Completing the Audit Flashcards
What is a loss contingency?
It is an existing condition or situation involving uncertainty as to possible loss that will ultimately be resolved when one or more future events occur or fail to occur.
Three categories of loss contingencies.
- Probable: likely to occur
- Reasonably possible: more than remote but less than likely
- Remote: occurring is slight
What is a legal letter?
An audit inquiry sent to a client’s external and in-house legal counsel to obtain information about litigation, assessment, and claims.
What are subsequent events?
Events occurring between the date of the financial statements and the date of the auditor’s report.
What are the types of subsequent events?
- Type I subsequent events: event that provides evidence of conditions that existed at the date of the financial statements. This requires an adjustment to the F/S.
- Type II subsequent events: event that provides evidence of conditions that arose after the date of the F/S. This does not require an adjustment to the F/S, but may require disclosure in the notes to the F/S.
What are the final evaluations of audit findings?
- Revaluate materiality decisions made during the audit.
- Revaluate audit risks based on audit findings, including inherent risk, control risk, and fraud risk.
- Evaluate misstatements found during the audit.
What is an engagement partner?
A partner or other person in the firm who is responsible for the audit engagement and its performance and for the auditor’s report that is issued on behalf of the firm.
What is an engagement quality control reviewer?
A partner or other person in the firm, who is not part of the engagement team, who has sufficient and appropriate experience and authority to objectively evaluate the significant judgments that the engagement team made and the conclusions it reached in formulated the auditor’s report.
Why is it important to reassess materiality at the end of the audit?
Because it is to ensure it is still appropriate based on the results of audit procedures performed.
What is an engagement quality control review? Why is this review important to the public interest?
It occurs when another partner or member of the firm reviews selected areas of the working papers prior to the issuance of the audit report. An engagement quality review is important to the public interest because it helps to ensure that the audit team conducted the audit in accordance with standards and gathered sufficient appropriate evidence to support audit conclusions.
What is meant by “assembly and retention” of the audit files?
It refers to administrative tasks such as sorting and organizing working papers, discarding old documentation that was replaced with updated documentation, and signing off on completion checklists relating to assembling the file. Retention of the audit rile refers to how long the firm must maintain a secure copy of the audit documentation.
What is the going concern assumption?
The viability of an entity to remain in business for the foreseeable future.
What is written representation?
It is a written statement by management provided to the auditor to confirm certain matters or to support other audit evidence.
What is the purpose of the management representation letter?
It is for management to acknowledge its responsibility for the preparation of the F/S and details of any verbal representations made by management during the course of the audit.
