Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

AUD > Must-Knows > Flashcards

Must-Knows Flashcards

1
Q

What is the purpose of an audit ?

A

The purpose of an audit is to provide FS users with an opinion on whether the FS are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

The objective of an audit

A

to obtain reasonable assurance about whether the FS as a whole are free from material misstatement, whether due to error or fraud and express an opinion on whether the FS are presented fairly, in all respects with the applicable reporting framework.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Is compliance with GAAS mandatory on all audit engagements ?

A

YES

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Who sets the appropriate GAAS for issuers and non-issuers ?

A

For issuers: PCAOB sets standards

For non-issuers: AICPA sets standards

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

what is professional skepticism?

A

professional skepticism is maintenance of an objective attitude that questions and assesses evidence critically.

It is not presuming that mgmt. is either honest or dishonest.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what is the mnumonic for the layout of an unmodified audit opinion?

A

MR DIM REPORTS CREME

Intro Para. (describing entity, FS, and period audited)

Managements Responsibility para.

  • state mgmts. responsibility includes Design, Implement, & Maint. IC over fin. reporting

Auditors Responsibility para.

  • to Express an opinion on FS
  • to Plan and perform the audit to obtain reasonable assurance whether the FS are free from material misstatement
  • describe the audit

* audit invoves Performing procedures to Obtain evidence about amts. and disclosures

* Risk of material misstatement (due to fraud or error) and judgement determine the procedures

* Tests (considers) IC relevant to prep. & pres. of fin. Statements in order to design appropriate audit procedures

* but not for the purp. of expressing an opinion on the effectiveness of Controls and no opinion is expressed

* an audit includes evaluating the appropriateness of the accg.

policies used and the Reasonableness of sign. accounting Estimates made by Mgmt., as well as Evaluating the overall pres. of the FS.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the basic structure of an unmodified audit report?

A

Title

Addressee

Intro

Managments Responsibility

Auditors Responsibility (scope - GAAS)

Opinion (GAAP)

Other Reporting Responisibilities (if necessary)

Signiture

City

Date of Report

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

mnumonic for procedures to determine going concern

A

“ADMITS”

Analytical procedures

Debt compliance

Minutes

Inquiry (legal)

Third parties (support arrangements)

Subsequent events

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

mnumonic for conditions for doubt of going concern

A

“FINE”

Finanical difficulties - defaults, denial of credit, disposal of assets

Internal matters - work stoppages,dependence on particular projects

Negative trends - recurrent losses, Work. Cap. deficiencies, negative cash flows, adverse fin. ratios

External matters - legal proceedings, legislation, loss of key competitive advantages, loss of key suppliers or customers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

how to treat going concern in the audit report

A

It all comes down to disclosure:

Adequate disclosure = unmodified w/ Emph. of Matter para.

Inadequate disclosure = GAAP departure = Qualified or Adverse

Significant uncertainty = GASS departure = Disclaimed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

definition of materiality

A

The amount of error or omission that would affect the judgement of a reasonable person.

In this case, a reasonable person is someone who has appropriate knowledge of business, accounting, and economics.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

The general understanding of a clients business required to peform a compilation

A

“STAFF”

Staff Qualifications

Transaction types/frequency

Accounting basis

Form of acctg. records

Financial statement form

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

mnumonic for the layout of a Compilation report

A

“CARO SOAPA”

Compiled

Audited or Reviewed (has not)

Opinion (No rendered)

SSARS (in accordance with)

Objective is to Assist managment in

Presenting fin. info without

Assurance (undertaking to provide) that free from Mat. Mods.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

when is a compliation report not required ?

A

when no 3rd parties will rely on the FS. An engagement letter will suffice. However, the FS must be marked “Restricted Use.”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

what is the mnumonic for the performance requirements for a review engagement ?

A

“U LIAR CPA”

Understanding with client is established

Learn or obtain knowledge of entity’s business

Inquiries made of appropriate parties

Analyitcal procedures are performed

Review (other) procedures are performed

Client representation letter obtained f/ mgmt.

Professional judgement on eval. of results

Accountant communicates the results

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

what is the mnumonic for the intro. paragraph of a Review report ?

A

” AMISAN”

apply Analytical procedures to Managements financial data and make Inquires of co. mgmt.

review is Substantially less in scope than an Audit, which is to express opinion on FS as a whole; therefore accountant does Not express such opinion.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

what is the mnumonic for the Managements Responsibility paragraph of a review report ?

