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Audit Test 2 - Chapter 3 & 4 > Chapter 3 > Flashcards

Chapter 3 Flashcards

1
Q

When initiating communication with predecessor auditors prospective auditors should expect

(3)

A
  • Take responsibility for obtaining clients premission for predecessor auditor to give info about prior audits
  • conduct interviews with partners and managers of the predecessor accounting firms engagement team
  • obtain copies of prior auditors audit documentation
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2
Q

GAAS requires that auditors always prepare and use?

A

A written audit plan

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3
Q

Factors that affect auditors decisions about the quantity, type and content of audit documentation

A
  • Document compliance with GAAS
  • Existence of new sales contracts important to clients business
  • auditors judgement about materiality
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4
Q

Where would audit documentatino taht shows the detailed evidence and procedures regarding the balance in accum depr accnt for the year under audit be found?

A

Current file audit documentation

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5
Q

Premanent file most likely to contain

A
  • client organizational chart
  • compies or exerpts of corp or assn. charter, bylaws, or pship agreement
  • copies or exerpts of continuing contracts (leases, bond indentures, royalty agreements)
  • history of company, products, markets and background
  • copies or exerpts of minutes of meetings of stockholders & or directors on matters of lasting interest
  • continuing schedule of accounts whos balances are carried foreward for several years (retained earnings, pship capital, owners equity)
  • copies of prior year finan statements and audit reports
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6
Q

Benefits of determining materiality in the initial planning stage of an audit

A
  • fine tune work for effectiveness and efficiency
  • avoiding over auditing
  • avoiding underauditing
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7
Q

Advantages of using CAATs

A
  • can be used for audits of clients that use different computer equipment or file formats
  • utilizes speed and accuracy of computer
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8
Q

Engagement letters should set forth the understanding of:

A
  • objectives of the engagement
  • mgmt’s repsonsiblities
  • auditors responsibilities
  • limitations of the engagment
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9
Q

Auditors report should mention the use of a specialist only when:

A

specialists findings affect auditors conclusions

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10
Q

3 goals of audit planning

A
  • make sure firm has requisite staff to conduct the audit in accordance with prof standards in a timely and profitable manner
  • determine materiality
  • outline specific audit procedures including control tests & substantive tests that need to be executed properly in order to comply with prof standards
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11
Q

Prior to accepting a new audit engagement an audit firm should

A
  • Attempt to contact predecessor auditor
  • evaluate integrity of mgmt
  • assessss the firms resources
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12
Q

An Audit plan contains

A

specificatinos of procedures the auditors belive appropriate for the financial statments

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13
Q

The Revenue cycle contains?

A
  • Cash
  • A/R
  • Sales
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14
Q

When auditing existence assertion for an asset, audtiors proceed from the…

A

general ledger back to the supporting original transaction documents

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15
Q

Confirmations of A/R provide evicence primarily about which two assertions?

A

Existence - customer is admitting that it owes client

Rights & Obligations - ownership of A/R

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16
Q

Materiality is a matter of?

A

Professional Judgement

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17
Q

When evaluating reasonableness of acct estimates by mgmt the audit team would be interested in?

A

evidence of systematic bias (aggressive or conservative)

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18
Q

Purposes or functions of an audit documentation

A

Aid CPA in the conduct of the audit work and to provide support for the auditors opinion and compliance with aditing standards

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19
Q

Audit Documentation

(Definition)

A

auditors record of the procedures perfromed and conclusions reached in the audit

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20
Q

What records may be included in audit documentation?

A
  • Current Files
  • Permanent Files
  • Detailed support for decisions regarding planning and performing the audit, procedures perfromed, evidence obtained, and conclusions reached
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21
Q

Permanent files

A

info of continuing audit significans over many years of audits of the same client

relevent to ongoing client relationship

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22
Q

Current files

A

all client acceptance or continuance documentation along with planning documentation for the year under audit

relevant to just one year of the client relationship

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23
Q

Planning Memorandum summarizes data contained in what files?

A

Current

24
Q

“Special Events Report” that is filed with the SEC whenever certain significant corporate events occur such as changes in control, legal proceedings and changes of auditor.

A

Form 8-K

auditor must sumbit a letter stating whenther they agree/disagree with the explanation if not provide details

25
Q

Financial info inquiry sources

A
  • Annual reports to shareholders
  • Interim finan statements
  • securities registration statements
  • annual report on SEC form 10-k
  • reports to regulatory agencies
26
Q

Inquiries to detect business accociates sources

A
  • Banker
  • Legal Cousel
  • Underwriter
  • Customers
  • Suppliers
27
Q

Info regarding integrity of mgmt and disagreements with mgmt can be obtained from

A

predecessor auditors

28
Q

Independence in fact

A

state of mind of the auditor regarding their independence

29
Q

Independence in appearance

A

Others (particularly shareholders) perception of the auditors independence

30
Q

Engagement letter sets forth understanding with the client regarding?

