Engagement Planning Flashcards
What are the two preconditions for an audit?
1) Acceptability of financial reporting framework
2) Management’s agreement that it is responsible for preparation and fair presentation of F/S, DIM of I/C, and providing auditor with access to all relevant info
What are the inquiries that should be made of a predecessor auditor?
RID-C Reasons for change Integrity of management Disagreements during audit Communication with management or those charged with governance
What are matters auditor should communicate to governance?
DISAPPROVE Disagreements with management Illegal acts or noncompliance Significant accounting policies Adjustments Prior discussions with management Problems Responsibilities Other info Views of other accountants Estimates
What are the auditor’s responsibilities in an audit?
Conduct audit in accordance with GAAS
Informing client of any improvements in controls or operations that come up
What are the client’s responsibilities in an audit?
Making available all records
Not limiting scope of work
Paying fee
What are the parts of an engagement letter?
FACSIMILE Fees Auditor's responsibility Confirmation of engagement Scope and objective Internal control Management's responsibility Irregularities iLegal acts Errors
What are the steps in audit planning?
BRAINSTOPS Basic discussions with client Review of audit documentation Ask about recent developments Interim F/S Non audit personnel consulted Staffing Timing Outside assistance Pronouncements Scheduling with client
What is audit risk?
Risk that auditor may unknowingly fail to modify opinion when F/S are materially misstatements
AR = IR x CR x DR
What is inherent risk?
Risk that misstatement will occur in the absence of controls
Part of RMM
What is control risk?
Risk that client’s I/C will not prevent or detect a material misstatement
Part of RMM
What is detection risk?
Risk that audit procedures will incorrectly conclude that material misstatement does not exist
Includes test of details risk and analytical procedures risk
What are two types of fraud?
Fraudulent financial reporting - upper management
Misappropriation of assets - defalcation by employees
What are the components of the fraud triangle?
Motivation
Opportunity
Rationalization
What are the 6 elements of quality control for a CPA firm?
HEAL ME Human resources Ethical requirements Acceptance and continuance of client relationships Leadership responsibilities for quality Monitoring Engagement performance