A

“PP MIC”

regarding FS, managment is responsible for:

Preparation & fair Presentation and Maintaining Internal Control over the “PP”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

what is the mnumonic for the Auditors Responsibility paragraph of a review report?

A

“SALAMM’

State responsible to conduct in accordance with SSARS issued by AICPA

State those standards require procedures to obtain Limited Assurance there are no Material Modifications necessary to FS.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

the mnumonic for the 6 FS assertions

A

“COVER U”

Completeness - all balances, transactions & disclosures that should have been recorded have been recorded

cutOff- transactions are recorded in the proper period

Valuation,Allocation & Accuracy - balances, transactions & disclosures are recorded fairly & at appropriate amts.

Existence & Occurance - balances exist and transactions actually have occurred.

Rights & Obligations - the entity holds or controls the rights to assets & liabilities

Understandability and Classification - transactions recorded in proper accounts. FS info is appropriately presented and disclosures are appropriate.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

what is the use of relevant assertions ?

A

used by auditors as a basis for assessing risk and for the design & performance of audit procedures.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

describe the 3 corners of the fraud triangle (i.e. the fraud risk factors)

A
  1. Incentives / Pressures - a reason to commit fraud
  2. Opportunity - lack of effective controls
  3. Rationalization / Attitude - justifies behavior
22
Q

the 3 areas to seperate for proper Segregation of Duties

A

“ARC”

Authorization

Record keeping

Custody of related assets

23
Q

the 3 elements of audit procedures

A

“NET”

Nature - the purpose & type of the test

Extent - the quantity to be performed

Timing - when to be performed

(interim = weak, period end= strong)

24
Q

the 2 types of substantive procedures

A
  1. tests of details applied to transaction classes, balances & disclosures
  2. substantive analytical procedures
25
Q

the hierarchy of audit evidence

A
  1. direct personal knowledge or observation
  2. external evidence
  3. internal evidence
  4. oral evidence
26
Q

what are the relevant assertions for each of the three assertion categories ?

A
  • Balances = CVER
  • Transactions & events = COVEU
  • Presentation & disclosure = CVRU
27
Q

what is the mnumonic for the types of transaction cycles ?

A

“PIPER FI”

PP&E - acquisitions, disposals and depreciation

Inventory - flow, physical counts, inventoriable manuf. costs

Payroll - self explanitory

Expenditure - purchases, a/p, cash disbursements

Revenue - sales, a/r, & cash receipts

Financing - debt & equity, interest exp., dividends

Investments - in debt & equity and interest inc.

28
Q

what are the elements of a management representation letter ?

A

the client mgmt. represents responsibility for:

FS

Completeness of information

Fraud

Compliance

Contingent liabilities

Estimates

Related party transactions

Subsequent events

Specific issues related to the entity’s FS

29
Q

rule of thumb for determining which assertion a procedure is testing

A

If a test starts with the FS, the proper assertion is likely existence.

If a test starts with source documents, the proper assertion is likely completeness.

30
Q

what are the 3 key objectives of a review of interim finanical information ?

A
  1. a basis for reporting whether material modifications are necessary
  2. to conform with the applicable reporting framework
  3. through limited procedures
31
Q

how to treat a departure from the applicable reporting framework in interim FS

A

modify the report:“…with the exception of ___…”

describe the departure & its effects

32
Q

what are the 3 types of auditing standards and which services fall under them ?

A
  1. GAAS (SAS/PCAOB)
    • audits
  2. SSARS
    • compilations
    • reviews
  3. SSAE’s
    • agreed upon procedures
    • forecasts & projections
    • internal controls
    • compliance
    • MD&A
33
Q

the definition of audit risk

A

Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated.

AR = IR × CR × DR

34
Q

how is a lack of consistency in accounting principles between FS addressed?

A

It depends if the inconsistency is material or not:

  • if immaterial, don’t mention in report
  • if material, always mention in the report
    • if justified & disclosed = emphasis of matter para.
    • if a departure f/ GAAP = qualified or adverse
  • should be mentioned when in comparable reports until it falls off
35
Q

What factors affect sample size?

A

Tolerable rate for error - Inverse relationship with sample size

Risk of assessing Control Risk too low - Inverse relationship with sample size

Expected population error rate - Direct relationship with sample size

Population size does NOT affect the sample size - as population is larger- sample size doesn’t grow.

36
Q

during what time period must independence rules be followed?

A

The period covered by the FS and the period of the professional engagement

37
Q

what is a covered member ?

