Enumeration Flashcards
6 steps in the audit process
Accepting an Engagement
Audit Planning
Considering Internal Control
Performing Substantive Tests
Completing the Audit
Issuing a Report
6 ENGAGEMENT LETTER (The engagement letter serves as the written contract between the auditor and the client. This letter sets forth:)
The objective of the audit of financial statements which is to express an opinion on the financial statements;
The managements responsibility for the fair presentation of the financial statement;
The scope of the audit;
The forms or any reports or other communication that the auditor expects to issue;
The fact that because of the limitations of the audit, there is an unavoidable risk that the material misstatements may remain undiscovered; and
The responsibility of the client to allow the auditor to have unrestricted access to whatever records, documentation and other information requested in connection with the audit.
5 Adequate planning of the audit work is Important because;
➤Planning helps ensure that appropriate attention is devoted to important areas of the audit;
➤ It helps identify potential problems;
It allows the work to be completed expeditiously;
➤ It assists in the proper assignment and coordination of work; and
It helps ensure that the audit is conducted effectively and efficiently
5 sources of information/auditor can obtain knowledge of the business and industry from a member of sources
➤ Review of prior years working papers;
➤ Tour of the client’s facilities;
➤ Reading relevant books, periodicals and other publication;
➤ Discussion with people within and outside the entity; or
➤ Reading corporate documents and financial reports
3 Using Materiality in an Audit
➤ Determine the overall materiality (Financial Statement Level)
Determine the tolerable misstatement (Account Balance Level)
(Perform Audit Procedures)
Compare the aggregate amount of misstatements with the overall materiality.
5 Steps in using the audit risk model
➤Set the acceptable level of audit risk
➤ Assess the level of inherent risk
➤ Assess the level of control risk
➤Determine the acceptable level of detection risk
➤ Design substantive tests
4 Essential concepts of NATURE OF INTERNAL CONTROL
➤Internal control is a process
➤Internal control is effected by those charged with governance, management and other personnel.
➤Internal control can be expected to provide reasonable assurance of achieving the entity’s objectives.
➤Internal control is designed to achieve the entity’s objectives
5 Components of INTERNAL CONTROL/ interrelated components of the entity’s internal control
➤ Control Environment;
➤ Risk Assessment;
➤Information and communication system;
➤ Control Activities; and
➤ Monitoring
6 Control Environment / factors reflected in the control environment
➤ Integrity and ethical values
➤ Management philosophy and operating style
➤ Active participation of those charged with governance
➤ Commitment to competence
➤ Personnel policies and procedures
➤ Assignment of responsibility and authority/Organizational structure
5 STEPS IN CONSIDERATION OF INTERNAL CONTROL
➤ Obtaining understanding of the internal control;
➤ Documenting the understanding of accounting and internal control systems;
➤ Assessing the level of control risk;
➤ Performing tests of controls; and
➤ Documenting the assessed level of control risks.
