Chapter 3 - Engagement Planning Flashcards
1
Q
audit committee is hired by…
A
the board
2
Q
pre-engagement activities include…
A
client acceptance or continuance, compliance with requirements, engagement letters
3
Q
in communication between predecessor and prospective auditors, what is required by prospective auditor>
A
an attempt to communicate
4
Q
after securing the approval from the audit client, communication should include…
A
management integrity, disagreements with management, and reason for change
5
Q
if management is sketchy, there could be…
A
high litigation risk
6
Q
a lack of independence can result in..
A
disciplinary action by litigation bu regulators and/or professional organizations and litigation
7
Q
engagement letter show..
A
exactly what auditors should be doing
8
Q
engagement letters act as..
A
a contract between auditor and client
9
Q
engagement letters serves as a means of..
A
reducing risk of misunderstanding between clients and firms
10
Q
engagement letter should include…
A
management responsibilities, auditor responsibilities, objectives of engagement, any limitations
11
Q
how is an engagement letter different from audit report?
A
no opinion in the letter
12
Q
an audit plan is a…
A
Specific list of the specific audit procedures that the audit team needs to gather sufficient appropriate evidence on which to base its opinion on the F/S
13
Q
develop and document a plan that describes the procedures to be performedto assess the…
A
risk of MATERIAL MISTATEMENT at the financial statement and assertion level
14
Q
plan the _________ of control tests and substantive tests that are designed to mitigate these risks
A
nature, timing, and extent
15
Q
plan the nature, timing, and extent of…
A
control tests and substantive tests
16
Q
quality assurance partners look at…
A
high risk areas
17
Q
for complex engagements, what staff is usually assigned?
A
more experiences
18
Q
is the audit engagement team or the audit team bigger?
A
engagement
19
Q
IT auditors are often needs to..
A
evaluate the effect of computerized processing on the audit
20
Q
IT auditors ___________ info
A
generate, process, and complete
21
Q
IT auditors skills are needed to understand…
A
the flow of transactions, or to design and perform audit procedures
22
Q
external auditors must obtain the work of the client’s…
A
internal audit department
23
Q
we must consider internal auditor’s….
A
objectivity and competence
24
Q
internal auditors cannot do what tasks?
A
cannot be delegated tasks that require extensive professional judgement
25
we might be able to use the internal auditors work if...
it isn't in a high risk area
26
who are audit specialists?
non-audit team members who are skilled in areas other than accounting
27
auditors must know specialists...
qualifications, experience, and reputation
28
are specialists referred to in the audit report?
only if their findings cause a modification
29
we evaluate the company specialists...
work; specifically evaluating data, methods, and assumptions made
30
the extent of the evaluation of the work of a company specialist is contingent on...
the risk of MM in the area, the significance of the work in the final opinion, and the objectivity and competence of the company's specialist
31
the time budget is used to..
maintain control of the audit by identifying potential problem areas early in the engagement
32
interim work refers to...
procedures completed several weeks or moths before the balance sheet date
33
YE audit work refers to...
procedures performed shortly before and after the balance sheet date
34
time budget helps us know..
budget fees, where people will be at in audit, how many people needed on audit
35
four stages on-time budget
planning, IC testing, interim testing, YE testing
36
when does the planning stage happen on the time line?
prior year 10 k filling to start of Q3
37
when does IC testing usually occur?
around Q2
38
when on the timeline does interim testing occur?
Q3 to YE
39
when does YE testing happen on the timeline?
YE to 10k filling
40
time reports are recorded by budget categories for the purposes of..
evaluating the efficiency of the audit team members, compiling a record for billing the client, compiling a record for planning the next audit
41
materiality is something that...
would influence decision makers
42
the emphasis of materiality is on who?
users of F/S
43
auditors must examine what two factors when determining materiality?
qualitative and quantitative
44
examples of quantitative criteria
absolute size, relative size, cumulative size
45
examples of qualitative criteria
nature of the item or issue, circumstances, uncertainty
46
ultimately, materiality is a manner of...
professional judgment
47
what three things does materiality guide in an audit?
1. planning substantive procedures
2. evaluating evidence (performance materiality)
3. making decisions about the audit report
48
planning substantive procedures refers to...
directing attention and audit work that is important or risky
49
auditors use performance materiality to....
make sure the aggregate of uncorrelated and undetected misstatements does not exceed materiality for the financial statements as a whole
50
three purposes for why auditors use audit engagements
1. gain an understanding for the client and risks associated with them
2. to test the operating effectiveness of internal controls
3. to produce evidence about management's assertions related to the amounts and disclosures in a client's F/S
51
what procedure is "gain an understanding for the client and risks associated with them"?
risk assessment procedures
52
what procedure is "to test the operating effectiveness of internal controls"?
test of controls
53
what procedure is "to produce evidence about managements assertions related to the amounts and disclosures in a clients F/S " ?
