Planning Activities Flashcards
In-Charge auditor would have responsibility to explain to the staff assistants what?
How the results of various auditing procedures performed by the assistants should be evaluated
The auditor should establish performance nateriality at less than materiality for the financial statments as a whole to allow for the possibility of uncorrected and undetected misstatments (T/F)
True
Materiality can be appropriately described as an understanding of what is important to the fairness of the financial statements (T/F)
True
What is meant by the term “tolerable misstatement”
The application of performance materiality to a particular sampling procedure or application.
Engagement letter limits the auditor’s responsibility to detect errors and fraud (T/F)
True
The engagement letter will include a planned use of specialist (T/F)
True
Does the auditor come to an understanding related to communicating significant deficiencies in the engagement letter?
Yes
The engagement letter would include management’s acknowledgment of its responsibility for maintaining effective internal controls (T/F)
True
Supporting records are not available for review indicates what?
likely existence of material misstatement
Not having electronic evidence past a certain date could affect what?
The timing of control and substantive test
An overly complex organizational structure would increase an auditor’s concern about what?
Fraudulent Financial Reporting
A client not reconciling differences between control accounts & subsidiary records would indicate what?
Risk of Material Misstatement
An auditor should obtain what when using a specialist?
An understanding of the methods and assumptions of the specialist
What must the auditor discuss with those charged with governance regarding planning?
Planned scope and timing of engagement
Audit plan include what 3 things?
- Nature & Extent of Risk Assessment Procedures
- Nature, Timing, Extent of “further audit procedures”
- Other planned audit procedures
What 3 things should be documented regarding audit planning?
- Overall audit strategy
- Audit Plan
- Significant changes
What are the preconditions for an audit?
- Management uses acceptable framework
* Management agrees to the premise of the audit
Can the auditor’s communication with the predecessor audit be verbal or written?
Yes, both verbal and written
Does an auditor have to remind management of the terms of the engagement of a RECURRING audit in written?
No, can be oral
Per professional standards, when must an audit communicate with the predecessor auditor?
Before accepting the audit engagement
6 things to consider when planning an Engagement
- Nature of Engagement
- Type of report to be issued
- Nature of financial information
- Condition of client records
- Assessed level of control risk
- Need for Supervision
Audit program should be designed to do what?
Support the evidence of the conclusion of the audit
Materiality could also be referred to as…
What is important
Performance materiality is set below materiality for the financial statements as a whole to allow for what?
Inherent and Detection risk
What is the application of performance materiality to a particular sampling procedure?
Tolerable misstatment
Would a private company audit or an public company audit have lower materiality levels?
Public
Materiality is the ______ misstatement that could be allowed for _______
smallest, financial statement (b/s or p/l)
Risk of Material Misstatement exist at what two levels?
- Financial statements as a whole
2. Assertion level
Detection risk equation
TD x AP
Test of details x analytical procedures
Risk of Material Misstatement (RMM) equation
IR x CR
Inherent Risk x Control Risk
Audit risk Equation
AR = RMM X DR
A decrease in audit risk as what effect on substantive procedures?
Increases Substantive Procedures
Analytical Procedures (3, 2 required)
- Risk Assessment (required)
- Substantive Purposes
- Final Review (required)
2 types of substantive procedures
- Substantive analytical procedures
2. Test of Details
Is it better to compare revenue or expense accounts when performing analytical procedures?
Revenue since management might have discretion over expense accounts
