Engagement Planning 1 Flashcards
List the Standards of Reporting
TIPPICANOE
- *A**ccounting Principles in Accordance with GAAP
- *N**o New Principles – Consistency
- *O**mitted Disclosures – None
- *E**xpress an Opinion
How is audit strategy mapped out?
- Auditor determines the reporting objectives
- Auditor determines the scope of the audit
- considering various other important factors (e.g., materiality levels, high-risk areas)
Describe Due Professional Care
- Technical abilities mirror those held by peers in the profession
- Follow GAAS Standards
- Obtain a Reasonable Level of Assurance
- Maintain Reasonable Level of Skepticism
- Supervise Audit Staff
- Review judgment at every level
When can audit procedures be performed at interim dates?
GR Timing of audit procedure is flexible
If Control Risk for the accounts and/or transactions is low- audit procedures can be performed at interim dates. The auditor then reviews changes in the balances at year-end.
The steps in an Audit
1) Preparer for Audit
2) Obtain understanding of client, its environment including Internal Control
3) Assess Risks of Material Misstatement and Determine nature, timing and extent of further procedures
4) Perform Test of Controls
5) Perform Substantive procedure
6) Formulate an Opinion
7) Issue Audit report
Risk Assessment procedures in planning
Risk assessment procedures is the procedures followed to obtain an understanding of the entity and its environment
Risk assessment procedures include:
• Inquiries of management and others within the entity
• Analytical procedures: example comparing recorded financial information with anticipated results from budgets and forecast
- Observation and inspection
- Other procedures, such as inquiries of others outside the entity (e.g., legal counsel, valuation experts) and reviewing information from external sources such as analysts, banks, etc.
When should an auditor be hired in relation to the balance sheet date for optimum audit planning and efficiency?
The earlier the auditor is hired- the better for audit planning and efficiency
What must an auditor have in order to discuss issues relating to a predecessor auditor’s work?
If issues relating to predecessor auditor’s work on previous Financial Statements come up during the current audit- Auditor must have client’s permission to discuss the issue.
Supervision requirements
The work of each assistant should be reviewed to:
- To determine wether it was adequately performed (instruct assistan, review the working papers, dealing with differences of opinion among firm personnel)
- To evaluate whether the results are consistent with the conclusion to be presented in the audit report
When can an auditor accept an engagement offered after the year is already closed?
The auditor can take the engagement if they are able to overcome the limitations of the engagement
10 GASS
General Standars
• Training and Proficiency
• Independence
• Professional Care
Standards of Fieldwork
• Planning and supervision
• Internal Controls
• Corroborative Appropriate Audit Evidence
Reporting Standards
• Accounting Principles in Accordance with GAAP
• No New Principles – Consistency
• Omitted Disclosures – None
• Express an Opinion
List the Standards of Field Work
TIPPICANOE
- *P**lanning and Supervision
- *I**nternal Control
- *C**orroborative Audit Evidence
(PIC)
What should an auditor do prior to accepting an audit engagement?
- Review the previous financial statements
- Speak to third parties
- Contact predecessor auditor to evaluate whether engagement should be accepted (must have client permission)
How can analytical procedures be performed in audit planning?
The auditor can compare actual versus forecasted numbers
CRAFT
The 3 categories of GAAS standards
The 10 GAAS are used as overall measures of the quality of the auditor’s performance. TIPPICANOE
The GAAS standards are divided into 3 categories:
- General Standards:apply to all aspect of the engagement from acceptance to completion
- Fieldwork standards: apply only to the portion of the engagement devoted into gathering of information
- Reporting standards: apply only to the manner in which the audit report is to be written
What are the General Standards for auditing?
TIPPICANOE
- Training and Proficiency (Education and Audit Experience)
- Independence
- Due Professional Care (TIP)
Auditor must be independence for
- Auditor must be independent for attestation engagement (ERA’s): Audit/Examination; Review; Agreed-upon procedure engagements leading to findings; Special reports
- NOT independt for compilation, taxes and consultation
- Independence should be maintained in both fact and appearance
- Independence is not impair for indirect and immaterial financial interest
What is the primary duty of an auditor?
To provide users of financial information with REASONABLE ASSURANCE that the financial statements are free of material misstatements, whether cause by fraud or error
Step in Planning an audit
Planing Procedure
BRAINSTOPS
- Basic Discussion with the client
- Review of audit document
- Ask about recent developements
- Interem financial statement - AP is mandatory
- Non-audit personal
- Staffing of audit
- Timing of various audit procedure
- Outside assistance - use of specialist
- Pronouncements
- Scheduling with the client
What is the auditor’s responsibility for detecting theft or fraud?
Auditors are NOT responsible for detecting theft or fraud.
Instead- they are responsible for providing REASONABLE ASSURANCE that the financial statements are not materially misstated.
For what does an auditor use professional skepticism?
- professional skepticism—an attitude that includes (a) a questioning mind, being alert to conditions that may indicate possible misstatement due to fraud or error, and (b) a critical assessment of audit evidence.
- To plan the scope of the audit
- To plan the objectives of the audit
The engagement letter should contain information such as:
The engagement letter should contain information such as:
- the objective of the audit (an expression of an opinion on the financial statements);
- the fact that management is responsible for:
- the financial statements,
- establishing and maintaining effective internal control over financial reporting,
- identifying and ensuring that the entity complies with laws and regulations,
- adjusting the financial statements to correct material misstatements,
- making all financial records and related information available to the auditor, and
- providing the auditor with a letter that confirms certain representations made during the audit;
- the scope of the audit work to be performed (in accordance with GAAS);
- the fact that the purpose of the audit is not to detect fraud but to enable the auditor to express an opinion as to the fairness of the financial statements;
- mention that an audit includes obtaining an understanding of internal control and that the audit committee will be made aware of any discovered significant deficiencies;
- additional work to be performed, such as tax, consulting, or other services (if applicable);
- any limitations or restrictions on the scope of the study;
- work to be performed by the client’s staff (if applicable);
- the basis of the auditor’s fee; and
- the audit work schedule and estimated date of completion.
This list is not inclusive, but it is illustrative of items that should be present.
Procedures that an auditor may consider in planning the audit
Procedures that an auditor may consider in planning the audit
a. Reviewing correspondence files, prior year’s working papers, permanent files, financial statements, and auditor’s reports
b. Discussing matters that may affect the audit with firm personnel responsible for nonaudit services to the entity
c. Inquiring about current business developments affecting the entity
d. Reading the current year’s interim financial statements
e. Discussing the type, scope, and timing of the audit with management of the entity, the board of directors, or its audit committee
f. Considering the effects of applicable accounting and auditing pronouncements, particularly new ones
g. Coordinating the assistance of entity personnel in data preparation
h. Determining the extent of involvement, if any, of consultants, specialists, and internal auditors
i. Establishing the timing of the audit work
j. Establishing and coordinating staffing requirements
