Section 1: Audit Standards & Engagement Planning Flashcards
10 GAAS
TIPPICANOE
- GENERAL STANDARDS
- Training & Profeciency
- Independence
- Due Professional Care
- FIELDWORK STANDARDS
- Planning and Supervising
- Internal Controls
- Corroborative Audit Evidence
- REPORTING STANDARDS
-
Accounting Principles in Conformity with US GAAP
- Explicitly stated
-
No new accounting principles applied - consistency
- Implicit
-
Omitted Informative Disclosures - none
- Implicit
-
Expression of Opinion
- Explicit
-
Accounting Principles in Conformity with US GAAP
10 GAAS Standards
Training & Proficiency
- Proper education in accounting
- Knowledge of industry and business
- Practical experience (CPE)
10 GAAS Standards
Independence
- Ability to act with intgrity and objectivity
- Independence means you, your spouse, dependent kids or relatives
10 GAAS Standards
Due Professional Care
- Critical review of judgment used at every level
- Skill and care of prudent CPA
- Prep of complete workpapers
- Due diligence
- Professiona; skepticism
- Competent and diligent
10 GAAS Standards
Planning & Supervision
- Adequately planned and properly supervised
10 GAAS Standards
Internal Controls
- The auditor must obtain a sufficient understanding of the entity and the envirnoment, including internal controls, to assess the RMM of F/S whether due to error or fraud and to design the nature, timing, and extent of further audit procedures
- Rely more, substantive testing less (inverse relationship)
10 GAAS Standards
Corroborative Audit Evidence
- The auditor must obtain sufficient appropriate (corroborative) audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the F/S under audit
- Rely more on I/C, less substantive testing needed
10 GAAS Standards
Accounting Principles in Conformity to US GAAP
- The report must state whether the F?S are presented in conformity with US GAAP
- Explicitly stated in report
10 GAAS Standards
No New Accounting Principles Applied - Consistency
- THe report must identify those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period
- Implicitly stated in report
10 GAAS Standards
Omitted Informative Disclosures - None
- Informative disclosures in the F?S are to be regarded as reasonably adequate unless otherwise stated in the report
- Implicit
10 GAAS Standards
Expression of Opinion
- The report must contain either an expression of opinion regarding the F/S as a whole or an assertion to the effect that an opinion cannot be given
- Explicit
Attestation Engagements
CARES
- Independence is needed
- Compilations - unless lack of independence is noted
- Agreed-upon procedure engagements
- Reviews
- Examinations (Audits)
- Special Reports
Engagements independence is not needed for
- Compilations - if noted
- Taxes
- Consultations
- Other non-attest services like bookkeeping and payroll
Questions to ask predecessor auditor
RID-C
- Reasons for change
- Integrity of management
- Disagreements during audit
- Communication with Mgt or those charged with Governance
Communicated to those charged with Governance
DISAPPROVE
- Disagreemnts with mgt
- Noncompliance with applicable laws and regulations (illegal acts)
- Significant accounting policies changed
- Adjustments proposed by auditor
- Prior discussions with mgt
- Problems during audit
- Responsibilities of auditor
- Other info reagrding responsibilities
- Views of other accountants
- Estimates in accounting records
Enagagement Letter Contains
FACSIMILE
- Fees
- Auditor’s responbility (GAAS)
- Confirmation of Engagement
- Scope and objective of engagement
- Internal Controls
- Mgt’s responsibility
- Irregularities - fraud
- ILlegal acts
- Errors
Audit Planning Procedures
BRAINSTOPS
- Basic discussions with client
- Review of audit documentation
- Ask about recent developments
- Interim F/S
- Non-audit personnel
- Staffing
- Timing
- Outside Assistance
- Pronouncements
- Scheduling with the client
Quality Control within Firm
HEAL-ME
- Human Resources
- Ethical Requirements
- Acceptance and continuance of client relationships and specific engagements
- Leadership responsibilites for quality witinth the firm (tone at the top)
- Monitoring
- Engagement performance
Inherent Risk
- Risk inherent with the situation
- Cash has a high inherent risk
*
Control Risk
Risk that internal control will not catch the misstatements
Detection Risk
Risk that your substantive testing will not detect a misstatement
Management Assertions
PERCV
- Presentation and disclosure
- Existence and Occurance
- Rights and Obligations
- Completeness
- Valuation or Allocation
Completeness Testing
Go from source document to F/S
Tests for understatements
Existence Testing
F/S back to source documents
Tests for overstatements
What is MGT Responsible for related to I/C?
DIM
- Design
- Implementation
- Maintenance
Steps in an Audit
- Prepare for Audit
- Obtain understanding of client, environment, including I/C
- Assess RMM and determine nature, timing, and extent of further procedures
- Perform Tests of Controls
- Perform Substantive Procedures
- Formulate an Opinion
- Issue an Audit Report
Sections in an Engagement Letter
- Objective and scope of audit
- responsibilties of the auditor
- Responsibilties of Mgt and ID of AFRF
- Other Relevant Info
- Reporting
- Inherent limitations
