Quality Control & Engagement Strategy Flashcards
What are the 6 statements/elements of quality controls for CPA firms to follow?
- Human Resources
- Ethical requirements
- Acceptance and continuance of client
- Leadership responsibilities for quality
- Monitoring
- Engagement Performance (Quality)
What 2 “human resources” policies provides reasonable assurance?
- employees are competent (adequately trained)
- employees selcted for advancement are qualified
What “ethical requirements” policy provides reasonable assurance?
- firm complies with independence, integrity and objectivity
What 2 “acceptance and continuance of client” policies provides reasonable assurance?
- firm has resources/competence to perform engagement
- firm does not associate with clients who lack integrity
What “leadership responsibilities for quality” policy provides reasonable assurance?
- person(s) with responsibility for quality control has sufficient and appropriate experience and authority
What “monitoring” policy provides reasonable assurance?
- firm policies are relevant, adequate and operating effectively
What 2 “engagement performance (quality)” policies provides reasonable assurance?
- engagements meet professional/quality standards and legal and regulatory requirements (ie. GAAS (generally accepted auditing standards))
- engagements are adequately supervised
CPA firms quality control objectives are:
to provide reasonable assurance that the firm complies with professional standards and legal and regulatory requirements
issues appropriate reports
quality control standards are influenced by what 4 components of a CPA firm?
- size (small-partner directly supervises; large–parnter relies on manager/supervisor)
- nature of practice (issuers–PCAOB vs nonissuers–AICPA)
- cost-benefit considerations (review of sample of engagements, rather than all)
- organization structure (apart of network or stand alone; multiple locations or management levels)
one objective of audit is:
to express an opinion on whether F/S complied with GAAP
to issue an opinion on the F/S at the balance sheet date
what are analytical procedures?
audit procedures for which an auditor develops an expectation based on their knowledge of the entity and its industry
At what 3 different times during an audit are analytical procedures typically performed?
- during planning (required): used as risk assessment procedure
- substantive testing (optional): the data used should be reliable and precise enough to provide the desired level of assurance
- the overall review (required)
what are analytical procedures used for?
to gather evidence with respect to relationships among various accounting and non-accounting data
think comparisons of recorded amounts to expectations developed by auditor
what is the audit program?
step-by-step list of audit procedures that describes the nature, timing and extent of:
1. risk assessment procedures sufficient to assess the RMM (test of controls)
2. further audit procedures at the relevant assertion level for each material class of
transactions, account balances and disclosures
3. other procedures needed to comply with GAAS (use of specialists)
what should auditors consider before the audit program can be finalized?
materiality
RMM
business and industry factors
when designing a written audit program, an auditor must establish…
specific audit procedures that relate primarily to management’s assertions on the F/S
when auditors consider reducing the level of control risk (CR) they perform…
test of controls (TOC)
if TOC is considered effective, auditors can…
reduce CR and limit amount of additional substantive testing
unreliable controls _____ RRM:
CR is _______
increase; high
reliable controls _______ RRM:
CR is ______
reduce; low
what is the audit program?
step-by-step list of audit procedures that describes the nature, timing and extent of
1. risk assessment procedures sufficient to assess the RMM (test of controls)
2. further audit procedures at the relevant assertion level for each material class of
transactions, account balances and disclosures
3. other procedures needed to comply with GAAS (use of specialists)
auditors will consider which three factors before the audit program can be finalized?
materiality
RMM
business and industry factors
when auditors consider reducing the level of control risk (CR) they perform….
test of controls
if test of controls (TOC) is considered effective…ineffective…
auditors can reduce CR and limit amount of additional substantive testing
reliable controls reduce RMM
unreliable controls increase RMM: CR is high
GAAS engagement quality review documentation includes:
- review date
- provides evidence the firm’s engagement quality control procedures were performed
- provides evidence that the reviewer is unaware of unresolved or inappropriate judgments or conclusions
what are the overarching concepts behind the use of analytical procedures?
-incorporate the study of financial ratios and the investigation of unusual fluctuations
-assume plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary
-numbers should be based on reliable data generated by a system with adequate controls
Analytical procedures in reviews are used to
Evaluate relationships among financial and non-financial data to identify abnormal relationships that suggest financial statements may be misstated
Analytical procedures in audits
search for statements
