misc concepts Flashcards
positive assurance most useful for
low assessed audit risk
negative assurance
1) the assessed risk of material misstatement is low,
(2) a large number of small homogeneous balances is involved,
(3) a very low exception rate is expected,
(4) the auditor has no reason to believe that the recipients of the requests are unlikely to consider them, and
(5) the auditor has obtained sufficient appropriate evidence about the effectiveness of relevant controls
Effective Internal controls and audit evidence
effective internal controls provides more assurance as the reliability of audit evidence
completeness
existence
rights and obligations
valuation
proper recordance
truly exists
entity has ownership of items (ASSETS AND LIABILITIES)
items are at appropriate amounts
A/R confirmations provide the strongest assertions for
existence and rights and obligations
RISK OF AUDIT
OVERSTATED ASSETS
UNDERSTATED LIABILITIES
DIFFICULTY IN CONFIRMATIONS
AUDIT INDIVIDUAL INVOICES WHICH ARE EASY TO CONFIRM
TO INCREASE CONFIRM ACCURACY ALWAYS SHOW
DETAILS
most effective in determinining A/R
A/R testing in general
subsequent review of cash receipts
ALWAYS HAS TO DO WITH CONDUCTIBILITY
accounts receivable confirm usually detects
lapping
confirmations not received
only apply additional tests to accounts that do not receive a 2nd confirm
any internal function
example internal construction/scrapping
difficult to detect deficiences because there is little outside evidence
noncash financing and investing activities must be
DISCLOSED
DIRECT LIABILITY
NEVER REPORT PRINCIPLE
TESTING OF SUB DISBURSEMENTS
LOW ASSESSED RISK OF MATERIAL MISSTATEMENT
SUBSTITUTION
CASH AND ASSETS AUDIT TO PREVENT ASSETS FROM BEING USED TO COVER CASH SHORTAGES
SUBSQUENT EVENTS IT IS NOT NECESSARY TO
COMMUNICATE MATERIAL WEAKNESS IN IC
going concern procedure
inquire to legal
summary of financial statements
MUST STATE CONSISTENCY W/ FS
AUTHORITY DESIGNED FORM MAKES UNJUSTIABLE ASSERTION AUDITOR
REWORDS
RSI
NEED NOT BE INCLUDED ; HOWEVER SEPERATE PARAGRAPH IN AUDIT REPORT
ALWAYS UNAUDITED
MUST PROVIDE LIMITED PROCEDURES NEVER AN OPINION - make sure no materiality exists to FS
BASIC F/S NAMES CHANGED
IF AUDITOR DISAGREES QUALIFY
REVIEW
MATERIAL MODIFICATIONS NEEDED
CONSISTS OF ANALYTICAL + INQUIRY
COMFORT LETTERS
AUDITED
UNAUDITED
OPINION ON AUDITED TO COMPLIANCE W/ SEC
NEGATIVE ASSURANCE
OTHER INFORMATION EXCLUDES
RSI
group auditor decision cycle
1 - decide if they may serve as group auditor
2 - question component auditors competence
continuing auditor uses comparative statements MUST
what date used
update prior report regardless of opinion issued
if not revisions made then use original report date
IF NOTE ADDED FROM PREVIOUS STILL USE ORGINAL DATE
preclude
prevent from happening
unaudited in relation to auditors responsibility
auditor must verify that it does not material effect F/S; can refer to in reports
group auditor reference
immaterial component reliance
relies on component audit work; no additional paragraph
no reference needed
inventory restatement
ALWAYS AT LOWER OF COST OR MARKET
balance sheet audit tests
only ending VALUES
predecessor reissuing report must
1 - read and compare current F/S
2 - obtain rep letter from current auditor
3 - obtain rep letter from management
does auditor provide assurances as to managements rep letter
no an do not refer to
reference to anothers work is found where
intro paragraph
prospective financial report does not allow
prospective financials criteria
REVIEWS
assumptions
projections contain
hypothetical assumptions; never for general use
compliance attest cannot perform what service
reviews
agreed upon procedures
1 - auditor
2 - client
3 - specified party
1 - employed by the client to aid specified party
2 - client employs specified party to evaluate assertion
3 - require that findings be independently derived.
IFI
procedures used to review are part of report
specificied elements an opinion report can be issued on
A/R; royalties; profit participation; inventory
OBOA contractual agreements must be between
client and third party
GAAS
audits only
pro forma
historical statements that are presented when there is a change found at a later date
SSARS engagement management is responsible for
F/S fairly presented ONLY
compilation does not require
management rep letter
pro forma financial information
1 - can be reviewed or audited
2 - can only provide assurance to the same level or greater then was provided on historical F/S
COMPLIANCE REVIEWS
NO REPORTS
examination rules apply to
ATTEST Service requirements
SOX 402 403 404 406
402 unlawful for credit lent
403 10%+ ownership file SEC report
404 management responsible for IC
406 adoption of ethic code for senior financial officers
