Chapter 6 Flashcards
Evaluations of financial information through analysis of plausible relationships among financial and nonfinancial data
Analytical Procedures
Eight audit objectives that must be met before the auditor can conclude that any given account balance is fairly stated
Balance-Related Audit Objectives
What are the 8 Balance-Related Audit Objectives?
Existence, Completeness, Accuracy, Classification, Cutoff, Detail Tie-in, Realizable Value, and Rights and Obligations
A method of dividing and auditing by keeping closely related types of transactions and account balances in the same segment
Cycle Approach
An unintentional misstatement of the financial statements
Error
An intentional misstatement of the financial statements
Fraud
Intentional misstatements or omission of amounts or disclosures in financial statements to deceive users; often called management fraud
Fraudulent Financial Reporting
Implied or expressed representations by management about classes of transactions, related account balances, and presentation and disclosures in the financial statements
Management Assertions
A fraud involving the theft of an entity’s assets (also called defalcation)
Misappropriation of Assets
Failure to comply with applicable laws and regulations (also called illegal acts)
Noncompliance with Laws and Regualtions
The four aspects of a complete audit
Phases of Audit Process
What are the phases of the audit process
Plan and design an audit approach, perform tests of controls and substantive tests of transactions, perform analytical procedures and tests of details of balances, and complete the audit and issue an audit report
The four audit objectives that must be met before the auditor can conclude that presentation and disclosures are fairly stated
Presentation and Disclosure-Related Audit Objectives
What are the 4 presentation and disclosure-related audit objectives
Occurrence and rights and obligations, completeness, accuracy and valuations, and classification and understandability
Assertions that have a meaningful bearing on whether an account is fairly stated and used to assess the risk of material misstatement and the design and performance of audit procedures
Relevant Assertions
Audit procedures testing for monetary misstatements to determent whether the six transaction-related audit objectives have been satisfied for each class of transactions
Substantive Tests of Transactions
Audit procedure to test the effectiveness of controls in support of a reduced assessed control risk
Test of Controls
Audit procedures testing for monetary misstatements to determine whether the eight balance-related audit objectives have been satisfied for each significant account balance
Test of Details of Balances
Six audit objectives that must be met before the auditor can conclude that the total for any given class of transactions is fairly stated
Transaction-Related Audit Objectives
What are the 6 transactions-related audit objectives
occurrence, completeness, accuracy, classification, timing, and posting and summerization
Misstatements are considered BLANK if the combined uncorrected errors and fraud in the financial statements would likely change the decisions of a reasonable person using the statements
Material
Three reasons the auditor is responsible for reasonable assurance and not absolute assurance
Audit evidence results from testing a sample of a population, accounting presentations involve complex estimates that involve uncertainty, and fraudulently prepared financial statements are extremely difficult for the auditor to detect
What is the auditors best defense when material misstatements are not discovered?
The audit was conducted in accordance with audit standards
Auditing standards require an audit be designed to provide reasonable assurance of detecting both BLANK and BLANK
material errors and fraud
The six characteristics of skepticism:
Questioning Mindset, Suspension of Judgement, Search for Knowledge, Interpersonal Understanding, Autonomy, and Self-Esteem
5 auditing cycles
Sales and collection, Acquisition and payment, Payroll and personnel, Inventory and warehouse, and capital acquisition and repayment
This cycle that is the primary focus of most audits
Sales and Collection
The capital acquisition cycle is closely related to the BLANK cycle
Acquisition and Payment
The BLANK cycle is closely related to all other cycles
Inventory and Warehouse
Auditors have found that the most efficient and effective way to conduct audits is to obtain BLANK
some combination of assurance for each class of transaction and for the ending balance in the related accounts
BLANK are part of the criteria management uses to record and disclose accounting information in financial statements
Management Assertions
3 categories of assertions
Assertions about classes of transactions and events for the period under audit, account balances at period end, presentation and disclosure
Recorded transactions exist (Transaction-Related)
Occurrence
Existing transactions are recorded (Transaction-Related)
Completeness
Recorded transactions are stated at the correct amounts (Transaction-Related)
Accuracy
Recorded transactions are properly included in the master files and are correctly summarized (Transaction-Related)
Posting and Summerization
Transactions included in the client’s journal are properly classified (Transaction-Related)
Classification
Transactions are recorded on the correct dates (Transaction-Related)
Timing
Amounts included exist (Balance-Related)
Existence
Existing amounts are included (Balance-Related)
Completeness
Amounts included are stated at the correct amounts (Balance-Related)
Accuracy
Amounts included in the client’s listings are properly classified (Balance-Related)
Classification
Transactions near the balance sheet date are recorded in the proper period (Balance-Related)
Cutoff
Details in the account balance agree with related master files amounts, foot to the total in the account balance and agree with the total in the general ledger (Balance-Related)
Detail Tie-in
Assets are included at the amounts estimated to be realized (Balance-Related)
Realizable Value
