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Auditing > Final Review Part II > Flashcards

Final Review Part II Flashcards

1
Q

Planning an Audit

A
  • industry knowledge
  • business knowledge
  • determine information technology on the audit
  • tour facility
  • determine the timing
  • determine areas where there is a greater risk of material misstatement
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2
Q

Audit Strategy

A
  • establish overall audit strategy
  • preliminary assessment of materiality
  • outlines the scope of engagement
  • reporting objectives
  • the timing of the audit
  • required communications
    can be modified in responses to new info
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3
Q

Audit Plan

A
  • must be written
  • NET
  • risk assessment procedures
  • further audit procedures (test of controls and substantive procedures)
  • other audit procedures
    can be modified in responses to new info
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4
Q

After accepting the engagement (part of audit planning)

A
  • recent trends occurring in the industry
  • the risk of material misstatement surrounding various FS assertions
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5
Q

Not relevant information

A

client’s understanding as to the appropriate opinion on the current year’s FS

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6
Q

Internal Control

A
  • provide assurance that an entity’s objectives will be achieved
  • objectives: reliability of financial reporting/effectiveness and efficiency of operations/compliance with applicable laws and regulations
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7
Q

Internal Control = CRIME (Risk Assessment)

A
  • management identifies, analyzes, and manages risks that affect the entity’s ability to accomplish its major objectives
  • new products
  • rapid growth
  • other changes
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8
Q

Internal Control = CRIME (Information and Communication)

A
  • all transactions are recorded and complete
  • detailed enough to provide adequate financial reporting disclosures
  • communication among management, employees, charged with governance, and external parties
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9
Q

Internal Control = CRIME (Monitoring)

A
  • assess the quality of the internal control structure
  • make necessary corrections
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10
Q

Internal Control = CRIME (Existing Control Activities)

A
  • PAID TIPS
  • prevent and detect the risk of lying, stealing, and cheating
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11
Q

SOC 1

A

addresses a company’s IC over financial reporting

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12
Q

SOC 2

A

examination of controls of a service organization over privacy, confidentially, processing integrity, availability, and security

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13
Q

Type 1

A
  • design of control
  • help the auditor understand the control
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14
Q

Type 2

A
  • design of control and test of operating effectiveness
  • help the auditor understand the control
  • reduce the assessed level of control risk
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15
Q

Auditing around the computer = manual

A
  • simple batch systems with a good audit trail
  • risk = insufficient paper-based evidence and insufficient audit procedures
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16
Q

Auditing through the computer = CAAT

A
  • transaction tagging
  • embedded audit modules: collects transaction data for the auditor/auditor must be involved
  • test data: the result is already known/invalid #/excess pay rate/excess hours
  • integrated test facility: commingled with live data
  • parallel simulation: audit reprocess data and compare the result with the client file
  • generalized audit software packages: allow the auditor to perform tests of controls and substantive tests directly on the client’s system
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17
Q

Test data

A

processed by the client’s computer programs under the auditor’s control

18
Q

Control risk assessment procedure

A

inquiry, inspect, observation, and reperformance

19
Q

Understanding IC

A
  • obtaining an understanding of IC
  • determine whether IC has been implemented
    allowed, not required = evaluate operating effectiveness of controls
20
Q

Benefits - computerized environment (IT)

A
  • improve consistency
  • greater management supervision
21
Q

Presumed Fraud Risk

A
  • improper revenue recognition
  • management override of controls
22
Q

Audit procedures to address fraud risk

A
  • discuss with appropriate people
  • identify specific fraud
  • assess fraud risk and develop an appropriate response
  • document
  • evaluate audit evidence regarding fraud
23
Q

Fraud brainstorming session

A
  • significant decisions reached
  • how and when the discussion occurred
  • audit team members who participated
24
Q

Fraud

A
  • error and fraud deserved the same amount of attention
  • ineffective controls
  • justification of fraudulent behavior
  • existence of all 3 fraud risk factors is not an absolute indication that fraud has occurred
25
Q

Obtaining an understanding of control

A
  • evaluating the design of controls and determining whether they have been implemented
    PCAOB: require the auditor to obtain an understanding of the company’s selection and application of accounting principles
26
Q

Control Risk assessed below maximum

A

controls appear to be implemented

27
Q

Risk assessment discussion

A

consideration of the risk of management override of controls

28
Q

Inherent Risk

A
  • new guidance
  • hedge activities
  • fixed asset
  • entity keeps a large amount of cash on hand
  • do not require to use estimates
29
Q

Control Risk

A
  • control
  • a system not password protected
  • supervisory oversight
30
Q

Detection Risk

A

auditor plans/will obtain

31
Q

Increase RMM

A
  • internal auditor reports to top management rather than the audit committee
  • ## turnover
32
Q

Decrease RMM

A
  • separate headquarter
33
Q

Significant Risk

A

Inherent risk at high level

34
Q

The overall response to increase in FS level risk

A
  • increase the level of supervision
35
Q

Materiality Definition

A
  • the amount of error or omission that would affect the judgment of a reasonable person
    (make a preliminary judgment)
  • specific amount
  • qualitative and quantitative
  • smallest level of misstatement
  • XXX expected change in the economy XXX
  • impacted by factors (FS benchmarks, final results, industry)
36
Q

Tolerable Misstatement

A
  • deals with sampling
  • uncorrected and undetected misstatements goes up, tolerable misstatement goes down
37
Q

Using the work of others

A
  • consider their competence and objectivity
  • systematic and disciplined approach (quality control policies and documented internal audit procedures)
38
Q

Using the work of others - specialist

A
  • complex and challenging issues
  • auditor should review the work of the specialist
    evaluate the adequacy
    obtain knowledge of the specialist’s qualification
39
Q

Competency and Objectivity

A
  • discussion with management personnel
  • external quality reviews of the internal auditor’s work
  • previous experience with the internal auditor
40
Q

Related Party Transactions

A
  • disclosure in accordance with GAAP
41
Q

Accounting Estimates

A
  • appropriate practices are used to develop estimates
  • reasonable
  • GAAP
  • properly disclosed
  • management bears the responsibility for making reasonable estimates and including them in the FS
42
Q

FV Measurements

A
  • management is responsible for making FV measurements and disclosures in accordance with GAAP

Auditing (9 decks)

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