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Audit & Assurance > Chapter 2 - Professional Standards > Flashcards

Chapter 2 - Professional Standards Flashcards

1
Q

ASB is for ____ entities

A

private

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2
Q

three types of professional standards principles

A

responsibilities, performance, reporting

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3
Q

PCAOBs and ASB principles are…

A

similar

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4
Q

GAAS stands for…

A

generally accepted auditing standards

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5
Q

what does GAAS do?

A

identify necessary qualifications and characteristics of auditors and guide the conduct of audit

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6
Q

simple gaas definition

A

who can audit? how to audit?

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7
Q

purpose of GAAS

A

to achieve the following objective of an audit
1. obtain reasonable assurance that there is no material misstatement
2. report on the f/s and communicate in accordance of audit findings

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8
Q

sources of GAAS

A

ASB, PCAOB, IAASB, etc.

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9
Q

what does GAAP tell us?

A

how to record transactions, present f/s, and disclose other financial information

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10
Q

what is the foundation of an audit?

A

fundamental principles

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11
Q

three components of GAAS

A

fundamental principles, PCAOB auditing standards and ASB statements on auditing standards, interpretive publications

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12
Q

interpretive publications guide..

A

application of GAAS

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13
Q

PCAOB auditing standards and ASB statements on auditing standards are…

A

requirements supporting principles

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14
Q

simple definition of responsibilities principle

A

who can audit

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15
Q

4 parts of responsibilities principle

A
  1. competence and capabilities
  2. independence
  3. due care
  4. professional skepticism and judgement
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16
Q

competence and capabilities also means…

A

experience and expertise

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17
Q

two types of independence that an auditor must be

A

in fact and in appearance

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18
Q

independence in fact means…

A

you are independent

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19
Q

independence in appears means…

A

you appear independent

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20
Q

you cannot measure which type of independence?

A

in fact

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21
Q

what relationship should be independent?

A

financial and managerial

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22
Q

due care is…

A

level of performance by reasonable auditor in similar circumstances

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23
Q

skepticism is…

A

appropriate questioning and critical assessment of evidence

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24
Q

judgement is…

A

using knowledge, training, and experience in making informed decisions during an audit

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25
Q

we want an auditor to be both…

A

confident and capable

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26
Q

how can confidence hurt an audit?

A

being over confident

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27
Q

the goal of performance principle is…

A

to provide reasonable assurance that f/s do not contain material misstatements

28
Q

4 parts of performance principle

A
  1. planning and supervision
  2. materiality
  3. risk assessment
  4. audit evidence
29
Q

reasonable assurance means there is room for…

A

error

30
Q

planning of audit means asking ____? ____?

A

when? who?

31
Q

materiality means it influences…

A

decisions of f/s users

32
Q

materiality is considered…

A

thought the audit

33
Q

risk assessment involves understanding…

A

the entity and environment

34
Q

with risk assessment, you have to determine…

A

necessary effectiveness of substantive tests

35
Q

audit evidence is obtained by…

A

testing

36
Q

sufficient evidence =

A

quantity

37
Q

appropriate evidence =

A

quality

38
Q

reasonable is NOT…

A

absolute

39
Q

audit risk model equation

A

audit risk = inherent risk * control risk * detection risk

40
Q

which two risks have risk of material misstatement?

A

inherent risk and control risk

41
Q

we do not have control over which risks?

A

inherent and control

42
Q

audit risk means giving…

A

the wrong opinion

43
Q

inherent risk is the risk of..

A

material misstatement without controls

44
Q

control risk is risk that…

A

controls in place will not prevent or detect MM

45
Q

detection risk refers to…

A

audit work

46
Q

audit work means…

A

looking at evidence

47
Q

appropriate evidence must be both..

A

relevant and reliable

48
Q

relevance: does evidence….?

A

address assertions of interest

49
Q

reliability refers to the…

A

hierarchy of evidence sources

50
Q

evidence sources from most reliable to least

A

direct personal knowledge, external documentary evidence, internal documentary evidence

51
Q

sufficient evidence is influences by…

A

effectiveness of the entity’s internal control (sample size)

52
Q

effective internal control results in…

A

lower level of control risk and evaluate less evidence

53
Q

good internal controls =

A

less audit work

54
Q

examples of auditors’ direct personal knowledge evidence

A

observe PP&E and inventory

55
Q

external documentary evidence

A

A/R confirmations, bank confirmations

56
Q

external internal evidence examples

A

invoice from vendor for purchases

57
Q

internal documentary evidence example

A

client sales invoices

58
Q

reporting principle is meant to…

A

express an opinion (or state that an opinion can be expressed) on an entity’s f/s

59
Q

reporting principle asses f/s against…

A

financial reporting principles (GAAP)

60
Q

system of quality control provides a firm with..

A

reasonable assurance that the firm and its personnel..
1. comply with professional standards and regulatory/legal requirements
2. issue reports that are appropriate for the circumstances

61
Q

6 elements of system quality control

A
  1. leadership responsibilities for quality within the firm “tone at the top”
  2. relevant ethical requirements
  3. acceptance and continuance of client relationships and specific engagements
  4. human resources
  5. engagement performance
  6. monitoring
62
Q

PCAOB monitors public accounting firms through…

A

inspections

63
Q

how often do firms auditing > 100 public entities get inspected by PCAOB?

A

annually

64
Q

how often do firms auditing < 100 public entities get inspected by PCAOB?

A

every three years

65
Q

PCAOB inspection reports list..

A

deficiencies in audits conducted by registered firms

66
Q

auditors that audit private companies instead get…

A

peer reviewed

Audit & Assurance (12 decks)

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