reliable evidence 3
1 Most is auditors evidence 2 external parties 3 internal evidence (least reliable)
62
Relevance
Nature of info provided by audit evidence Ex. A/R evidence that sale took place, but not that account Will be collected
63
Appropriateness relates to evidence of
Quality Affected by both relevance of evidence and its reliability
64
Sufficiency relates to evidence of...
Quantity Relates to number of transactions or components evaluated
65
Detection risk
Represents risk that audit team's substantive procedures will Fail to detect material misstatement
66
Sufficiency and appropriateness of audit evidence affect...
Detection risk
67
What is the final stage of the audit process
Reporting
68
Financial reporting framework
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
Unqualified opinion AKA unmodified opinion
Concludes entity's financial statements present its financial Condition, results of operations, cash flows in conformity With GAAP
70
Qualified opinion
Concludes except for relatively isolated departure, entity's financial Statements are presented in conformity with GAAP
71
Order of auditor's report for public company 6 things
``` 1Report title 2 addressee 3 intro paragraph 4 scope paragraph 5 opinion paragraph 6 internal control paragraph ```
72
Disclaimer of opinion
Report where auditor chooses not to express his opinion Has additional paragraph explaining why they have no opinion
73
System of quality control, purpose is to provide the firm reasonable assurance that firm and its personnel... 2 things
1 comply with professional standards and applicable regulatory And legal requirements 2 issue reports that are appropriate in the circumstances
74
6 elements under the Statement on Quality Control Standards No. 8
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
Leadership responsibilities for quality within firm
Company promotes people based of quality of work
76
Relevant ethical requirements
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
Engagement quality control reviews
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
Inspection
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
Copies of the PCAOB's inspection reports assessing the quality of audits can be found on a...
Firm by firm basis of the PCAOB's website

Audit (36 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions