Substantive Procedures & Audit Completion Flashcards
What are the two types of audit evidence?
Accounting records
Supporting documentation
What does sufficiency of audit evidence mean?
Quantity of audit evidence
What are the two factors of appropriateness of audit evidence?
Relevance and reliability
What are three factors of reliability of audit evidence?
Source of audit evidence
Form of audit evidence
Original vs copies
What are the 6 assertsions?
Completeness
Cutoff
Valuation, allocation, & accuracy
Existence / occurrence
Rights & obligations
Understandability & classification
Completeness assertion on classes of transactions
All transactions & events that should have been recorded are recorded
Completeness assertion on account balances
All assets, liabilities & equity interests that should have been recorded are recorded
Completeness assertion on presentation and disclosure
All disclosures that should have been included in the FS have been included
Cutoff assertion on classes of transactions
Transactions & events have been recorded in the correct accounting period
Valuation, allocation & accuracy on classes of transactions
Accuracy: amounts and other data relating to recorded transactions have been recorded appropriately.
Valuation, allocation & accuracy on account balances
Allocation & Valuation: assets, liabilities, and equity interests are included at the appropriate amounts and any resulting valuation or allocation adjustments are recorded appropriately.
Valuation, allocation & accuracy on presentation and disclosure
Accuracy & Valuation: financial and other info is disclosed fairly and at appropriate amounts.
Existence or occurrence on classes of transactions
Occurrence: transactions & events that have been recorded have occurred and pertain to the entity
Existence or occurrence on account balances
Existence: assets, liabilities, and equity interests exist.
Existence or occurrence on presentation and disclosure
Existence & occurrence: disclosed transactions & events have occurred and pertain to the entity
Rights & obligations on account balances
The entity holds or controls the rights to the assets and the liabilities are the obligations of the entity
Rights & obligations on presentation and disclosure
The entity holds or controls the rights to the assets and the liabilities are the obligations of the entity
Understandability & classification on classes of transactions
Classification: transactions & events have been recorded in the proper accountsC
Understandability & classification on account balances
Classification: financial info is categorized correctly in the FS
Understandability & classification on presentation and disclosure
Financial info is appropriately presented and described, and info in disclosures is expressed clearly.
What are examples of test of details?
Re-performance
Inquiry
Observation
Confirmation
Asset inspection
Reconciliation
Inspection
Recalculation, footing & cross-footing
Auditing related account simultaneously
Cut-off procedures
Events subsequent to balance sheet date
What are common types of substantive analytical procedures?
Trend analysis
Ratio analysis
Reasonableness testing
Regression analysis
Vertical analysis
Horizontal analysis
Non-financial analysis
Industry comparison
Budget vs actual analysis
What are the steps in performing substantive analytical procedures?
Develop an expectation
Define a threshold
Compare and analyze differences
Document
Are analytical procedures required during the planning stage of an audit?
Yes. Preliminary analytical procedures are mandatory.
Are analytical procedures required during the fieldwork stage of an audit?
No. Substantive analytical procedures are optional.
Are analytical procedures required during the review stage of an audit?
Yes. Final analytical procedures are mandatory.
When the auditor is unable to obtain sufficient appropriate audit evidence regarding opening balances, what audit opinion is necessary?
Qualified due to GAAS or disclaimer of opinion
When opening balances contain a misstatement that materially affects the current FS, what audit opinion is necessary?
Qualified due to GAAP or adverse opinion
When the current period’s accounting policies are not consistently applied regarding opening balances, what audit opinion is necessary?
Qualified due to GAAP or adverse opinion
When the predecessor’s audit report includes a modification, what audit opinion is necessary?
Modify current audit report accordingly.
Does an auditor provide assurance about compliance with laws & regulations?
No.
In regards to compliance with laws & regulations, the auditor should obtain an understanding of…
the legal and regulatory framework applicable to the entity and its industry, as well as the entity’s compliance mechanisms with the applicable framework.
Who should the auditor discuss identified or suspected non-compliance with?
Management and TCWG.
For management, it should be reported to individuals at least one level above those involved with the non-compliance
Is non-compliance disclosed?
No, non-compliance is not disclosed.
The auditor should issue a qualified or adverse opinion due to a departure from GAAP
Should insufficient audit evidence be disclosed?
No. Auditor should issued a qualified opinion due to GAAS or a disclaimer of opinion.
Should non-compliance be reported to outside parties?
No, it should not be reported to outside parties.
Exceptions: legal & regulatory compliance; subpoena response; successor auditor communication; governmental financial assistance.
What are the audit procedures for related party transactions?
Obtain sufficient appropriate audit evidence to confirm appropriate identification, accounting, and disclosure of the RP transactions in the FS.
Inquire of management regarding RP relationships & transactions.
Inquire of management as to any significant transactions which are outside the entity’s normal course of business (i.e. transactions not carried out at arm’s length).
What should the auditor do if they identify previously undisclosed related party relationships or transactions?
Communicate the relevant info to the engagement team.
Request management identify all transactions with newly identified related parties.
Inquire why I/C failed to identify/disclose such RP relationship/transactions.
Perform substantive procedures relating to newly identified relationships/transactions.
When there is a remote possibility for a loss contingency, should it be disclosed, accrued, or both?
It should not be disclosed nor accrued.
When there is a remote possibility for a gain contingency, should it be disclosed, accrued, or both?
It should not be disclosed nor accrued.
When there is a reasonable possibility for a loss contingency, should it be disclosed, accrued, or both?
It should be disclosed.
It should not be accrued.
When there is a reasonable possibility for a gain contingency, should it be disclosed, accrued, or both?
It should be disclosed.
It should not be accrued.
When a loss contingency is probable & non-estimable, should it be disclosed, accrued, or both?
It should be disclosed.
It should not be accrued.
When a gain contingency is probable & non-estimable, should it be disclosed, accrued, or both?
It should be disclosed.
It should not be accrued.
When a loss contingency is probable & reasonably estimable, should it be disclosed, accrued, or both?
It should be disclosed and accrued.
When a gain contingency is probable & reasonably estimable, should it be disclosed, accrued, or both?
It should be disclosed.
It should not be accrued.
Auditor procedures to identify litigations, claims, and assessments
Inquiries within the entity
Inspect minutes of meetings
Inspect legal documents
Obtain written representations
Communication with in-house legal
Communication with external legal counsel (letter of inquiry)
What does an auditor request from an entity’s external legal counsel?
Information on known litigation, claims, and assessments involving the entity, as provided by management.
Information on other litigations, claims, and assessments that the external legal counsel is aware of but not listed.
The likely outcome and financial implications of each identified matter.
The probability of unasserted claims that might be significant and the potential range of loss.
What are the procedures when litigations, claims, and assessments are identified?
Obtain audit evidence
Legal consultation
Review of subsequent events
Disclosure check
What type of opinion is used if the litigation, claims, and assessments is appropriately accounted and disclosed?
Unmodified opinion
What type of opinion is used if the litigation, claims, and assessments is not appropriately accounted and disclosed?
Qualified due to GAAP or Adverse Opinion
What type of opinion is used if the entity’s external legal counsel refuses to respond appropriately to letter of inquiry and auditor is unable to obtain sufficient appropriate audit evidence via alternative audit procedures?
Qualified due to GAAS or Disclaimer of opinion
What type of opinion is used if management refuses to give the auditor permission to communicate or meet with the entity’s external legal counsel?
Disclaimer of opinion or withdrawal
What are the audit procedures for accounting estimates & fair value estimates?
Review management’s measurement method
Review of assumptions
Auditor’s independent estimate
Subsequent event review
What type of opinion is used when estimates are reasonable and disclosed and accounted for properly?
Unmodified opinion
What type of opinion is used when estimates are not reasonable and/or not disclosed properly?
Qualified due to GAAP or Adverse opinion
What type of opinion is used when the auditor is unable to audit estimates due to lack of information?
Qualified due to GAAS or Disclaimer of opinion
What are the two types of subsequent events?
Recognized subsequent event - adjusting events
Non-recognized subsequent event - non-adjusting events
What are the audit procedures for subsequent events?
Inquiry of management & TCWH
Inquiry of legal counsel
Inspect minutes of meetings
Inspect interim FS
Obtain written representations of management
What are the audit procedures after the audit report date when newly subsequently discovered facts are identified?
Discuss with management & TCWG regarding the newly subsequent discovered facts.
Determine whether the FS need revision due to the new info, management might or might not revise FS.
If management revises FS - dual date the report or date the report as of the later date.
If management does not revise FS - the auditor can express a Qualified opinion due to departure from GAAP or an Adverse opinion if the misstatement is material and pervasive.
What is the required form of audit documentation?
Can be in paper, electronic, or other media forms.
Oral explanations alone are insufficient. Written workpapers are essential for supporting the auditor’s work and conclusions.
What is required for audit documentation?
Should be detailed enough to allow an experienced auditor, unfamiliar with the previous audit, to understand the following:
Nature, timing, and extent of audit procedures
Audit work details
Audit procedure results
Significant findings and issues
Should include details of discussions with management & TCWG
Addressing inconsistencies
Engagement completion document
What are the two types of audit documentation?
Permanent file
Current file
What is included in the permanent file of audit documentation?
Organizational documents
Minutes
Flowcharts of internal controls
Long-term contracts
Equity account analysis
Depreciation schedules
What is included in the current file of audit documentation?
Audit plan
Financial statements and auditor’s report
Working trial balance
Lead schedules
Audit workpapers
Confirmation & representation letters
Auditor’s analysis & worksheets
Entity’s documents
Significant audit findings or issues
What is the required documentation for departure from GAAS?
Justification for departure
Alternative procedures
What revisions are allowed to audit documentation after the audit report date?
Administrative changes during final assembly.
Clarifications to existing documentation due to comments from internal/external monitoring inspections.
Performing omitted procedures in rare cases.
How long should audit documentation be retained?
Non-issuer 5 years
Issuer 7 years
What are the key components of the management representation letter?
Written confirmation
Managements responsibilities, including: FS preparation & presentation, internal controls, completeness of information
Fraud-related representations
Legal compliance
Management should confirm that:
the effects of uncorrected misstatements are immaterial to the FS as a whole; all known or possible litigation and claims affecting the FS are disclosed and accounted for according to GAAP; significant assumptions used in making accounting estimates are reasonable; all related party transactions and relationships are disclosed and account for according to GAAP.
Management should disclose and adjust for all subsequent events per GAAP.
What are the types of misstatements?
Factual misstatement
Judgmental misstatement
Projected misstatement
What procedures are necessary for misstatements?
Accumulate misstatements
Prompt communication to management
Request for correction by management
Evaluation of uncorrected misstatements
What type of opinion is used when misstatements are immaterial?
Unmodified opinion
What type of opinion is used when misstatements are material but not pervasive?
Qualified due to GAAP
What type of opinion is used when misstatements are material and pervasive?
Adverse opinion
What is engagement quality control review?
A rigorous review process wherein a concurring or second partner (EQCR partner) reviews the audit’s quality and findings.
