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Auditing > Planning Activities > Flashcards

Planning Activities Flashcards

1
Q

What papers can the successor analyze from the predecessor?

A

planning, internal control, audit results, balance sheet accounts, and contingencies

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2
Q

Auditor’s engagement letter includes statement that

A

-limits auditors responsibility to detect errors and fraud

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3
Q

Before an auditor accepts an engagement what must he/she do?

A

make inquires from predecessor after obtaining consent from prospective client

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4
Q

Engagement Letter

A

1) objective of the audit
2) management responsibilities (I/C and laws/reg)
3) availability of financial records
4) representation letter
5) auditor responsibilities (fee-related issues)
6) components of an audit
7) correction of misstatements

(scope, nature)

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5
Q

A successors inquiries to a predecessor should be regarding?

A

1) information that might bear on the integrity of management
2) disagreements with management regarding accounting principles, procedures, etc.
3) communications with governance regarding fraud or illegal acts by clients
4) communications with management regarding deficiencies and weaknesses in internal control
5) predecessors understanding for the reason for the change of auditors

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6
Q

In planning an engagement, what does the auditor consider?

A

1) nature of the engagement
2) type of report to be issued
3) nature of f/s, schedules, or other information of which the auditor is reporting
4) nature and condition of the clients records
5) assessed level of control risk
6) needs of particular circumstances of supervision and review of work

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7
Q

Analytical procedures

A

study of plausible relationships among both financial and nonfinancial data, consistent with this answer which take place in planning the audit engagement

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8
Q

Pre-Audit Conferences

A

provide information about the client, the audit areas they have been assigned, the critical audit areas; guidance in both technical and personnel parts of the audit

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9
Q

Audit Programs

A

audit evidence must support the conclusion

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10
Q

Client imposed scope limitation

A

anything in this area is a problem

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11
Q

Planning an Audit

A

coordinate client assistance to be rendered
discuss matters that may affect the audit with consulting and tax staff
read the current year’s interim financial statements

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12
Q

What are the two levels that an audit discusses the risk of RMM?

A

overall response

response at a relevant assertion level

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13
Q

In-charge Auditor

A

explains to staff assistants how the results of the procedures should be evaluated

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14
Q

Immaterial statements must be documented in the area of uncorrected areas.

A

true

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15
Q

what aggregate level does an auditor consider materiality for planning purposes?

A

An auditor considers materiality for planning purposes in terms of the SMALLEST aggregate level of misstatements that could be material to any one of the financial statements.

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16
Q

What does the requirement for misstatement have to be in terms of an unqualified opinion?

A

misstatement must be less than the material amount

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17
Q

When planning a substantive test of details for audit the auditors consideration of tolerable misstatement should be related to what?

A

preliminary judgments about materiality levels

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18
Q

Detection risk increases when procedures are moved from year-end to interim date.

Detection risk decreases when procedures are moved from interim date to year-end.

A

true

19
Q

What does an increased level of control risk mean?

A

risk of mm occurring and not being detected has increased and one must decrease the level of detection risk or increase tests of details

20
Q

How can one decrease detection risk?

A

Increase tests of details

21
Q

What should the auditor do when the level of tolerable misstatements decreases?

A

increase substantive testing to ensure that all mm are detected and one can do this by performing procedures closer to the balance sheet date

22
Q

Audit Risk

A

the risk that the auditor will issue an unqualified opinion on f/s when in fact the f/s are materially misstated

23
Q

Inherent Risk

A

“…the susceptibility of an assertion about a class of transactions, account balance, or disclosure to a misstatement that could be material, either individually or when aggregated with other misstatements, before consideration of any related controls.”

24
Q

Detection Risk is inversely related to?

A

assurance provided by substantive tests

25
Q

How do IR/CR differ from DR?

A

IR/CR are functions of the client and its environment; and exist independently of the f/s audit

26
Q

Detection Risk

A

the risk that an auditor will conclude that a material error does not exist in an account balance

27
Q

What should one do if there is a high risk of mm?

A

select more effective substantive tests

28
Q

What stages are analytical procedures required?

A

planning and review stage; may not be required for substantive tests

29
Q

Who should perform analytical procedures in the review stage?

A

someone who is experienced and has knowledge of the business/industry

30
Q

Why are analytical procedures used in the review stage?

A

evaluates the overall presentation of the f/s

31
Q

Which relationships are more predictable in analytical procedures?

A

relationships involving income statement accounts are more predictable than balance sheet accounts because i/s accounts involve transactions over a period of time rather than a point of time

32
Q

What type of analytical procedure would an auditor most likely use in developing relationships among balance sheet accounts when reviewing the financial statements of a nonpublic entity?

A

ratio analysis

33
Q

Analytical procedures used in planning often use data aggregated at a high level.

A

true

34
Q

Analytical procedures

A

auditors expectations/ratios and a recorded balance

35
Q

What most likely represents the highest risk of a misstatement arising from misappropriations of assets?

A

easily convertible assets such as bearer bonds (not fraud)

36
Q

What is a sign of management override?

A

spending over the limits

37
Q

An auditor should design the audit to provide reasonable assurance of detecting errors and irregularities that are material to the financial statements.

OR

The auditor should assess the risk that errors and fraud may cause the financial statements to contain material misstatements, and design the audit to provide reasonable assurance of detecting material errors and irregularities.

A

true

38
Q

What can cause material misstatement?

A
  • a manager may place special emphasis on something

- lack of proper documentation

39
Q

What is the reason that an auditor may not detect a fraud?

A

forgery and collusion

40
Q

An auditor can refer to a specialist in their report if the auditor does what?

A

adds an explanatory paragraph to an unqualified opinion or departure of an unqualified opinion (meaning a qualified opinion)

AICPA Professional Standards indicate that reference to the work of a specialist may be made in the auditor’s report if the auditor believes such reference will facilitate an understanding of the reason for a modified opinion.

41
Q

What happens when an auditor uses the work of a specialist who has a relationship with the client?

A

auditor should assess the risk that the actuary’s objectivity might be impaired; corroborative evidence

42
Q

A CPA can hire a non-CPA under what circumstance?

A

if the CPA can supervise the specialist and evaluate the end product

43
Q

The auditor’s determination of materiality levels is generally NOT discussed with the audit committee.

A

true

44
Q

What must an auditor communicate to the audit committee about?

A

MUST NOT DISCUSS

  • control risk
  • definitely not material things
  • substantive procedures at interim dates

MUST DISCUSS

  • auditors responsibilities under GAAS
  • management judgement and accounting estimates
  • significant errors that have been corrected by management
  • any disagreements with management about matters that affect the f/s or have been resolved
  • accounting adjustments
  • consultation with other accountants
  • difficulties encountered in performing the audit
  • significant accounting policies (perhaps have no guidance) such as deficiencies

Auditing (4 decks)

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