Planning M4 Flashcards
What does a Auditor do if their tolerance for misstatements falls lower than originally set?
- A decrease in the amount of misstatements that the auditor can tolerate will cause the auditor to do more work.
- Modify the nature, timing and/or extent of auditing procedures. Performing the planned procedures closer to the balance sheet date.
- A change in the level of tolerable misstatement does not have a direct effect on the assessed level of control risk.
- Would necessitate an increase in the extent of auditing procedures.
What does a Auditor do if their tolerance for misstatements increases above what was originally set?
The Auditor does less work and can perform substantive procedures before the balancesheet date.
What is the Auditor-In-Charge responsibility regarding Staff Assistants?
- Assistants should be informed of their responsibilities and the objectives of the procedures that they are to perform. Part of the assistant’s responsibility is to properly evaluate audit results, and the in-charge auditor would likely discuss this with them.
What are the proper reasons to supervise assistants?
- Required to ensure that the work performed by assistants is consistent with the conclusions presented in the report.
- Required to ensure that the work performed by assistants is adequate to accomplish the objectives of the engagement.
- Required so that the senior auditors can stay informed regarding significant accounting and auditing questions, new developments, and material problems.
What should a CPA Firm’s procedures be to enable the audit assistant to do if disagrees with audit final decision?
- Each assistant has a professional responsibility to bring to the attention of the audit supervisor, disagreements or concerns the assistant might have with respect to accounting and auditing issues that he or she believes are of significance to the financial statements or auditor’s report.
- In addition, each assistant should have a right to document his or her disagreement if he or she believes it is necessary to be disassociated from the resolution of the matter.
What are the factors to take into account when determining the extent of Supervision needed for staff?
- taking into account the nature of the company
- the nature of the work assigned to each engagement team member
- the risk of material misstatement
- the knowledge, skill, and ability of each engagement team member.
What should the Auditor consider before applying substantive test of details at interim date vs. year end?
- Before performing substantive tests at an interim date, the auditor must assess the difficulty in controlling the incremental audit risk.
- The auditor would not have to assess control risk at a low level.
- Inherent risk should be low in order to test substantively at interim.
- Assuming that incremental risk can be controlled substantive tests can be performed prior to year-end.
What should the Auditor be aware of regarding testing at a interim date rather than at the balance sheet date?
- The auditor generally selects for interim examination only accounts that are reasonably predictable with respect to amount such as P&L accounts.
- Instead, the auditor should perform procedures designed to extend the interim conclusions to year-end. Such procedures should be less in scope than the initial procedures performed at interim.
- Rapidly changing economic conditions might affect the valuation, significance, or composition of certain assets or liabilities, and therefore would make testing at interim less likely.
What is the difference in a audit strategy and audit plan?
- The audit plan outlines the nature, extent, and timing of the audit procedures.
- The audit strategy would outline reporting objectives.
- The audit strategy would include a preliminary assessment of materiality and tolerable misstatement for the current audit.
- Providing for the scope of the audit is a primary function of the overall audit strategy
What should happen during the planning phase of an audit?
- Obtain an understanding of the entity’s business.
- Analytical procedures are always required in an audit during the planning and overall review stages.
- An auditor would review the client’s accounting policies and procedures as part of obtaining an understanding of the client’s operations and business. This understanding is important because it affects the design of internal control, which in turn impacts planned auditing procedures.
- As part of planning, the auditor is required to obtain an understanding of the design of controls and determine whether they have been implemented, as well as to document this understanding.
- A CPA most likely would determine the extent of involvement of the client’s internal auditors during the planning stage of a financial statement audit.
- The auditor should consider the methods the entity uses to process accounting information in planning the audit because such methods influence the design of internal control. The extent to which computer processing is used in significant accounting applications, as well as the complexity of the processing, may also influence the nature, timing, and extent of audit procedures.
- The auditor would need to consider financial statement accounts likely to contain a misstatement and conditions that require an extension of audit tests.
What would a Auditor do to obtain an understanding of continuing client business in planning an audit?
Knowledge of an entity’s business is ordinarily obtained through:
- Experience with the entity or its industry and inquiry of personnel of the entity.
- Audit documentation from prior years may contain useful information about the nature of the business, its organizational structure, its operating characteristics, and transactions that may require special consideration.
How to calculate year over year percentage change?
New-Old/Old = % Change
How do you calculate Gross Margin and Gross Margin %?
Gross Margin = Sales - Cost of Sales
Gross Margin % = Sales - Cost of Sales / Sales
What is in the PCAOB Auditing Standards regarding the Nature, Extent, and Timing in planning an audit?
- The size and complexity of the client company.
- The auditor’s previous experience with the company.
- A change in circumstances that occurs during the audit.
What is the objective of the Written Audit Plan?
- Aids in instructing assistants in the work to be done.
- Set forth in reasonable detail the audit procedures that the auditor believes are necessary to accomplish the objectives of the audit.
