Neumonics Flashcards
Steps in Audit
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
10 GAAS Standards
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)
Auditor must maintain independence for
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
Matters to communicate to those charged with governance
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
Elements of engagement letter
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
Steps in Planning
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
Income Statement Assertions
CPA-CO
Completeness
Period Cutoff
Accuracy
Classification
Occurrence
Account Balances Assertions
RACE
Rights and Obligations
Allocation and Valuation
Completeness
Existence
Presentation
Presentation Assertions
RACOU-n (Raccoon)
Rights and Obligations
Accuracy and Valuation
Completeness
Occurrence
Understandability and Classification
Three primary objectives of a system of internal control
ACE
Accurate & Reliable financial reporting
Compliance with applicable laws
Efficient and effective operations
Management’s Responsibility over Internal Controls
DIM
Development
Implementation
Maintenance
5 Components of Internal Control (COSO Framework)
CRIME
Control Activities
Risk Assessment
Information and Communication
Control Environment
Control Environment Factors
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
Control Activities
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)
Segregation of Duties
ARCC
Authorization of transactions
Recording (posting of transactions)
Custody of assets
Comparisons
Procedures to obtain and apply an understanding of internal control
UPDATED
- Understand the design of crime by Performing risk assessment procedures (analytical procedures, inquiries, inspection, observation, walkthrough) (determine if controls have been implemented)
- Document understanding of internal control (FIND)
- Assessing Risk of Material Mistatement (RMM)
- Tests of Controls (develop an audit strategy) (ARCCS) (RIO)
- Reassess RMM to Determine DR
- Document conclusions and develop or revise audit programs
Documenting Auditor’s Understanding of Internal Control Structure
FIND
Flowchart
Internal Control Questionnaire (y/n questions)
Narrative or Memorandum
Decision table/tree
Testing the Cycles for ARCC’s (testing controls)
RIIO
Reperformance
Inquiry
Inspection of documents
Observation
Risk Assessment Procedures
AIIO
Analytical procedures - high level data
inquiries
inspection
observation
Inherent Limitations Internal Control
COCO
Collusion
Override by management
Competence/Human Error
Obsolescence
Financial Statement Assertions relevant to Revenue Cycle
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)
Various Components of Internal Control
SACRED
Start/Initiation - receiving sale order
Authorization
Completion or execution
Recording
Evaluate Defenses (Verification)
Auditing Procedures to understand Internal Control of Spending Cycle
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
Financial Statement Assertions relevant to Investments
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
