Kaplan AUD engagement Flashcards
What are the 5 management F/S assertions about classes of transactions and events?
Occurrence Accuracy Cutoff Completeness Classification
What are the 4 management F/S assertions about account balances?
Completeness
Existence
Rights and Obligations
Valuation and allocation
What are the 4 management F/S assertions about presentation and disclosure?
Completeness Rights and Obligations Occurrence Accuracy and Valuation Classification
What are the basic rules that establish at least the appearance of auditor independence?
Covered Member = any individual who participates in an attest function for a particular client and/or anyone who can influence the attest function
Covered members + Spouse + Immediate Family
No Direct Financial Interest
No material indirect Financial Interest
What is the standard for evaluating due professional care?
Must observe field work and reporting standards
Must exercise reasonable care to ensure that the audit is performed as well as the average auditor.
What is the overall goal of an Audit of client F/S?
The auditor seeks to gain sufficient appropriate evidence that no material misstatements in the F/S so that reasonable assurance can be given that the F/S presentation is presented fairly US GAAP.
What is meant by the word MATERIAL?
The presence of an item of a dollar magnitude or type that would influence the judgement of a reasonable party relying on those F/S?
What are the 3 General Standards?
- Adequate Technical Training
- Independence
- Due professional care
Describe the education and experience that should be possessed by an auditor in a particular audit engagement.
Formal education in auditing or accounting.
Adequate practical experience for the work being performed.
CPE.
Understanding of Industry and specific company.
At what point does the auditor need to acquire technical training and experience per GAAS for audit engagements?
No later than the date the audit engagement is accepted.
How does an auditor document that an audit has been adequately supervised?
Supervisor sign offs on assistant prepared working papers
What is the independent auditor’s responsibility in connection with management assertions about the F/S information?
obtain sufficient appropriate evidence to substantiate that no material misstatements exist in any of the relevant assertions
An account is overstated due to extra transactions that have been discovered by the auditor. What assertions should be tested?
Existence, Cut-off
Several transactions have been omitted from an account balance. What assertions should be tested?
Completeness
Who should hire an entity’s independent auditor?
The audit committee made up of independent members of the BOD. If a non-public company w/o audit committee then the BOD.
What are the principal standards that currently provide practitioner guidance for attestation engagements other than an audit?
Statements on Standards for Attestation Engagements (SSAE)
What is meant by the term MATERIAL MISSTATEMENT?
An omission or misstatement of accounting information that makes it probable that the judgement of a reasonable party relying on the info would be changed.
3 types
Error - unintentional
Fraud - intentional
Direct-effect illegal act - immediate impact on F/S
What are the 2 types of illegal acts that an auditor might encounter in an audit engagement?
Direct- effect illegal act - actual amounts able to be discerned
indirect-effect illegal act - creates a contingency on F/S should be disclosed if known and material
A company has evaded paying income taxes and also has polluted a river. are these direct-effect or indirect-effect illegal acts?
Income tax evasion - direct-effect
polluting a river - indirect-effect
How does the auditor know which accounting principles should apply?
Accounting Standards Codification (ASC) is the sole source of US GAAP.
To avoid an independence issue unpaid audit fees must be paid by a client when?
Must be paid by the issuance of opinion for following year.
What are 2 distinct types of fraud?
Fraudulent Financial Reporting - Managment
Misappropriation of assets - employee
What is the auditor’s responsibility in connection with misstatements on a client F/S?
gain sufficient appropriate evidence to provide reasonable assurance no material misstatement.
material misstatements include errors, fraud and the impact of direct-effect illegal acts
What is the auditor’s responsibility regarding indirect-effect illegal acts?
No responsibility to search for them.
If discovered, auditor must investigate and disclosure may be required.
