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Audit & Assurance > Chapter 3 - Engagement Planning > Flashcards

Chapter 3 - Engagement Planning Flashcards

1
Q

audit committee is hired by…

A

the board

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2
Q

pre-engagement activities include…

A

client acceptance or continuance, compliance with requirements, engagement letters

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3
Q

in communication between predecessor and prospective auditors, what is required by prospective auditor>

A

an attempt to communicate

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4
Q

after securing the approval from the audit client, communication should include…

A

management integrity, disagreements with management, and reason for change

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5
Q

if management is sketchy, there could be…

A

high litigation risk

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6
Q

a lack of independence can result in..

A

disciplinary action by litigation bu regulators and/or professional organizations and litigation

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7
Q

engagement letter show..

A

exactly what auditors should be doing

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8
Q

engagement letters act as..

A

a contract between auditor and client

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9
Q

engagement letters serves as a means of..

A

reducing risk of misunderstanding between clients and firms

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10
Q

engagement letter should include…

A

management responsibilities, auditor responsibilities, objectives of engagement, any limitations

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11
Q

how is an engagement letter different from audit report?

A

no opinion in the letter

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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

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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

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14
Q

plan the _________ of control tests and substantive tests that are designed to mitigate these risks

A

nature, timing, and extent

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15
Q

plan the nature, timing, and extent of…

A

control tests and substantive tests

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16
Q

quality assurance partners look at…

A

high risk areas

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17
Q

for complex engagements, what staff is usually assigned?

A

more experiences

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18
Q

is the audit engagement team or the audit team bigger?

A

engagement

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19
Q

IT auditors are often needs to..

A

evaluate the effect of computerized processing on the audit

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20
Q

IT auditors ___________ info

A

generate, process, and complete

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21
Q

IT auditors skills are needed to understand…

A

the flow of transactions, or to design and perform audit procedures

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22
Q

external auditors must obtain the work of the client’s…

A

internal audit department

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23
Q

we must consider internal auditor’s….

A

objectivity and competence

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24
Q

internal auditors cannot do what tasks?

A

cannot be delegated tasks that require extensive professional judgement

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25
Q

we might be able to use the internal auditors work if…

A

it isn’t in a high risk area

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26
Q

who are audit specialists?

A

non-audit team members who are skilled in areas other than accounting

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27
Q

auditors must know specialists…

A

qualifications, experience, and reputation

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28
Q

are specialists referred to in the audit report?

A

only if their findings cause a modification

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29
Q

we evaluate the company specialists…

A

work; specifically evaluating data, methods, and assumptions made

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30
Q

the extent of the evaluation of the work of a company specialist is contingent on…

A

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

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31
Q

the time budget is used to..

A

maintain control of the audit by identifying potential problem areas early in the engagement

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32
Q

interim work refers to…

A

procedures completed several weeks or moths before the balance sheet date

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33
Q

YE audit work refers to…

A

procedures performed shortly before and after the balance sheet date

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34
Q

time budget helps us know..

A

budget fees, where people will be at in audit, how many people needed on audit

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35
Q

four stages on-time budget

A

planning, IC testing, interim testing, YE testing

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36
Q

when does the planning stage happen on the time line?

A

prior year 10 k filling to start of Q3

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37
Q

when does IC testing usually occur?

A

around Q2

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38
Q

when on the timeline does interim testing occur?

A

Q3 to YE

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39
Q

when does YE testing happen on the timeline?

A

YE to 10k filling

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40
Q

time reports are recorded by budget categories for the purposes of..

A

evaluating the efficiency of the audit team members, compiling a record for billing the client, compiling a record for planning the next audit

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41
Q

materiality is something that…

A

would influence decision makers

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42
Q

the emphasis of materiality is on who?

A

users of F/S

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43
Q

auditors must examine what two factors when determining materiality?

A

qualitative and quantitative

44
Q

examples of quantitative criteria

A

absolute size, relative size, cumulative size

45
Q

examples of qualitative criteria

A

nature of the item or issue, circumstances, uncertainty

46
Q

ultimately, materiality is a manner of…

A

professional judgment

47
Q

what three things does materiality guide in an audit?

A
  1. planning substantive procedures
  2. evaluating evidence (performance materiality)
  3. making decisions about the audit report
48
Q

planning substantive procedures refers to…

A

directing attention and audit work that is important or risky

49
Q

auditors use performance materiality to….

A

make sure the aggregate of uncorrelated and undetected misstatements does not exceed materiality for the financial statements as a whole

50
Q

three purposes for why auditors use audit engagements

A
  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
Q

what procedure is “gain an understanding for the client and risks associated with them”?

A

risk assessment procedures

52
Q

what procedure is “to test the operating effectiveness of internal controls”?

A

test of controls

53
Q

what procedure is “to produce evidence about managements assertions related to the amounts and disclosures in a clients F/S “ ?

A

substantive procedures

54
Q

substantive audit plan should contain..

A

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
Q

two ways to conduct substantive tests

A
  1. substantive analytical procedures
  2. tests of details
56
Q

three types of inspections of records and documents

A

Vouching, tracing, scanning

57
Q

which two types of inspections do it in a directional way?

A

tracing and vouching

58
Q

Vouching is used to test what assertions?

A

existence or occurance

59
Q

tracing is used to test what assertions?

A

completeness

60
Q

what direction does vouching go?

A

start to end

61
Q

what direction does tracing go?

A

end to start

62
Q

when do you do both vouching and tracing?

A

for large corporations

63
Q

when an auditor compares the expectation to a record balance…

A

analytical procedures are being performed

64
Q

when are analytical procedures being performed?

A

when an auditor compares the expectation to a record balance

65
Q

auditors can evaluate financial statement account by developing…

A

expectation about what a balance should be based on an analysis of relevant financial and non financial data

66
Q

analytical procedures are required in what phase of the audit?

A

planning and review (completion)

67
Q

auditors can use analytical procedures to provide evidence during what phase of the audit?

A

testing

68
Q

auditors should use _________ info for analysis

A

independent and reliable

69
Q

analytical procedures take how many general forms?

A

5

70
Q

three steps of analytical procedures

A
  1. planning
  2. review
  3. substantive analytical procedures
71
Q

analytical procedure example for planning purposes and at the end of the audit

A

analytical procedures used for the 10-Q reviews; comparing balance sheet and income statements to prior years

72
Q

analytical procedure example for substantive testing

A

individual financial stamens line items OR accounts; benchmark based on prediction of what the account balance should be

73
Q

audit documentation definition

A

” 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
Q

two objectives of audit documentation

A
  1. improve audit quality
  2. enhance public confidence
75
Q

example of improve audit quality

A

system of quality controls should audit documents

76
Q

example of enhancing public confidence

A

proof that we followed auditing standards

77
Q

permanent files includes…

A

information of continuing audit significance

78
Q

examples of permanent files

A

key contracts, bylaws, agreements, etc.

79
Q

current files include…

A

the entire engagement administration file for the year under audit and all documentation that is sufficient to support all conclusions of the audit

80
Q

what files include all documentation that is sufficient to support all conclusions of the audit?

A

current files

81
Q

purposes of audit documentation

A
  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
Q

audit documentation an integral part in..

A

audit quality

83
Q

audit documentation documents the…

A

nature timing and extent of work performed

84
Q

audit documentation provides evidence for…

A

due care

85
Q

audit documentation provides a basis for…

A

conclusion and basis of review

86
Q

audit documentation facilitates…

A

planning, performance, and supervision

87
Q

documentation should be prepared in sufficient detail to enable an EXPERIENCED auditor to…

A
  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
Q

audit documentation be prepared in enough detail that the auditor should understand the nature, timing, extent, and results of..

A

procedures, evidence obtained and conclusions reached

89
Q

audit documentation be prepared in enough detail that the auditor can determine what about the work?

A

who performed the work, date of work, reviewer and date of review

90
Q

documentation should provide a clear link between significant findings/issues and…

A
  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
Q

the planning document must include…

A

a listing of each significant amount and disclosure in the clients financial statements

92
Q

an account is considered significant if…

A

there is a chance it could contain material misstatement

93
Q

the documentation must include a list of each relevant financial statement…

A

assertion related to the significant accounts and disclosures

94
Q

if the assertion has a reasonable possibility of containing a misstatement that would cause the statements to be materially misstated, it is considered…

A

relevant

95
Q

an assertion is considered relevant if…

A

it has a reasonable possibility of containing a misstatement that would cause the statements to be materially misstated

96
Q

relevant assertions if cash was a significant account

A

existence, valuation, and presentation/disclosure

97
Q

relevant assertions if A/R is a significant account

A

existence, completeness, valuation

98
Q

cash lead sheet is…

A

The first file of the work papers that lists all cash accounts and a small analysis

99
Q

cash lead sheet is a guide for..

A

how to look at the rest of the work papers

100
Q

what info is on each work paper?

A
  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
Q

documents must be rated for how long?

A

7 years from report release date

102
Q

if no report is issued, documentation should be retained from…

A

the last day of fieldwork

103
Q

all documentation must be finalized within…

A

45 days of audit reports release date

104
Q

documents to be retained include..

A

those documenting discussion and subsequent resolution of differences in professional judgements among team members

105
Q

within the 45 days from filing to documentation finalized, what can reviewer do?

A

cleaning notes but no changes to conclusions

Audit & Assurance (12 decks)

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