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Audit > Exam 1 > Flashcards

Exam 1 Flashcards

1
Q

Assurance services

A

Independent professional services that improve quality of info, targeted towards client

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2
Q

Attestation services

A

Goal is to provide assurance for information as to its reliability, and to provide assurance free of any misstatement

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3
Q

Examinations (audits)

A

Attestations that are Open ended, high level assurance, referred to as an opinion

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4
Q

Reviews

A

Attestations that result in moderate/limited assurance, less open ended

Inquiries of management and analytical procedures

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5
Q

Agreed upon procedures

A

Attestations that result in a report with procedures performed, completely closed ended, client agrees with auditor completely with what they want to perform, no assurance and just reports results

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6
Q

3 types of audits (examinations)

A

Business risk- success of business
Information risk- accuracy of financial statements
Agency costs- consequences that an agent my follow their own best interests

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7
Q

Presentation and disclosure

A

Assertion that accounts are described and classified in financial statements in accordance with GAAP

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8
Q

Existence or occurrence

A

Assertion that assets, liabilities, and equity in financial statements all exist

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9
Q

Rights and obligations

A

Assertion that client has legal rights to assets listed

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10
Q

Completeness

A

Assertion that no transactions, assets, liabilities or equity are omitted from financial statements

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11
Q

Cut-off

A

Assertion that transactions and events have been recorded on correct period

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12
Q

Valuation and allocation

A

Assets, liabilities, revenues, expenses are correctly valued

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13
Q

External audit

A

Focus is on financial statements

Objective is expression of an opinion on fairness

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14
Q

Internal audit

A

Focus is how well business is run

Reviews policies and procedures and makes recommendations to increase revenues

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15
Q

Operational audit

A

Internal audit that tests effectiveness and compliance with policies and procedures

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16
Q

Compliance audit

A

Internal audit that tests compliance for laws, government auditing, external auditor doesn’t care about it

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17
Q

Internal reporters report to the ________ and NOT _______

A

Audit committee, CEO

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18
Q

PCAOB

A

Goal is to regulate audits and auditors of public companies

Establish audit, quality control standards. Writes GAAP

Only 2 of the 5 board members can be accountants

Appointed by the SEC

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19
Q

AICPA

A

Issues statements in auditing standards, quality control standards and peer review

Statements on Auditing Standards

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20
Q

Auditing standards responsibility levels

A

Unconditional- required in all cases

Presumptively mandatory- required except when auditor deems necessary to not follow

Responsibility to consider- auditor can use professional judgement on whether or not to follow

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21
Q

GAAS standards

A

Statements(AICPA)- must be applied

Interpretive publications- recommendations to consider

Other auditing publications- help auditor understand and apply standards

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22
Q

AU topics

A

200-299- general principles and responsibilities
300-499- risk assessment and response to assessed risk
500-599- audit evidence
600-699- using work of others
700-799-audit conclusions and reporting
800-899- special considerations
900-999- ^ in US

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23
Q

6 main parts of a public company standard audit report

A 
What the auditors did
Opinion of auditor
Mention of internal controls
Managements responsibility 
Auditors responsibility
Standards used
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24
Q

Qualified opinion

A

Modified opinion that States that financial statements are fair except for some small matter, such as auditor is not able to audit a particular area

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25
Q

Adverse opinion

A

Modified opinion that financial statements are not presented fairly

26
Q

Disclaimer of opinion

A

Modified opinion where auditors cannot obtain sufficient audit evidence

27
Q

Pervasive misstatement

A

Financial statements as a whole are misstated

28
Q

Audit risk

A

The risk that the auditor will incorrectly give an unqualified opinion on materially misstated financial statements

Ineffective audit

29
Q

Audit risk equation

A

Inherent risk x
Control risk x
Detection risk

30
Q

Inherent risk

A

Susceptibility of an account to misstatement. Ex. Cash is easy to steal; high risk

31
Q

Major types of audit evidence

A 
Accounting information systems 
Documentary evidence
Third party representation
Physical evidence
Computations
Data interrelationships
Client representations
Evidence from related party transactions
Subjective audit evidence
32
Q

3 steps to review audit estimates

A

Review managements approach
Develop an estimate
Review subsequent events after estimate- ex. Cash collections after estimating ADA

33
Q

Appropriate audit evidence

A

A measure of audit evidence reliability and relevance

34
Q

What makes audit evidence reliable?

