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Audit > Evidence and Risk > Flashcards

Evidence and Risk Flashcards

1
Q

A majority of the auditor’s work in determining an audit involves the collection of?

A

Evidence

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2
Q

Evidence consists of?

A
  1. ) client accounting data

2. ) supporting documentation (from clients, 3rd parties)

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3
Q

Evidence has what type of relationship with detection risk?

A

Inverse

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4
Q

Detection risk is one aspect of audit risk an auditor can control through?

A

Nature, timing, and extent of audit procedures.

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5
Q

If a high level of detection risk is acceptable then?

A
  • (N) less evidence is collected
  • (T) interim testing acceptable
  • (E) fewer transactions are verified
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6
Q

If a low level of detection risk is acceptable then?

A
  • (N) more evidence collected
  • (T) end of year balance testing
  • (E) more transactions are verified
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7
Q

What are auditors there to verify?

A
  1. ) Assets and revenues are not overstated

2. ) Expenses and Liabilities are not understated

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8
Q

What is the exception on the CPA exam to what auditors are there to verify?

A

If the CPA exam states that it is a “tax-driven” company then:

  1. ) Assets and revenues are not understated
  2. ) Expenses and liabilities are not overstated
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9
Q

Auditors want evidence that is?

A
  1. ) Sufficient (Quantity)

2. ) Appropriate (Quality)

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10
Q

The 2 best types of audit evidence are?

A
  1. ) Observation

2. ) Originates from external parties

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11
Q

What is the weakest type of audit evidence?

A

Oral evidence from mgmt

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12
Q

What are substantive procedures? (TRACE)

A 
(T) - Trace
(R) - Reconcile
(A) - Analytical Procedures
(C) - Confirm
(E) - Examine
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13
Q

Substantive procedures help to reduce?

A

The risk of material misstatement

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14
Q

Substantive procedures only test the accuracy of?

A

F/S - does not test I/C

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15
Q

The assurance level of cash is?

A

High

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16
Q

The acceptable DR of cash is?

A

Low

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17
Q

If A/R DR is high then what type of confirmation is used?

A

Negative confirmation - customer only responds if balance is materially wrong.

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18
Q

If A/R DR is low then what type of confirmation is used?

A

Positive confirmation - customer asked to confirm

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19
Q

What is the associated I/S account to A/R?

A

Revenue

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20
Q

What procedures should be performed for A/P?

A
  1. ) Review P.O.’s/invoices

2. ) Confirm w/vendors

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21
Q

What is the associated I/S account to A/P?

A

Expense

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22
Q

What procedures should be performed for inventory?

A
  1. ) Examine purchase agreements

2. ) Look at board minutes - is inventory held as collateral

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23
Q

What I/S account is associated w/Inventory?

A

COGS

24
Q

What should you do to the beginning balances?

A

Make sure they match last years’ ending balances.

25
Q

What are you checking for with additions and subtractions?

A

That cash in transactions make it o cash receipts journal and cash out transactions get proper approval

26
Q

What is true of ending balances?

A

If beginning balances, additions and subtractions are ok then ending balances should be ok

27
Q

What should be performed on the Statement of Cash Flows?

A
  1. ) Foot balances
  2. ) Trace cash flow items to other F/S
  3. ) Check classifications
28
Q

What are the 3 classifications of a cash flow statement?

A

Operating activities
Investing activities
Financing Activities

29
Q

The indirect method must disclose?

A
  1. ) Interest paid
  2. ) Income taxes paid
  3. ) Non-cash transactions
  4. ) Cash and cash equiv. definitions
30
Q

The direct method must disclose?

A
  1. ) Results as if you had used indirect method
  2. ) Non-cash transactions
  3. ) Non-cash transactions
31
Q

What are subsequent events and post-audit issues?

A

Notable events that occur after the B/S date and before the audit report is issued.

32
Q

If the audit report has been issued what should the auditor do?

A

If situation that was present as of the B/S date the client should issue a disclosure to F/S users and/or revise the F/S.

33
Q

What should auditor do if they forgot to perform a substantive procedure?

A

Determine if other substantive procedures performed served as a substitute. If not audit opinion could be jeopardized.

34
Q

Analytical procedures are required when?

A
  1. ) Planning the audit

2. ) Reviewing the audit

35
Q

What do analytical procedures help the auditor do?

A
  1. ) Determine if management assertions are reasonable

2. ) Devlop audit plan & expectations regarding the F/S

36
Q

What do analytical procedures focus on?

A

On dollar amounts not I/C

37
Q

What type of comparison do analytics perform?

A

Budget vs. Actual

38
Q

What type of data does analytics use?

A

Financial (Comparison of data between years)

Non-financial (Use it to predict a F/S number)

39
Q

What are some examples of non financial data used in analytics?

A

supply usage records comparison year to year such as truck fleet data

40
Q

Analytics are efficient, but they are not…

A

Effective

41
Q

What do management assertions do?

A

Help the auditor plan the audit and select substantive tests.

42
Q

What are the management assertions on tests of account balances?

A 
Presentation & disclosure
Existence
Rights & obligations
Completeness
Valuation & allocation
43
Q

What are the management assertions on tests of transactions?

A 
Occurrence
Cutoff
Classification
Completeness
Accuracy
44
Q

What are the management assertions on tests of disclosures?

A

Occurrence
Classification
Completeness
Accuracy

45
Q

What is not a basic audit procedure?

A

Testing of direct evidence. Consider the source document. (ex. loan covenant)

46
Q

What is the first and most important thing you need to understand about management estimates?

A

Understand management’s rationale and methods for developing estimates before you can judge reasonableness.

47
Q

What is second thing you must do when considering management estimates?

A

Formulate their own opinion on what a good estimate should be and compare.

48
Q

What is the final consideration of management estimates?

A

Do any subsequent events affect the estimate?

49
Q

Working papers are property of the?

A

Auditor

50
Q

What form can working papers be in?

A

Paper or electronic

51
Q

Working papers must include what?

A

Written audit program

52
Q

What is a current file?

A

Info pertaining to CY audit

53
Q

What is a permanent file?

A

Info used for this audit and future audits; updated as needed

54
Q

How long must working papers be kept after audit release date?

A

5 years or longer according to regulations.

55
Q

How long must working papers be kept under PCAOB?

A

7 years.

56
Q

PCAOB audits also require what additional documentation?

A

Engagement completion document.

57
Q

How many days after audit report release date can you subtract from the file?

A

60 days. You can add to the file, but cannot subtract after 60 days. 45 days for PCAOB audits.

Audit (5 decks)

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