M5 Flashcards
Describe the top down approach used to select controls to test for issuer / nonissuer clients
Includes the following chronological levels:
1) Financial statement level - assess overall risks
2) entity level - identifies and tests controls pertaining to - control environment, management override, monitoring the results of operations and other controls, period-end financial reporting, centralized operations
3) Accounts, disclosures, and assertion levels - the auditor evaluates qualitative and quantitative risk factors to identify significant accounts, disclosures, and assertions for which there is a reasonable possibility of material misstatement, Once identified, the controls are tested
How does the extent of testing of internal controls differ between a financial statement audit and an audit of internal control for non-issuers?
The extent of testing of internal controls for a financial statement audit is more limited than an audit of internal control
When rendering an opinion on internal control for an audit of internal controls, te auditor should obtain evidence regarding the effectiveness of selected controls over all relevant assertions. THis level of testing is not required for a financial statement audit.
What is the accountant’s responsibility with respect to control deficiencies identified during an engagement to audit the internal control of a nonissuer
Significant deficiencies and mw should be communicated in writing to management and those charged with governance by the report release date.
Control deficiencies that are not significant deficiencies of material weaknesses should be communicate in writing to management within 60 days of the report release date.
A material weakness results in adverse opinion
How are control deficiencies, sign. deficiencies and material weaknesses communicated by the auditor to the issuer in an integrated audit?
IC deficiencies over FR should be communicated to management in writing. The audit committee should be informed when the communication was made.
Significant deficiencies - should be communicated in writing to the audit committee
material weaknesses- communicated in writing to both management and the audit committee prior to the issuance of the auditor’s report on internal control over financial reporting
What standards are referenced in the auditor’s report that provides an opinion on the operating effectiveness of internal control for
1) issuers
2) nonissuers
- issuers must reference the audit was conducted in accordance with the standards of the public company accounting oversight board
- non-issuers must reference that the audit was conducted in accordance with auditing standards accepted in the US
What is included in the inherent limitations paragraph in the auditor’s report that provides an opinion on the operating effectiveness of internal control
Because of the inherent limitations, internal control over financial reporting may not prevent or detect and correct misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with policies or procedures may deteriorate
If the report that contains an opinion on the operating effectiveness of internal control restricted?
Generally the report that contains an opinion on the operating effectiveness of internal control is not restricteid
May an auditor who is engaged to perform an integrated audit provide a report stating that all control deficiencies or all significant deficiencies have been identified
An auditor should not issue a report stating that all control deficiencies or all significant deficiencies have been identified
May an auditor issue a report stating that no material weaknesses were identified when engaged to perform an integrated audit
An auditor should not issue a report stating that no material weaknesses were identified. Because of the auditor’s objective in an audit of internal control is to form an opinion on the effectiveness of the entity’s internal control, the auditor should not issue a report indicating that no material weakness were identified during the integrated audit
Is it possible for an auditor to render an unmodified opinion on the FS and an adverse opinion on internal control over financial reporting?
Yes- an auditor may render an unmodified opinion on the FS and an adverse opinion on internal control over FR. For example - IC may not be operating effectively but the FS may be fairly stated.
define an attestation engagement
An attestation engagement is one in which a practitioner is engaged to issue or does issue an examination, a review, or agreed upon procedures report on a subject matter, or on an assertion about the subject matter, that is the responsibility of another party (usually management)
List six major attestation services
Agreed upon procedures
financial forecasts and projections
pro forma financial statements
reporting on controls at a service organization
compliance with statuory regulatory or contractual reproting
management discussion and analysis
How are attestation standards different from GAAS
1) attestation standards are broader in scope than GAAS
2) Attestation standards have a different conceptual focus: no reference is made to GAAP or to financial statements
3) attestation standards provide a level of assurnace below that provided by a GAAS audit
4) Attestation standards provide for services tailored t othe needs of the user, who may directly particpiate in specifying either the nature and scope of the engagement or the criteria against which the assertions are measured
What are the common concepts related to all attestation engagements
CAPE CORP
COMPLIANCE with all attestation standards relevant to the engagement
ACCEPTANCE and continuation are satisfactory performed for client relationships and attestation engagements
PRECONDITIONS for an attestation engagement are present, including independence and responsibility for and appropriateness of subject matter
ENGAGEMENT documentation standards for timeliness, retention, ownership and confidentiality apply
Acceptance of a CHANGE in the terms of the engagement as reasonable when applicable
Using the work of an OTHER practitioner is allowed with appropriate due diligence
RESPONSIBILITy for quality control by engagement partner
PROFESSIONAL skepticism and professional judgement are required in the planning and performance of an attestation engagements
