Section 1: Audit Standards & Engagement Planning Flashcards
Basic Types of Audits
compliance audits
operational audits
financial statement audits
Applicable Financial Reporting Framwork
a set of criteria used to determine measurement, recognition, presentation, and disclosure of all material items appearing in financial statements example: GAAP
General Purpose Framework
designed to meet the common financial information objectives of a wide range of users. includes GAAP, IFRS
Special Purpose Framework
frameworks including: cash basis, tax basis, regulatory agency basis, contractual basis, other basis
Professional Skepticism
an attitude that includes a questioning mind and a critical assessment of audit evidence
Reasonable Assurance
a high level of assurance, NOT absolute assurance
The Steps in an Audit
1) Prepare for audit
2) Obtain understanding of client, its environment & internal control
3) Assess RMM, determine nature/timing/extent of further procedures
4) Perform tests of controls
5) Perform substantive procedures
6) Formulate an opinion
7) Issue audit report
Clarity Standards
- make GAAS easier to understand/apply
- apply to audits of non-issuers (non-public)
- issued by ASB of AICPA
Unconditional Requirement
- must be complied with in order for auditor to complete an engagement in accordance with GAAS
- will always include the phrase “must” or “is required to”
Presumptively Mandatory Requirement
- auditor is expected to comply with
- auditor may depart from if it would not be effective, but must state reason for doing so
- will always include the word “should”
Clarity Standards Format
- Introduction
- Objectives
- Definitions
- Requirements
- Application & Other Explanatory Material
Significant Finding
the inability to achieve an objective
10 Generally Accepted Auditing Standards
TIPPICANOE
General:
Training & proficiency
Independence
Professional care
Fieldwork:
Planning & supervision
Internal controls
Corroborative audit evidence
Reporting:
Accounting principles in accordance w/GAAP
No new accounting principles applied
Omitted informative disclosures-none
Expression of an opinion
GAAS Standards:
General
Framework
Reporting
General: apply to all aspects of the engagement, from acceptance to completion
Framework: apply to the portion of the engagement devoted to gathering evidence
Reporting: apply to the manner in which the report is to be written
The auditor must maintain independence for attestation engagements:
CARES/ERAS
Compilations (unless lack of independence indicated)
Agreed-upon procedure engagements
Reviews
Examinations (audits)
Special reports
Auditors need not be independent for?
Compilations (when lack of independence indicated)
Taxes
Consultations
Other non-attest services, ie bookkeeping & payroll
What can impair an auditor’s independence?
- any direct financial interest (material or immaterial)
- material indirect financial interest
Due Professional Care
-critical review of judgement used at every level
-skill & care of a prudent CPA:
workpapers
due diligence
professional skepticism
competency & diligence
Auditing Standards vs. Auditing Procedures
procedures: relate to acts
standards: measures of quality of the auditor’s performance of those acts
Assurance Services
- independent professional services that improve the quality of information, or its context, for decision makers
- include all attestation (including audit/review)
- does not include tax, compilations, consulting
Preconditions for an Audit
- the acceptance of the financial reporting framework being applied
- management’s agreement that it understands and accepts certain responsibilities:
- prepare/present financial statements in accordance w/AFRF
- DIM of internal control free from material misstatements
- providing auditor with access to all relevant information
RID-C
(get rid of and c-ya later)
Successor will make inquiries of predecessor with regard to several key issues:
Reasons for change
Integrity of management
Disagreements during audit
Communication with management or those charged with governance regarding noncompliance and weaknesses in internal control
Certain matters should be communicated to those charged with governance:
DISAPPROVE
(audit committees would disapprove of an auditor who failed to inform them of these)
Disagreements with management
Illegal acts/noncompliance
Significant accounting policies
Adjustments - AJE & RJE
Prior discussions with management
Problems that arise obtaining evidence/cooperation
Responsibilities of auditor under GAAS
Other information regarding responsibilities
Views of other accountants contact by management
Estimates in the accounting records
The elements of the engagement letter:
FACSIMILIE
Fees
Auditor’s responsibility (GAAS)
Confirmation of the engagement
Scope & objective of the engagement
Internal control (communicate sig. def. & weaknesses)
Management’s responsibility
Irregularities - fraud
iLLegal acts - noncompliance
Errors
