ch 5 review (exam 2) Flashcards
Financial statements are:
1.
2.
- prepared by management
- includes representations made by management about recognition, measurement, presentations and disclosures
what are three assertions management is making about inventory shown on the balance sheet?
-the items exist
- items are owned by the entity
- items are valued appropriately
what are managements assertions
representations made by management int he financial statements
The AICPA Audit Standards Board (private companies) has how many management assertions
12 assertions
The PCAOB (public
companies) has how many managements assertions
5 assertions
What are the private company assertions for classes of transactions and related disclosures (income statement focus)
- occurence
- completeness
- accuracy
- cutoff
- classification
- presentation
which ASB assertion is the following: management claims all transactions and disclosures that should have been disclosed are disclosed
completeness
which ASB assertion is the following: management claims transactions occurred and pertain to the company
occurence
which ASB assertion is the following: all transactions have been recorded appropriately and related disclosures are appropriately measured and described
accuracy
which ASB assertions is the following: management claims transactions in correct accounting periodq
cutoff
which transaction is the following: management claims that transactions are included in the right category and any related disclosures are relatable and understandable in the context of the applicable accounting framework
presentation
What are the private company assertions for account balances and related disclosures (balance sheet focus)
- existence
- rights and obligations
- completeness
- accuracy, valuation, allocation
- classification
- presentation
which ASB assertion is the following: balance sheet items actually exist
existence
which ΑSB assertion is the following: management claims they hold and control rights to assets on the balance sheet and liabilities are actually obligations of the entity
rights and obligations
which ASB assertion is the following: all balance sheet items that should have been recorded have actually been recorded and all related disclosures are complete
completeness
which ASB assertion is the following: items on balance sheet reported at appropriate amounts and any resulting valuation or allocation adjustment have been appropriately recorded and relate disclosures appropriately measured and described
accuracy, valuation, allocation
which ASB assertion is the following: management recorded balance sheet items in proper accounts
classification
which ASB assertion is the following: balance sheet items grouped appropriately related
presentation
During risk assessment and planning assertions are used as a guide for assessing _________ and ___________
Risk of Material Misstatement and “What can go wrong”
During risk assessment and planning identify _______________ for significant accounts and transactions and implement the __________________
relevant assertions; audit risk model
what are relevant assetions
assertions that are reasonably possible to contain a material misstatement that would cause FS to be MM
After assessing risk with audit risk model, plan __________ and create ____________
NET; audit program
what is an audit program
listing of audit procedures that’ll be performed relating to each FS item
what are the public company assertions from PCAOB
- existence or occurence
- completeness
- valuation/ allocation
- rights and obligations
- presentation and disclosure
audit procedures and most like which of the following: who, what, when, where, how, why
how
what are audit procedures
methods used by audits in gathering audit evidence (specific actions)
financial statements are not statements of facts they are ___________________ made by management about recognition, measurement, presentation, and disclosure of information in the financial statements
claims and assertions
assertions are used as a _________ during risk assessments
guide
what are the four forms of information
oral; visual; paper; electronic
what are the 2 characteristics of audit evidence
sufficient and appropriate
the characteristic “sufficient” is a ____________ factor
quantitative
what is the “sufficient” characteristic
do we have enough evidence? (use professional judgement)
the characteristic “appropriate” is a ______________ factor
qualitative
what is the “appropriate” characteristic? ___________ and _________________ of audit evidence
relevance and reliability
rank (from most reliable to least reliable) the source of audit evidence
- external evidence
- auditor observation and knowledge
- internal evidence
to obtain reasonable assurance, evidence must be _____________ (both sufficient and appropriate) for auditors to draw a conclusion
persuasive
if RMM is high then will the level of sufficient appropriate evidence increased or deceased
increased
if Detection Risk is low that will ____ level of sufficient appropriate evidence (increase or decreasee)
decrease
audit procedures can be categorized into these three categories:
- risk assessment procedures
- test of controls
- substantive procedures
risk assessment procedures are used to
obtain an understanding of the entity and its environment including its IC to assess the risk of material misstatement
test of controls are use to
evaluate the operating effectiveness of internal control in preventing or detecting material misstatement
substantive procedures are used to
detect material misstatements
what are the two subsets of substantive procedures
test of details; analytical procedures
what is the acronym for the standard procedures used un every audit as risk assessment procedures, test of controls, and or substantive test:
F
I
V
E
C
A
R
O
T
S
what is the finished product of risk assessment and planning
audit program
what are the two most common forms of confirmations
bank and receivable
what do bank confirmations confirm
cash accounts, investments, loans, etc
what do receivable confirmations confirm
confirm they exist by directly contacting a sample of customers of the client
who controls confirmations
auditor
can confirmations be sent out at client building
NO
what is an auditor’s sspecilist
an expertise in the field other than accounting/ auditing whose work in that field is used by the auditors to assist in obtaining sufficient appropriate evidence
you figure out if you need a specialist during what phase
risk assessment
who can be a specialist?
employee of accounting firm; usually contracted
auditors should assess what three things about a specialist
competence, capability, objectivity
who dictates what the specialist does, when and type of report/ documentation needed
auditors
are internal auditors independent
no
who are internal auditors
employees of the client that performs assurance/ consulting activities designed to evaluate and improve the effectiveness of the entity’s governance, risk management, and IC processes
the external auditors must asses these three things about internal auditors
objectivity; competence; processes
how can external auditors use the work of internal auditors?
- use work already completed or planned to be completed by IAS
- use the IAs to provide direct assistance on the audit
a group financial statement may require a ___________
group audit
what are the two types of confirmations
positive and negative
what is a positive confirm
ask for a response in all cases; must follow up on all non-responses
what is a negative confirm
ask for a response only if they disagree
what is a permanent file
information that doesn’t change much from year to year
what is a current file
information related specifically to the current year audit
