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Roger CPA AUD > Neumonics > Flashcards

Neumonics Flashcards

1
Q

Steps in Audit

A

Prepare for the audit

Obtain understanding of client, environment, internal control

Assess risks of material misstatement - determine nature, timing & extent of procedures

Perform tests of controls

Perform substantive procedures

Formulate an opinion

Issue audit report

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2
Q

10 GAAS Standards

A

TIPPICANOE

Training and Proficiency

Independence

Professional care

Planning and supervision

Internal controls

Corroborative Audit evidence

Accounting principles in conformity with US GAAP

No new accounting principles applied. - consistency

Omitted informative disclosures - none

Expression of an opinion

General, fieldwork, reporting (last 4)

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3
Q

Auditor must maintain independence for

A

ERAS

Examination (audits)

Reviews

Agreed upon procedures

Don’t need it for - compilations (when lack of independence indicated), taxes, consultations, financial statement preparation engagement, other non-attest services such as bookkeeping or payroll

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4
Q

Matters to communicate to those charged with governance

A

DISAPPROVE

Disagreements with management

Noncompliance with laws and regulations including illegal acts

Significant accounting policies

Adjustments

Prior discussions with management

Problems with significant difficulties - obtaining evidence/employee cooperation

Responsibilities

Other info - corrected misstatements, items discussed w/ management

Views of the accountant

Estimates

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5
Q

Elements of engagement letter

A

FACSIMILE

fees

Auditors responsibility (GAAS)

Confirmation of engagement

Scope & objective of engagement

Internal control

Managements responsiblity DIM (design implementation maintenance internal controls)

Irregularities
Illegal acts
Errors

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6
Q

Steps in Planning

A

BRAIN STOPS

basic discussions with client

Review of audit documentation

Ask about recent developments

Interim financial statements

Analytical procedures is mandatory

Non-audit personnel

Staffing

Timing

Outside assistance

Pronouncements

Scheduling with client

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7
Q

Income Statement Assertions

A

CPA-CO

Completeness

Period Cutoff

Accuracy

Classification

Occurrence

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8
Q

Account Balances Assertions

A

RACE

Rights and Obligations

Allocation and Valuation

Completeness

Existence

Presentation

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9
Q

Presentation Assertions

A

RACOU-n (Raccoon)

Rights and Obligations

Accuracy and Valuation

Completeness

Occurrence

Understandability and Classification

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10
Q

Three primary objectives of a system of internal control

A

ACE

Accurate & Reliable financial reporting

Compliance with applicable laws

Efficient and effective operations

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11
Q

Management’s Responsibility over Internal Controls

A

DIM

Development

Implementation

Maintenance

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12
Q

5 Components of Internal Control (COSO Framework)

A

CRIME

Control Activities

Risk Assessment

Information and Communication

Control Environment

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13
Q

Control Environment Factors

A

CHOPPER

Commitment to competence - perform good work

Human resource policies & practices - hire & train people

Organizational Structure

Participation of those charged with Governance - actively monitors the internal audit function

Philosophy of management and management operating style - impact of management’s attitude on rest of employees

Ethical values & integrity - honest employees less likely to cause internal difficulties related to fraud

Responsibility assignment - authority, responsibility, and accountability assigned to different employees

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14
Q

Control Activities

A

PIPS

Performance Reviews - evaluation of performance against some criteria through comparison

Information Processing - controls prevent processing of information unless certain criteria met - matching certain documentation before recording sale - access to info through authorization and paperwork

Physical controls - controls that limit access to assets

Segregation of Duties (ARCC-S)

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15
Q

Segregation of Duties

A

ARCC

Authorization of transactions

Recording (posting of transactions)

Custody of assets

Comparisons

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16
Q

Procedures to obtain and apply an understanding of internal control

A

UPDATED

  1. Understand the design of crime by Performing risk assessment procedures (analytical procedures, inquiries, inspection, observation, walkthrough) (determine if controls have been implemented)
  2. Document understanding of internal control (FIND)
  3. Assessing Risk of Material Mistatement (RMM)
  4. Tests of Controls (develop an audit strategy) (ARCCS) (RIO)
  5. Reassess RMM to Determine DR
  6. Document conclusions and develop or revise audit programs
17
Q

Documenting Auditor’s Understanding of Internal Control Structure

A

FIND

Flowchart

Internal Control Questionnaire (y/n questions)

Narrative or Memorandum

Decision table/tree

18
Q

Testing the Cycles for ARCC’s (testing controls)

A

RIIO

Reperformance

Inquiry

Inspection of documents

Observation

19
Q

Risk Assessment Procedures

A

AIIO

Analytical procedures - high level data

inquiries

inspection

observation

20
Q

Inherent Limitations Internal Control

A

COCO

Collusion

Override by management

Competence/Human Error

Obsolescence

21
Q

Financial Statement Assertions relevant to Revenue Cycle

A

U-PERCV

Understandability & Classification

Presentation & Disclosure

Existence or Occurrence (Vouching)