A
  1. An individual on the attest engagement team (“team member”)
  2. An individual in a position to influence the attest engagement
  3. A partner, partner equivalent , or manager who provides more than 10 hours of nonattest services to the attest client within any fiscal year (“10-hour person”)
  4. A partner or partner equivalent in the office in which the lead attest engagement partner or partner equivalent practices in connection with the attest engagement (“other partner in office”)
  5. The firm, including the firm’s employee benefit plans
38
Q

Risk assessment procedures to obtain audit evidence about the design and implementation of relevant controls may include:

A

“IRON”

Inquiry

Reperformance / walkthrough

Observation

iNspection

39
Q

what is the key to identifiying “significant risks” ?

A

soley consider inherent risk (control risk is ignored).

Spec. Areas:

  • risk of fraud
  • significant changes to GAAP, econ or other developments
  • related party transactions
  • improper revenue recognition
  • nonroutine / complex / unusual transactions
  • estimates or subjective measurements
  • compliance
  • acctg principles with subjective interpretations
40
Q

What is the mnumonic for the structure of an audit report with an “emphasis of” or “other matter” ?

A

TIMAA EMO (Timaaaayyyy’s favorite EMO group is Weezer)

Title

Intro

Mgmt Responsibility

Auditors Responsibility

Audit Opinion

Emphasis of Matter

Other Matter

41
Q

What is the mnumonic for the structure of a modified opinion?

A

TIMA BA (Timaaay’s adverse sister Tima has a bad attitude)

Title

Intro

Mgmt responsibility

Auditors responsibility

Basis for modification

Audit opinion

42
Q

What does the auditor use the understanding of the entity and its environment (including I/C) for ?

A
  • assessing the risks of material misstatement at the FS level and relevant assertion (transaction, balance, disclosure) level
  • to identify significant risks
43
Q

What are the steps of assessing RMM?

A

IMA CPA

Internal control, entity & environment - obtain understanding

Material misstatement - assess the risk

Assessed level of risk response

Control testing

Perform substantive testing

Audit evidence - evaluate sufficiency & appropriateness

44
Q

What is the required documentation regarding risk assessment?

A
  • understanding of entity and its environment
  • assessment of RMM and the basis for it
  • identified risks and related controls
45
Q

What are the key concepts for .gov audits ?

A

the 3 C’s

Controls: must issue a report on I/C over financial reporting in all cases! report must describe the scope of testing

Compliance: must issue a report on compliance (w/ emphasis on “General” and “Specific” requirements applicable to the entity) report must describe the scope of testing

Crimes: must report all known illegal acts that could result in “criminal prosecution”

46
Q

what is the difference between emphsis of matter and other matter paragraphs ?

A

Emphasis of Matter refers to matters that are appropriately presented but are fundamental to the users understanding of the FS. ex. going concern, inconsistency, SPE, revised opinion

Other Matter refers to matters other than those disclosed or presented in the FS that are relevant to the users understanding of the auditors responsibilities or report.

ex. restricted use, predecessor report not reissued, comparison with FS with dissimilar report levels, reporting on RSI

47
Q

What are the rules for reports with comparative FS ?

A
  1. refer to each period presented that has an opinion
  2. update or reaffirm prior opinion
  3. if comparative info isn’t covered by your opinion, indicate the degree of responsibility you’re taking for them
  4. you can express different opinions on each yr’s FS
  5. if prior period FS didn’t have a “big 3” clearly indicate you assume no responsibility for them
48
Q

what is the one thing to know about reporting on OSI outside the basic FS ?

A

is the OSI fairly stated in relation to the audited FS as a whole

  • and get a mgmt. representation letter*
  • and the opinion can be either in the audit report or a seperate report*
49
Q

what are the 4 key things in an unmodified audit opinion paragraph ?

A
  1. present fairly
  2. in all material respects
  3. list the FS
  4. with applicable reporting framework
50
Q

What is the difference between a significant deficiency and a material weakness ?

A

A deficiency exists when the design or operation of one or more of the internal control components does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis.

A material weakness is a deficiency, or a combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis.What

51
Q

what 3 things should be documented regarding identified misstatements ?

A
  1. the amount below which misstatements would be viewed as clearly trivial;
  2. all misstatements accumulated during the audit and whether they have been corrected;
  3. the auditor’s conclusion (and the basis for that conclusion) about whether the uncorrected misstatements are material, individually or in the aggregate.

AUD (9 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions