Questions from Wrap-Up Flashcards
Define auditing
Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria. Auditing should be done by a competent independent person.
What is the purpose of the audit?
To provide financial statements users with an opinion by the auditor on whether the financial statements are presented fairly, in all material aspects, in accordance with the applicable financial accounting framework
What is phase 1? What does it constitute?
Plan and design an audit approach
- Accept client and perform initial planning
- Understand the client’s business and industry
- Assess client business risk
- Perform preliminary analytical procedures
- Set materiality and assess acceptable audit and inherent risk
- Understand internal control and assess control risk
- Gather information to assess fraud risk
- Develop overall audit plan and audit program
What is phase 2? What does it constitute?
Perform tests of controls and substantive tests of transactions
- Perform test of controls
- Perform substantive tests of transactions
- Assess likelihood of misstatements in financial statements
What is phase 3? What does it constitute?
Perform analytical procedures and tests of details of balances
- Perform analytical procedures
- Perform tests of key items
- Perform additional tests of details of balances
What is phase 4? What does it constitute?
Complete the audit and issue an audit report
- Review for contingent liabilities
- Review for subsequent events
- Accumulate final evidence
- Evaluate results
- Issue audit report
- Communicate with audit committee and management
Content form and content of engagement letter may vary; possible contents are:
- Acceptance of client
- Objective and scope of audit
- Responsibility/Liability of auditor
- Type of audit report
What is client business risk?
The risk that the client will fail to achieve its objectives
What are the main parameters of understanding the client’s business and industry
- Industry and external environment
- Business operations and processes
- Management and governance
- Objectives and strategies
- Measurement and performance
State the two “Audit Risk Model” equations
First: IR * CR * DR = AR
Second: PDR = AAR / (IR*CR)
Define monitoring in the COSO framework
The entire process is monitored and modified as conditions warrant
Define Information and Communication in the COSO framework
Meanwhile, relevant information is captured and communicated throughout the organization
Define Control Activities in the COSO framework
Control activities are implemented to help ensure that management directives to adress the risks are carried out
Define Risk Assessment in the COSO framework
Within this environment, management assesses risks to the achievement of specified objectives
Define Control Environment in the COSO framework
The control environment provides an atmosphere in which people conduct their activities and carry out their responsibilities. It serves as the foundation for the other components