A
  • Objectives of engagement
  • mgmts responsibilites
  • auditors repsonsibilites
31
Q

Terminiation letters provide opportunity to deal with the subject of future services such as

A
  • access to audit documentation by successor auditors
  • reissuance of auditors report when required for SEC reporting or comparative finan reporting
  • Fee arrangements for future services
  • report of auditors understanding of the circumstances of termination
32
Q

Audit Plan

(definition)

A

comprehensive list of the specifc audit procedures that the audit team must perform to gather sufficient appropriate evidence on which to base an opinion on finan statements

33
Q

Risk assessment test provides the basis to determine (3 things) of internal controls test and substantive test of acct balances and disclosures

A

nature timing and extent

34
Q

Staffing the Audit

Team consists of?

A
  • Engagement Partner
  • Audit Manager
  • Quality assurance partner
  • I.T. auditor
  • Audit Staff
  • tax partner
35
Q

Staff assignment depends on?

A

Risk and experience

High risk, high experience

Low Risk, low experience

36
Q

Considering work of internal auditors, external auditors should take into account

A

Internal auditors objectivitiy and competence

objectivity - do they report to BOD audit committe or mgmt?

Competence - what education and certifications do they have

37
Q

Use of specialist in an audit

A
  • Specialists should be unrelated to company
  • auditor must obtain understanding of specialits methods or assumptions
  • auditor must know specialists qualification, experience and reputation
38
Q

Time Budget

A
  • Usually based on prior years work for continuing clients and adjusted for changes in clients business
  • 1st time audit client: consider predecessor auditors work or experience with another client in similar field
39
Q

Interim Audit Work

A

Audit work done weeks or months before the balance sheet date

40
Q

Year end audit work

A

Performed shortly before balance sheet date

41
Q

most public audit firms busy season is from

A

September to march

42
Q

Purpose of time reports

A
  • Evaluate efficiency of audit team
  • compile a record for billing
  • compile a record fro planning next audit
43
Q

Materiality is based on?

A

Professional judgement

44
Q

Performance Materiality

(Tolerable Misstatement)

A

amount to make sure that the aggregate of uncorrected/undetected immaterial missatatments do not exceed material for finan statements as a whole

45
Q

When calculating materiality consider

A

nature of item or issue

engagement circumstances

possible cumulative effects

46
Q

Auditor selects an item of finan info from a journal or ledger and follows its path back through the process to the beginning

A

vouching

47
Q

Auditor selects a source document and follows it forward to its final recording

A

Tracing

48
Q

An “eyes-open” approach looking for anything unusual

A

scanning

49
Q

Inspection of tangible assets provides strong evidence of (blank) and may provide tentative evidence of (blank)

A

Existence

Valuation

50
Q

Evidence gathered by formal and informal (blank) generally cannot stand alone as convincing ausitors should

A

inquiries

corroborate responses with independent findings based on other procudures

51
Q

Confirmatino by direct correspondence with independent parties can produce evidence of (blank & blank) and sometimes of (blank & blank)

A

existence and ownership

valuation and cutoff

52
Q

Important points about confirmations

A

should be printed on clients letterhead and signed by client

should seek info receipient is able to supply

should be handled (mailed and received) by audit team

53
Q

Recalculation can provide evidence of (blank & blank)

A

Existence and valuation

54
Q

Evaluating finan statement accounts by sutyding and comparing relationships among finan and nonfinan data

A

Analytical Procedures

55
Q

Because of their effectiveness in direction attention to high risk areas, prof standards REQUIRE that analytical procedures be performed during the (blank) & (blank) stages of the audit

A

Planning

Final Evaluation

56
Q

Things to consider when evaluating clients computerized environment

A
  • Possibility of temp transaction trails
  • uniform processing of transactions
  • potential for error or fraud
  • potential for increased mgmt supervision
  • initiation or subsequent execution of transactions by computer
  • use of cloud
57
Q

Computer Assisted Audit Techniques (CAATs)

A
  • Auditor can complete tasks with their own laptop
  • auditor can directly access clients data set for the entire year under audit
  • have spreadsheet and word processing capabilities

Audit Test 2 - Chapter 3 & 4 (3 decks)

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