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Audit > Test 1 > Flashcards

Test 1 Flashcards

1
Q

Relevance

A

the relationship between evidence and the assertion being tested

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2
Q

Reliability

A

depends on the nature and source of the evidence and the circumstances under which it is obtained

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3
Q

Assertions

A

claims made by business owners and managers that the information they share during an audit is accurate

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4
Q

Example of an agent is

A

managers

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5
Q

an example of principals are

A

stockholders

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6
Q

Information Asymmetry

A

When one party knows more than the other

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7
Q

What bridges the gap of information asymmetry

A

House inspections (audits)

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8
Q

Factors affecting user demand for relevant/reliable information

A

Complex transactions, information demanded by remote users, information demanded in timely manner, reliability has far reaching consequences

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9
Q

Assertations about transactions and events and related disclosures

A

occurrence, completeness, authorization, accuracy, cutoff, classification, presentation

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10
Q

Occurrence (transactions)

A

transactions and events have been recorded and pertain to entity

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11
Q

Completeness (transactions)

A

transactions and events that should have been recorded have been recorded.

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12
Q

authorization (transactions)

A

Transactions and events have been properly authorized

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13
Q

Accuracy (transactions)

A

Amounts and other data relating to the transaction have been recorded accurately.

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14
Q

cutoff (transactions)

A

Transactions and events have been recorded in the right period

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15
Q

Classification (transactions)

A

transactions and evens have been put in the proper accounts

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16
Q

Presentation (transactions)

A

transactions and events are appropriately aggregated or disaggregated and clearly described

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17
Q

Assertations about account balances

A

existence, rights and obligations, completeness, valuation and allocation, accuracy, classification, presentation

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18
Q

existence (account balances)

A

assets, liabilities, and equity interest exists

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19
Q

rights and obligations (account balances)

A

entity holds and controls the rights to assets and liabilities

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20
Q

completeness (account balances)

A

all assets, liabilities, and equity interests that should have been recorded have been recorded

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21
Q

Valuation and Allocation (accounts)

A

assets, liabilites, and equity interests are included in the financial statements have been recorded at appropriate amounts

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22
Q

Classification (balances)

A

assets, liabilities, and equity interests have been recorded into proper accounts

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23
Q

Presentation

A

Assets, liabilities, and equity are appropriately aggregated and disaggregated and presented in a fair manner.

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24
Q

Define Auditin

A

Systematic process of objectively obtaining and evaluating evidence regarding assertions and comparing them to established criteria to communicate to interested users

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25
Q

Materiality

A

Magnitude of an omission or misstatement of accounting information that may cause a reasonable person to make a different decision

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26
Q

Audit Risk

A

Risk the auditor expresses an inappropriate audit opinion when the financial statements are materially mistated

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27
Q

Reasonable Assurance

A

implies some risk that the material misstatement is present and a competent auditor will not detect it.

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28
Q

Audit Evidence

A

Consists of underlying accounting information or external information available to the auditor

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29
Q

Evidence must be:

A

Sufficient and appropriate

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30
Q

Relevant evidence

A

is the evidence related to specific assertation being tested

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31
Q

Reliable Information

A

Can the evidence be relied upon to signal the true state of the specific assertation being tested

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32
Q

Major phases of an audit

A

Client acceptance, preliminary engagement, plan audit, consider internal control, audit, complete audit, evaluate

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33
Q

Unqualified

A

free from material mistatement

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34
Q

Qualified

A

Free from material misstatement except for

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35
Q

Adverse

A

So material that it pervasively affects financial statements

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36
Q

Disclaimer

A

Not possible to express on opinion

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37
Q

AICPA

A

Established in 1887

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38
Q

1900’s

A

Accounting becomes important uniform accounting by AICPA

39
Q

1932

A

Ponzi scheme exposed

40
Q

199-s-2000’s

A

WorldCom, Enron fraud, Arthur Andersen collapses

41
Q

SOX

A

Passed in 2002, regulated audit profession, PCAOB came from SOX

42
Q

ASB

A

Nonpublic company audits

43
Q

PCAOB

A

Public company audits

44
Q

Principles of an Audit

A

purpose, responsibilities, performance, reporting

45
Q

Ethics

A

System or code of conduct based on moral duties and obligations that indicate how an individual should interact in society

46
Q

Professionalism

A

Refers to conduct, aims, or qualities that characterize a profession

47
Q

Utilitarian Approach

A

Recognized that decision making involves a trade between benefits and burdens

48
Q

Rights Based Approach

A

Requires recognition that individuals have rights and that others have a duty to respect those when making decisions

49
Q

Justice Based Approach

A

Concerned with issued as equity, fairness, and impartiality

50
Q

Framework for Auditors based on AICPA

A

Principles of professional conduct, rules of conduct, interpretations of conduct by PEEC

