Chapter 6 (slide 9 to 15) start of exam 2 Flashcards
The Common form of segmenting is called what?
The cycle approach, which divides classes of transactions and account balances that are closely related into segments.
The Steps to Develop Audit Objectives (list 5)
- Understand objectives and responsibilities for the audit
- Divide financial statements into cycle
- Know management assertions about financial statements.
- Know general audit objectives for classes of transactions, accounts, and disclosures.
- Know specific audit objectives for classes of transactions, accounts, and discourses.
Management assertions are what?
Management assertions are implied or expressed representations by management about classes of transactions and the related accounts and disclosures in the financial statements that are directly related to the financial reporting framework used by the company
The PCAOB describes five categories of management assertions:
- Existence or occurrence
- Completeness
- Valuation or allocation
- Rights and obligations
- Presentation and disclosure
International auditing standards and AICPA auditing standards further divide management assertions into two categories:
- Assertions about classes of transactions and events and related disclosures for the period under audit
- Assertions about account balances and related disclosures at period end
General Transaction-Related Audit Objectives (List 7):
- Occurrence—Recorded transactions exist.
- Completeness—Existing transactions are recorded.
- Accuracy—Recorded transactions are stated at the correct amounts.
- Posting and Summarization—Recorded transactions are properly included in the master files and are correctly summarized.
- Classification—Transactions included in the client’s journals are properly classified.
- Timing—Transactions are recorded on the correct dates.
- Presentation —Transactions are appropriately aggregated or disaggregated and described, and disclosures are relevant and understandable
Balance-Related Audit Objectives (List 9):
- Existence—Amounts included exist.
- Completeness—Existing amounts are included.
- Accuracy—Amounts included are stated at the correct amounts.
- Classification—Amounts included in the client’s listing are properly classified.
- Cutoff—Transactions near the balance sheet date are recorded in the proper period.
- Detail Tie-In—Details in the account balance agree with related master file amounts, foot to the total in the account balance, and agree with the total.
- Realizable Value—Assets are included at the amounts estimated to be realized.
- Rights and Obligations—Assets are owned or controlled by the entity, and liabilities are obligations of the entity.
- Presentation—Amounts are appropriately aggregated or disaggregated and described, and disclosures are relevant and understandable
Phase 1: Plan and Design an Audit Approach
a. Two overriding considerations affect the approach the auditor selects:
1. Sufficient appropriate evidence must be accumulated to meet the auditor’s professional responsibility.
2. The cost of accumulating the evidence should be minimized.
b. Risk assessment procedures include the following:
1. Obtain an understanding of the entity and its environment.
2. Understand internal control and assess control risk.
3. Assess risk of material misstatement (including assessment of the risk of material misstatement due to fraud).
Phase 2 and 3 test and preform what?
- Controls
- Substantive Tests of Transactions
- Perform Substantive Analytical Procedures
- Tests of Details of Balances.
Phase 4 does what?
Complete the Audit and Issue and Audit Report.
What happens after all phases are completed?
The auditor will reach an overall conclusion as to whether the financial statements are fairly presented. The auditor must then issue an audit report that will accompany the client’s financial statements