  • link from book to sales transaction
  • sales invoice to bill of lading

Rights & Obligations
- vouch from postings in receivables ledger to sales order, bill of lading, sales invoice verifying company has right to collect

Completeness (Tracing) & Cutoff
- bill of lading and trace back to sales invoice to make sure all sales have been billed

Valuation, Allocation & Accuracy
- asserts which receivables likely to be collected

Sales for events and transactions (CPA-CO) 
Accounts Receivable (RACE)
22
Q

Various Components of Internal Control

A

SACRED

Start/Initiation - receiving sale order

Authorization

Completion or execution

Recording

Evaluate Defenses (Verification)

23
Q

Auditing Procedures to understand Internal Control of Spending Cycle

A

PRAISE

Physical controls
- all good received by receiving and shipped by shipping

Recording

Authorization

Independent Checks
- verify client periodically performs inventory counts and reconciles amounts on hand to inventory records to know when inventory lost/stolen

Segregation of duties
- authorization of purchases and payments, recording of purchase order and posting to the purchase journal, custody of inventory and checks for payment

Evaluate Performance

24
Q

Financial Statement Assertions relevant to Investments

A

PERCV

Presentation & Disclosure
- categorize properly as AFS, Trading, Holding

Existence or Occurrence
- vouches agreement of broker advices on purchases w/ cancelled checks

Rights & Obligations
- securities on hand examined by senior management to ensure registered in name of company

Completeness & Cutoff
- internal auditor makes list of securities in bank safe deposit boxes and compares them with the securities listed in records

Valuation, Allocation, & Accuracy
- the controller compares current market prices with the listed values of securities

25
Q

Substantive Procedures relevant to assertions for Derivatives

A

PERCV

Presentation & Disclosure
- reading disclosures to ensure in compliance with GAAP, determine if securities have been pledged as collateral for indebtedness through inquiries and inspection and make sure appropriately classified

Existence
- inspection of securities on hand, confirmations with brokers/third parties, reviewing documents, inspecting documentation of settlement or realization

Rights & Obligations
- review of documents and confirmations w/ counterparties

Completeness
- review of minutes of board of directors or others responsible for governance, tests of subsequent transactions, confirmations with counterparties, and evaluating beginning amounts for disposition of inclusion in ending amounts

Valuation
- valuation based on cost - inspection of documentation, confirmation; valuation based on financial results of investee - obtaining audit evidence supporting results, reading available financial statements; for valuation based on FV - obtaining quoted market prices on exchanges when available, obtaining quoted market prices from broker-dealer for unlisted securities, obtaining estimates, including those models like black-Scholes

26
Q

Management’s Assertions

A

COCA-CURVE

Completeness

Occurrence

Cutoff

Accuracy

Classification

Understandability

Rights and Obligations

Valuation and Allocation

Existence

27
Q

6 Groups of Management Assertions

A

U-PERCV

Understandability and Classification

Presentation and Disclosure

Existence or Occurrence

Rights and Obligations

Completeness and Cutoff

Valuation, Allocation & Accuracy

28
Q

Audit Procedures

A

I-CORRIIA

Inquiry

Confirmation

Observation

Recalculation
- checking for mathematical errors

Reperformance
- perform process to determine the outcome

Inspection of tangible assets
- verify inventory in appropriate condition/are as described by entity

Inspection (examination) of records or documents

  • tracing - completeness
  • vouching - existence/occurrence (books to source)
Analytical Procedures (ratio analysis) 
- study data comparisons and relationships
29
Q

Weaknesses/Errors in Work Papers

A

CCHIT

Comment on exceptions - must resolve

Conclusions - must be consistent with audit documentation

Heading - the name of the client, the title of working paper, audit year

Initials - each person who prepares work papers should initial

Tickmarks - be sure it is defined and used

Foot - check mathematical accuracy - adding

30
Q

Review Report

A

FAMLIAR

Financial statements being reviewed

AICPA Standards (SSARS)

Management Representation - statements presented by management not the accountant

Inquiry and Analytical Procedures

Less in scope than audit

Incapable of opinion

Assurance provided - limited

Refer to U.S. principles

31
Q

Prospective Client Checklist

A

LIC

Legal and Ethical Standards

  • Auditor independence
  • Engagement does not violate laws or code

Integrity of Client

  • Communicate with previous auditors
  • Assess client’s reputation
  • No scope limitations
  • Management tone at the top

Capabilities of the firm

  • Adequate training, skills, and experience
  • Firm’s staffing resources
  • Reasonable deadline
32
Q

Three Factors with impact on Sample Size

A

TEA

Tolerable deviation rate - inverse

Expected Deviation Rate - direct

Allowable Risk of Assessing RMM too low - inverse

Roger CPA AUD (1 decks)

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