Final Review II Flashcards
What is the audit strategy
outlines the scope of the audit engagement,
reporting objectives
timing of the audit
req communications
factors that determine the focus of the audit
What is the audit plan?
outlines the nature, extent, and timing of the procedures to be performed during the audit :
- risk assessment
- further audit procedures
- other audit procedures
What is internal control
process to provide assurance that an entitys objectives will be achieved
What are the 5 components of internal control?
- control environment
- risk assessment
- information and communication systems
- monitoring
- existing control activities
What is existing control activities and what are the key points?
policies and procedures est to ensure that mgmt objectives are carried out
PAID TIPS
What is PAID TIPS
- Prenumbering documents
- authorization of transactions
- independent checks to maintain asset accountability
- documentation
- timely and appropriate performance reviews
- information processing controls
- physicals controls for safeguarding assets
- segregation of duties
How is a service organization related to user entity’s IC
considered to be part of user entity’s information system when such services affect initiation, execution, processing or reporting of the user transactions
What are the 2 types of user reports from a service organization?
- report on controls placed in operation
- report on controls placed in operation and tests of operating effectiveness
What is the auditors use of IT on the audit
effects both the eval and gathering evidence but audit objectives remain the same
What are computer assisted auditing techniques
auditing through the computer
What is transaction tagging
electronically marks a transaction and allows the auditor to follow it though the clients system
what is an embedded audit module?
application program collects transaction data for the auditor. auditor must be involved in program design
What is test data (deck)
uses application program to process test data the results of which are already known
What is integrated test facility?
test data is mixed with live data
What is a parallel simulation
auditor reprocesses clients live data and compares results
what is generalized audit software packages
auditor to perform test of controls and substantive tests directly on the clients system
What are some IT risks
- potential reliance on inaccurate
- loss of data
- unauthorized changes to data
- failure to make req changes
What are some IT benefits ?
- accurate and consistent processing
- timeliness
- facilitation of data analysis
When should fraud be reported to 3rd parties?
- to SEC in order to comply with certain legal and regulatory req.
- successor auditor
- in response to a subpoena
- to a funding agency
What is audit risk
auditor may unknowingly fail to modify the opinion on materially misstated FS
What is the risk of material misstatement?
IRCRDR
What is inherent risk?
susceptibility of material misstatement assuming no related controls
What is control risk?
material misstatement will not be prevented or detected on a timely basis
what is detection risk?
auditor will not detect material misstatement
What is the effect on DR when risk of material misstatement is low
- higher acceptable level of DR
- lower NET substantive tests
What is the effect on DR when risk of material misstatement is high
- lower acceptable level of detection risk
- higher NET substantive tests
What procedures must auditor perform to assess and respond to risk?
- obtain an understanding of the entity and its environment
- assess RMM
- respond to assess risk
- eval audit evidence
what should an auditor understand for risk assessment?
- financial performance
- internal control
- PCAOB requires understanding of selection and application of accounting principles
what items does mgmt make assertion about?
account bal., presentation and disclosure
What are the 6 main financial stmt assertions ?
COVERU
- completeness
- Cutoff
- valuation, allocation, and accuracy
- existence and occurance
- rights and obligations
- understandability
What is completeness?
acct bal., transaction and disclosures that should have been recorded are recorded
what is cutoff?
transactions are recorded in correct acct period
what is valuation, allocation and accuracy?
acct bal., transaction, and disclosures are recorded fairly and at appropriate amounts
What is existence and occurrence?
account bal. exist and have been recorded
What are rights and obligations?
entity controls the rights to the asset
what is understandability and classification?
transactions have been recorded in the correct accts
What are the relevant assertions for transactions and events?
- completeness
- cutoff
- accuracy
- classification
- occurrence
what are the relevant assertions for acct balances
- completeness
- allocation and valuation
- rights and obligations
- existence
what are the relevant assertions for presentation and disclosures?
- completeness
- understandability and classification
- rights and obligations
- valuation and accuracy
what are some of the overall responses to assessed risk
- communicate to audit team an increased need for professional skepticism
- staff with more experience or skill
- increase supervision
- incorporate more unpredictability
- changes to NET of tests
When should there be separate materality of classes of transactions?
when it could influence economic decision of users
What can auditor not share with internal auditor?
- responsibility for audit decisions
- issuing the audit report
What are the critical factors an independent auditor should consider about internal auditor
- competence of internal audit function (education, professional certification, quality of audit documentation
- objectivity of internal auditor (org level)
- application of systematic and disciplined approach
What is the impact of the use of a specialist on audit report
-indicate that the reference to the specialist in the report does not reduce the auditor responsibility
What are audit procedures for related parties ?
- companies procedures to identify related party
- inquiry of mgmt
- filings with SEC
- review material transaction
What are mgmts responsibility for FV measurements
-making FV measurements and disclosures
what are auditors responsibility for FV measurements
auditor tests measurements and disclosures
What should auditor verify in regards to accounting estimates?
- appropriate practices
- estimates are reasonable
- presented in conformity with GAAP
- properly disclosed