51
Q

Principles of Professional Conduct

A

Ideal attitude and behaviors, not enforceable

52
Q

Rules of Conduct

A

Minimally acceptable standards, specifically enforceable

53
Q

Interpretations to rules and conduct

A

specifically enforceable, interpretations and answers to questions regarding rule of conduct

54
Q

Principles of Professional Conduct

A

responsibilities, public interest, integrity, objectivity, due care, scope of services

55
Q

Responsibilities

A

exercise sensitive professional and moral judgements at all times

56
Q

public interest

A

honor public trust, demonstrate commitment to professionalism

57
Q

integrity

A

maintain and broaden public confidence

58
Q

objectivity and indipendence

A

maintain objectivity and be free of conflicts of interest

59
Q

Due Care

A

member should observe technical and ethical standards, improve in compitency

60
Q

scope and nature of services

A

properly determine the scope and nature of services

61
Q

Independence Rule

A

member shall practice independence in services when reviewing or auditing financials and other attest services

62
Q

Covered Members

A

on attest team, position to influence attest engagement, partner or equivalent engaging in 10+ hours non attest services to attest clients, partner or equivalent in office, firm including benefits plan, entity that control another if they act together

63
Q

Direct Relationship

A

financial interest that is directly owned by individual or entity

64
Q

Material indirect

A

covered member has financial interest in an entity associated with an attest entity

65
Q

immediate family rules

A

automatically covered member ( as if CPA)

66
Q

Other family Rules

A

has financial interest and CPA is aware of it, close relative can influence statements of attested group

67
Q

Provision of Non Attest Servies

A

AICPA restricts non audit services to attest clients

68
Q

SEC rules of objectivity and independence

A

auditors should not audit own work, auditor should not be management, auditors should not advocate, auditor should not have mutual or conflicting interest

69
Q

General standards rule

A

professional competence, due professional care, planning and supervision, sufficient relevant data

70
Q

Before accepting a new client, the firm must determine that it:

A

has the capabilities to perform the engagement, complies with legal and relevant ethical requirements, considered the integrity of the client

71
Q

Three topics to be discussed about the terms of engagement

A

engagement letter, using the work of the internal audit function, role of the audit committee

72
Q

Additions to engagement letter

A

Specialists or internal auditors, limitations, additional services, arrangements regarding other services

73
Q

Factors for evaluating reliability of the internal audit function

A

objectivity, competence, systematic and disciplined approach

74
Q

audit committee requirements

A

member of board of directors and independent, directly responsible for overseeing work of any registered public accounting firm, preapprove all audit and non audit services, establish procedure for complaints, authority to engage independents council

75
Q

Audit Strategy

A

determine resources needed to perform the engagement

76
Q

audit plan

A

how the engagement will be done effectively and efficiently

77
Q

Assess Business Risks

A

Understand company, identify risks that may result in material misstatements, evaluate how entity responds to those risks

78
Q

Auditors need to inquire of management about parties:

A

names of related parties, nature of relationships, types of transactions, reasons for entering transactions with parties

79
Q

Type of audit tests:

A

Risk assessment procedure, test of controls, substantive procedures

80
Q

Steps for testing controls

A

Inquiry, Inspection, observation, reperformance, walkthrough

81
Q

Inherent Risk

A

susceptibility of an assertion in an account or disclosure to a misstatement due to error or fraud before consideration of controls

82
Q

Control Risk

A

risk misstatement that could occur in an assertion about an account or disclosure that could be material and not prevented by internal control

83
Q

detection risk

A

risk that the procedures performed by the auditor to reduce audit risk to an acceptable low level will not detect misstatements

84
Q

Audit Risk =

A

Inherent risk * Control risk * detection risk

85
Q

Engagement Risk

A

auditor’s exposure to financial loss and damage to professional reputation

86
Q

Audit Risk Model

A

Set a planned level of risk audit, assess risk of material misstatement, determine appropriate level of detection risk

87
Q

Nature of entity

A

business operations, ownership and governance structures, investments and activities, financing and activities, financial reporting

88
Q

Auditor must identify and understand

A

entity’s objectives, strategies used to achieve, business risks associated with strategies and objectives

89
Q

to understand internal control, and auditor should:

A

identify types of potential misstatements and factors that make them material, assists in designing appropriate audit procedure

90
Q

Fraud involves:

A

fraudulent financial reporting, misappropriation of assets

91
Q

Fraud triangle

A

incentive or pressure to commit, opportunity to commit, attitude to justify fraud

92
Q

incentives for fraud

A

excessive pressure from upper management, financial stability or profitability is threatened, management’s personal financial situation is threatened

93
Q

Risk factors related to fraud

A

nature of industry, complex unstable organizational structure, ineffective monitoring of management, deficient internal control

94
Q

justifications for fraud

A

Audit (4 decks)

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