Brainscape's Knowledge GenomeTM

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


See full index

Audit > Ch 3 > Flashcards

Ch 3 Flashcards

0
Q

What does risk refer to in an audit engagement?

A

Probability that firm could blow the audit opinion

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

risk engagements

A

Activities before beginning audit engagement

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

Predecessor auditor

A

Public accounting firm that has been terminated

Or has voluntarily withdrawn from engagement

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

To reduce risk of accepting a problem client, auditing standards require a prospective auditor to…

A

Find out from predecessor auditor integrity of management

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

Before taking on a client what is looked into by accounting firm? 3 things

A

1 check financial records
2 criminal background check on management
3 inquiries with people who do business with company
(Bankers, lawyers, underwriters, analysts)

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

What must an accounting firm evaluate about itself before taking on a new audit client?

A

1 risks of taking engagement
2 accounting firms independence with regard to client
3 consider need for individuals possessing special skills
(IT auditor, valuation specialist, industry specialist)

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

Form 8-K: special events report

A

Filed with SEC when public company changes auditors

Required when significant events such as changes in control
Or legal proceedings occur

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

Independence in fact

A

Independence in state of mind of auditor

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

Independence in appearance

A

Others’ perceptions of auditors’ independence

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

If an auditor is not considered independent from the company’s managment, the audited statement is considered…

A

Unaudited

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

When is an engagement letter prepared?

A

When a new client is accepted

or when an audit engagement continues from year to year

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

What 4 things does an engagement letter set forth about the understanding with the client?

A

1 objectives of engagement
2 management’s responsibilities
3 auditor’s responsibilities
4 limitations if the engagement

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

Termination letter

A

Documentation provided to former clients dealing with subject
Of future services

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

4 ways termination letter is helpful?

A

1 access to audit documentation by new auditors
2 reissuance of auditors report for SEC reporting
3 fee arrangements for future services
4 provides reasons for termination

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Audit plan

A

Comprehensive list of audit procedures audit team needs to
Perform

To gather evidence for auditors opinion on financial statements

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

Primary reason for engagement planning

A

Mitigating risks

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

3 additional goals of audit planning

A

1 make sure qualified staff to conduct audit
2 determine materiality
3 audit procedures: control tests and substantive tests in line with
Professional standards

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

Audit engagement partner

A

Person with final responsibility for audit and usually industry
Specialist

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

Quality assurance partner

A

Second audit partner who reviews audit team’s work in critical
Audit areas

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

Objectivity: internal vs. External auditors

A

Internal auditors can never be considered independent in same
Sense as external auditors

Because internal auditors are employed and compensated by client

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

How is an internal auditor’s competence investigated?

A

Obtaining evidence about educational and experience qualifications

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

Audit specialists

A

Persons skilled in fields other than accounting and auditing

Ex. Actuaries, appraisers, attorneys, environmental engineers,
Geologists

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

Interim audit work

A

Procedures performed several weeks or months before date of

Financial statements

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

Year end audit work

A

Procedures performed shortly before and after date of

Financial statements

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

Materiality

A

Amount or event likely to influence financial statement users
decisions

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

Performance materiality

A

Amount less than materiality for financial statements as whole

26
Q

Materiality calculation

A

Materiality is matter of professional judgement that each

Engagement partner must decide on an audit engagement

27
Q

3 ways audit team uses materiality

A

1 planning substantive testing procedures
2 determining performance materiality
3 guide decisions about audit report

28
Q

Substantive testing procedures

A

Directing attention and audit work to items/accounts that are
Important, uncertain, susceptible to material misstatement

29
Q

Performance materiality

A

Make sure aggregate uncorrected/undetected immaterial
Misstatements don’t exceed materiality level of financial
Statement as whole

30
Q

3 purposes for auditors using audit procedures

A

1 gain understanding of client and client’s risks
2 test operating effectiveness and internal controls
3 produce evidence about management’s assertions

31
Q

Substantive audit plan

A

Contains list of audit procedures for gathering evidence
Related to relevant assertions

Relevant assertions identified for audit client’s significant
Financial statement accounts and disclosures

32
Q

2 ways to conduct substantive tests

A

1 substantive analytical procedures

2 tests of details

33
Q

Analytical procedures, what must the auditor develop?

A

Auditor must develop an independent expectation of what

He or she thinks the account balance should be

34
Q

8 general audit procedures used to gather evidence

A 
1 inspection of records/documents
2 inspection of tangible assets
3 observation
4 inquiry
5 confirmation
6 recalculation
7 reperformance
8 analytical procedures
35
Q

Substantive Test of details

A

Auditor must seek to understand account balance/economic
Transaction

And that it was recorded in accordance with GAAP

36
Q

Vouching

A

Audit procedure in which an auditor selects an item of financial
Info (usually from journal or ledger)

And follows back through the processing steps to origin

37
Q

Tracing direction

A

Auditor selects basic source document and follows its
Processing path forward to find its final recording

Final recording found in journal or ledger and ultimately
Financial statements

38
Q

What assertions does vouching adequately support?

A

Existence and occurrence

39
Q

What assertion does tracing support?

A

Completeness assertion

40
Q

Inspection of tangible assets provides evidence of? 2 things

A

Existence and valuation

41
Q

Observation

A

Auditors use observation when they view client’s physical
Facilities and personnel on an inspection tour

They observe personnel carry out accounting and control
Activities and participate in surprise payroll distribution

42
Q

Inquiry

A

Procedure involves collection of oral/sometimes written evidence
From independent parties and management

43
Q

Confirmation

A

Direct correspondence with independent parties

44
Q

What can correspondence produce evidence of? 5 things

A 
1 Existence
2 rights
3 obligations
4 valuation
5 cutoff
45
Q

Recalculation

A

Auditor recalculation of computations previously performed by
Client personnel produces compelling evidence

46
Q

Mathematical recalculation so serve which 2 assertions?

A

Existence and valuation

47
Q

CAATs

A

Computer assisted audit techniques

48
Q

Analytical procedures

A

When auditor compares expectation of recorded balance

49
Q

Computerized environment: Audit trail

A

Chain of evidence provided through coding, cross references
and documentation

connecting account balances And other summary results with the original transaction source Documents

50
Q

Less human involvement in handling transactions processed by computers can…

A

Reduce potential for observing errors and fraud

51
Q

5 considerations auditors should make about client’s computerized processing on an audit of financial statements

A

1 complexity of computer operations
2 organizational structure of computerized processing activities
3 availability of data required by auditor
4 CAAT computer assisted audit techniques available
5 need for specialized skills

52
Q

An engagement is not complete without…

A

Audit documentation

53
Q

Audit documentation

A

Written record of basis for auditor’s conclusions that provides
Support for auditor’s representations

Whether those representations are contained in auditor’s report
Or otherwise

54
Q

Audit documentation provides…

A

The auditors’ record of compliance with GAAS

55
Q

Permanent files AKA continuing audit files

A

Contain info of continuing audit significance over many years
Audits of the same client

56
Q

Current files

A

Include all client acceptance and continuance documentation

Include planning documentation for year under audit

57
Q

Planning memorandum

A

Summary of data with specific directions about effect on audit

58
Q

Lead schedule

A

Summary of accounts or components in an account group

59
Q

Indexing

A

Each document given an index number

60
Q

Cross referencing

A

Numbers or memoranda related to other documents carry the

Index of other documents so connections can be followed

61
Q

Heading

A

Each document is titled with name of company, balance sheet date
And title of documents contents

62
Q

Audit marks AKA Tick marks

A

Abbreviated comments about auditor’s work performed

Audit (36 decks)

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