Engagements Part 1 Flashcards
what is professional skepticism?
a continuous attitude in which an auditor critically assesses audit evidence with a questioning mind
when is professional skepticism applied?
when an auditor assesses audit evidence
a CPA can accept an engagement where a client requests they render an opinion on the application of accounting principles done by another auditor BUT…
they should consult with the continuing CPA to ascertain all the available facts relative to forming a professional judgment
What are the 3 potential auditor biases under the AICPA?
C.A.O
1. confirmation bias
2. automation bias
3. overconfidence bias
What are the 4 attributes of audit evidence to management bias that affect its reliability?
C.A.A.S
1. accuracy
2. completeness
3. authenticity
4. susceptibility
if risk of material misstatement (RMM) is high, what 5 actions must auditors take in order to reduce detection risk?
- emphasize professional skepticism
- assign more experienced staff or specialists
- provide more supervision
- reduce predictability of procedures
- change the nature, timing and extent of procedures
(ie testing at year end instead of an interim date)
What are issuers?
entities w/publicly traded securities who report to the SEC
What are the requirements of BOTH integrated (issuer) audits AND non-issuer integrated audits?
opinion on financial statements: YES
opinion on internal controls: YES
level of control testing: Extensive
test current period controls: YES
rely on prior control testing: Reference only
What are the requirements of non-issuer financial audits?
opinion on financial statements: YES
opinion on internal controls: NO
level of control testing: Only financial controls
test current period controls: YES
rely on prior control testing: Reference only
Issue an unmodified opinion
what are the 3 internal control deficiencies?
- control deficiency
- significant deficiency
- material weakness
What is the likelihood, magnitude and opinion issued for the internal control deficiency known as the control deficiency?
Remote (unlikely);
Inconsequential;
Unmodified
What is the likelihood, magnitude and opinion issued for the internal control deficiency known as the significant deficiency?
Reasonable possibility;
Not material, but more than inconsequential;
Unmodified
What is the likelihood, magnitude and opinion issued for the internal control deficiency known as the material weakness?
Reasonable possibility;
Material;
Adverse
What is an Integrated Audit?
auditor expresses opinion on: fair presentation of financial statements AND the effectiveness of internal controls;
requires and understanding of an entity’s I/C structure;
difference in overall purpose
What is a Financial Statement Audit?
auditor expresses opinion on the fair presentation of finanical statements; requires an understanding of an entity’s
I/C structure;
difference in overall purpose
What are the 3 components of the internal control top down approach during an integrated audit?
During the planning phase:
- looking at I/C at the F/S level (macro level) to understand the overall RMM
- looking at significant classes (micro level) of transactions (inventory), accounts and disclosures to develop a plan for tests of controls (TOC)
After TOC is planned:
3. performing TOCs and evaluating results
What are the 4 types of audits?
F.P.O.C.
Compliance
Operational
Financial
Performance
What is the focus of a compilation audit, who is it performed by, and what are 2 examples?
applicable laws and regulations;
regulatory body;
IRS audit or OSHA audit
What is the focus of an operational audit, who is it performed by, and what are 2 examples?
management policies and operations;
internal auditors;
Processes audits or I/C audits
What is the focus of an financial audit, who is it performed by, and what are 2 examples?
fairness of financial statements;
exclusively performed by CPAs;
F/S audits OR interim reviews
What is the focus of a performance audit, who is it performed by, and what are 2 examples?
efficiency and effectiveness;
the government accountability office (GAO);
Governmental project audits OR nonprofit process audit
What is the formula for audit risk?
audit risk = RRM x Detection risk
What is the primary objective of an independent auditor?
To form an opinion about the fair presentation of an entity’s F/S, expressed in a clearly written report
Statements on Standards for Accounting and Review Services (SSARS) applies to what 3 types of attest services?
- Review Engagement
- Compilation Engagement
- Preparation Engagement
What is the review engagement and its standing on assurance, independence and report issuance?
when the CPA performs inquiries and analytical procedures;
- provide limited assurance
- independence is required
- report is issued
What is the compilation engagement and its standing on assurance, independence and report issuance?
when the CPA (assisting nonpublic entities and/or individuals) assembles and reads a full set of F/S used primarily by outside parties
- provide no assurance
- independence is not required, but must be disclosed
- report is issued
What is the preparation engagement and its standing on assurance, independence and report issuance?
when the CPA prepares F/S or specialized F/S elements, accounts or items of F/S used for internal purposes or by outside parties
- provide no assurance
- independence is not required
- report is NOT issued
what are some examples of non-attest services?
bookkeeping (making JE), reproducing client-prepared finanical statements, consulting or tax services
who governs consulting services?
Statements on Standards for Consulting Services (SSCS)
what does attest standards provide issuance of a report about?
a firm’s compliance with laws and regulations
