chap 9 risk assessment procedures Flashcards
how does the risk assessment procedures of observation and inspection in terms of the observation of client personnel perfoming important processes related to financial reporting and the inspection of documents and records that are part of those processes help the auditor?
the auditor gains an uderstanding of the design of internal controls related to financial reporting as a whole and to specific audit objectives related to classes of transactions, account blances, and presentation and disclosure as well as an understanding of the design effectiveness of internal controls related to financial reporting
While the AICPOA auditing standards suggest that inquires of those charged with governance may be informative, the PCAOB standards require the auditor to do what?
inquire of the audit committee or its equivalent about risks of material misstatements
what are 4 risk assessment procedures that the auditor uses to identify and assess the risk of material misstatement?
- inquiries of management and others within the enitity 2. analytical procedures 3. observation and inspection 4. discussion among engagement team members
what do the risk assessment procedures of observation and inspection entail?
observation- they observe a process or procedure being perfomed by others whether that be observing their operations or observing personnel performing important processed related to financial reporting inspection- they inspect documents such as the organizations strategic plan, business model, and organizational structure as well as documents and records related to the processes related to financial reporting
analytical procedures used as a part of risk assessment procedures use financial and nonfiancial info and data aggregated at a high level. What is the problem with this? what do auditors need to do to help counteract this issue?
they may only provide a broad indication about whether a material misstatement exists. they need to consider info obtained by performing other risk assessement procedures in combo with the results from preliminary analytical procedures
what are 3 good reasons to do inquiries with those charged with governance like the board of directors or audit committee?
- they may provide info about the overall competitive environment and strategy of the business that can proved insights about overall client business risks 2. the are often involved in significant strategic and operation decisions so they may have insider knowledge that may help the auditor identify heightened risks of material mistatements 3. they provide the auditor with important insights abouty the overall governance oversight provided by the board of directors and others which is an important aspect of internal control
T/F Risk assessment procedures provide sufficient appropriate audit evidence to form an audit opinion on the FSs
F
how do the risk assessment procedure observation in terms of observing the entity’s operations help the auditor?
it may increase the auditors understanding of the entity and its envirmonment
auditing standards require the enagement partner and other key engagement team members to discuss the susceptibility of the clients FSs to what?
material misstatment due to fraud as well as to errors
T/F the PCAOB suggests making inquires of internal audit personnel while the AICPA requires inquiries
F the other way around
what are the 3 roles of risk assessment procedures?
- provide input for understanding the entity and its environment, including internal controls 2. help auditor identify and assess the risk of material misstatement 3. used to develop audit strategy and audit plan in response to assessed risks
auditors are required to perform preliminary analytical procedures as part of audit planning in every audit in order to do what 2 things?
- better understand the entity 2. assess client business risks
what are 3 reasons its important to make inquires of internal auditors?
- they have exposure to all asprects of the clients business and operations so they may have important info about risks at the overall FS level or assertion level 2. they may provide inportant info about key risks to the business affecting not only financial reporting but also operations and compliance with laws and regulations that may increase the likliehood of material misstatements 3. since a primary focus of internal auditors is evaluating the effectiveness of the entitys inernal procecces related to financial reporting, operations, and compliance, they may provide info about the design and operating effectiveness of internal controls
what are 3 other risk assessment procedures tha may be used besides inquiries of management and others within the enitity, analytical procedures, observation and inspection , and discussion among engagement team members?
- info obtained during client acceptance or continuation evaluation process like discussions with predecessor auditors or insights obtained from background checks for new client engagements 2. evidence obtained during performance of other engagements for the client like a tax related engagement 3. info obtained from external sources such as analyst or credit agency reports, trade and economic journals, and regulatory publications which can help with the understanding of the entity and its enviroment
auditing standards emplhasize the benefits and importance of obtaining info or different perspectives through inquires of who besides management and those with financial reporting responsibilities?
others withn the entity and other employees with different levels of authority