substantive procedures
54
substantive audit plan should contain..
a list of audit procedures for gathering evidence related to the relevant assertions identified for the significant financial statement accounts and disclosures of an audit client
55
two ways to conduct substantive tests
1. substantive analytical procedures
2. tests of details
56
three types of inspections of records and documents
Vouching, tracing, scanning
57
which two types of inspections do it in a directional way?
tracing and vouching
58
Vouching is used to test what assertions?
existence or occurance
59
tracing is used to test what assertions?
completeness
60
what direction does vouching go?
start to end
61
what direction does tracing go?
end to start
62
when do you do both vouching and tracing?
for large corporations
63
when an auditor compares the expectation to a record balance...
analytical procedures are being performed
64
when are analytical procedures being performed?
when an auditor compares the expectation to a record balance
65
auditors can evaluate financial statement account by developing...
expectation about what a balance should be based on an analysis of relevant financial and non financial data
66
analytical procedures are required in what phase of the audit?
planning and review (completion)
67
auditors can use analytical procedures to provide evidence during what phase of the audit?
testing
68
auditors should use _________ info for analysis
independent and reliable
69
analytical procedures take how many general forms?
5
70
three steps of analytical procedures
1. planning
2. review
3. substantive analytical procedures
71
analytical procedure example for planning purposes and at the end of the audit
analytical procedures used for the 10-Q reviews; comparing balance sheet and income statements to prior years
72
analytical procedure example for substantive testing
individual financial stamens line items OR accounts; benchmark based on prediction of what the account balance should be
73
audit documentation definition
" the written record of the basis for the auditors' conclusions that provides the support for the auditors' representations, whether those representations are contained in the report or otherwise'
74
two objectives of audit documentation
1. improve audit quality
2. enhance public confidence
75
example of improve audit quality
system of quality controls should audit documents
76
example of enhancing public confidence
proof that we followed auditing standards
77
permanent files includes...
information of continuing audit significance
78
examples of permanent files
key contracts, bylaws, agreements, etc.
79
current files include...
the entire engagement administration file for the year under audit and all documentation that is sufficient to support all conclusions of the audit
80
what files include all documentation that is sufficient to support all conclusions of the audit?
current files
81
purposes of audit documentation
1. integral part of audit quality
2. documents nature, timing, and extent of work performed
3. evidence for DUE CARE
4. basis for conclusion
5. facilitates planning, performance, and supervision
6. provides basis for review
82
audit documentation an integral part in..
audit quality
83
audit documentation documents the...
nature timing and extent of work performed
84
audit documentation provides evidence for...
due care
85
audit documentation provides a basis for...
conclusion and basis of review
86
audit documentation facilitates...
planning, performance, and supervision
87
documentation should be prepared in sufficient detail to enable an EXPERIENCED auditor to...
1. Understand the nature, time, extent, and results and evidence obtained and conclusions reached
2. determine who performed the work, date of work, reviewer and date of review
88
audit documentation be prepared in enough detail that the auditor should understand the nature, timing, extent, and results of..
procedures, evidence obtained and conclusions reached
89
audit documentation be prepared in enough detail that the auditor can determine what about the work?
who performed the work, date of work, reviewer and date of review
90
documentation should provide a clear link between significant findings/issues and...
1. demonstrate compliance with professional standards
2. support basis for conclusions for each relevant assertion
3. document that accounting records agree with financial statements
91
the planning document must include...
a listing of each significant amount and disclosure in the clients financial statements
92
an account is considered significant if...
there is a chance it could contain material misstatement
93
the documentation must include a list of each relevant financial statement...
assertion related to the significant accounts and disclosures
94
if the assertion has a reasonable possibility of containing a misstatement that would cause the statements to be materially misstated, it is considered...
relevant
95
an assertion is considered relevant if...
it has a reasonable possibility of containing a misstatement that would cause the statements to be materially misstated
96
relevant assertions if cash was a significant account
existence, valuation, and presentation/disclosure
97
relevant assertions if A/R is a significant account
existence, completeness, valuation
98
cash lead sheet is...
The first file of the work papers that lists all cash accounts and a small analysis
99
cash lead sheet is a guide for..
how to look at the rest of the work papers
100
what info is on each work paper?
1. name, date, purpose, page number
2. procedures performed and conclusions reached by the auditor (evidence that auditor followed GAAS and audit tick mark legend)
3. preparers and reviews initials
101
documents must be rated for how long?
7 years from report release date
102
if no report is issued, documentation should be retained from...
the last day of fieldwork
103
all documentation must be finalized within...
45 days of audit reports release date
104
documents to be retained include..
those documenting discussion and subsequent resolution of differences in professional judgements among team members
105
within the 45 days from filing to documentation finalized, what can reviewer do?
cleaning notes but no changes to conclusions