A 
Independent source
Generated through effective controls
Obtained directly by an auditor
Written documentation 
Original documents, not copies
35
Q

Audit Sufficiency

A

Enough quantity of evidence to form a reasonable opinion

36
Q

Scope of audit sufficiency

A

Nature- what audit procedure
Timing- when to perform procedure
Extent- how many items in procedure

37
Q

Risk assessment

A

To obtain an understanding of the entity, it’s environment and internal control

38
Q

Substantive tests

A

Tests whether the balance in the account is correct; end of processing

39
Q

Tests of details

A

Verifying that balances are correct

Transactions, ending balances, disclosures

40
Q

Analytical procedures

A

Evaluations of financial information made by a study of plausible relationships a month financial and non financial data

41
Q

Analytical procedure approaches

A 
Trend analysis
Horizontal analysis- across time
Cross sectional analysis
Reasonableness tests
 Vertical financial statements- convert all numbers to percentage of something
42
Q

Cross footing

A

Total of a row of numbers

43
Q

Data analytics

A

The computer assisted examination of information in financial statements. Entire population rather than samples

44
Q

6 audit steps

A

Plan the audit, strategy
Obtain understanding of client
Assess risks and design audit procedures
Perform tests of control, analytical procedures
Complete the audit
Form an opinion

45
Q

Engagement risk

A

Risk to a CPA firm of association with an audit client, or would be sued by a client, reputation harmed by a client

46
Q

Responsibilities of management but not auditors

A 
Financial statements
Effective internal control
Compliance with laws
Providing representation letter
Adjusting financial statements for material misstatements
47
Q

Tolerable misstatement

A

An account level misstatement

48
Q

Transactions assertions

A 
Occurrence
Completeness
Accuracy
Cutoff
Classification- proper accounts
49
Q

Account balances assertions

A

Existence
Rights and obligations
Completeness
Valuation and allocation

50
Q

Disclosures assertions

A 
Occurrence
Rights and obligations 
Completeness
Accuracy and valuation 
Classification and understandability
51
Q

PCAOB 2nd standard of fieldwork

A

Auditor must have sufficient understanding of the entity, it’s environment, it’s internal control to assess risk of material misstatement

52
Q

AICPA-GAAS standard of internal control

A

To obtain reasonable assurance but not absolute assurance, auditor identifies and assesses risks based on understanding of the entity including its internal control

53
Q

Control activities

A

Performance reviews
Information processing controls
Physical controls
Segregation of duties: authorisation, recording, and custody

54
Q

Types of control tests

A

Inquiries- discuss with client
Inspection- sample of purchase orders
Observation- observe procedures applied to invoices
Reperformance- compare quantities on invoice to quantities on shipping documents

55
Q

Deficiency

A

An internal control issue where a control does not allow employee to prevent material misstatements

56
Q

Significant deficiency

A

An internal control deficiency important enough to bring up to the audit committee

57
Q

Material weakness

A

An internal control deficiency that would cause reasonable possibility that a material misstatement will not be prevented

58
Q

Assessment of internal auditors

A

Objectivity- policies for assuring it
Competence- education, experience
Work performance- reviewed by an external auditor

59
Q

Internal control over financial reporting audit stages

A 
Plan the engagement
Identify controls to test 
Begin at financial statement level identify relevant assertions
Identify entity level controls
Test and evaluate
Form an opinion
60
Q

ICFR evaluations

A 
Adequacy of management assessment
Results of auditors design evaluation
Results of operating tests
Negative results of substantive procedures
Control deficiencies
61
Q

5 components of internal control

A

Control environment- managements attitude and ethics
Management risk assessment- organisations should evaluate their own risk
accounting information and communication system
Control activities- PIPS
Monitoring- over time for if they continue to be relevant

62
Q

Steps in auditors considerations of internal control

A 
Obtain understanding of internal control
Document understanding- work paper
Assess risks of material misstatement 
Design further audit procedures
Perform tests of controls and evaluate results 
Substantive procedures

Audit (5 decks)

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