week 2: FS audit (phase 1) Flashcards
5 phases of audit
- client acceptance
- risk assessment
- controls testing
- audit evidence
- audit completion
information needed to make client acceptance/continuance decision
- independence-impairing relationship
- integrity of mgmt and those charged with governance
- questionable accounting policies or IC deficiencies
- background and experience of acct personnel
- viability of client’s business
- own engagement team
can audit engagements be rejected?
yes
reasons for rejecting audit engagements
- audit fee
- size
- audit engagement does not seek reelection
- audit rotation
- personality
audit risk model
AR = (IR x CR) x DR
definition of audit risk
risk that inappropriate audit opinion is given when the FS is materially misstated
definition of inherent risk
risks that MM arising from inherent risks not identified
definition of control risk
risk that MM arising from poor/weak IC were not identified
definition of detection risk
risk that MM not identified despite audit procedures planned and performed
understanding detection risk
when AR is set as low and
(IR x CR) is high
more audit work is required and
the tolerance of undetected MM is low
making the resultant DR to be low
reason for the audit risk model
- test only risky accounts
- cut down unnecessary attention on low risk accounts
- limited time and resources
consequence of giving wrong audit opinion
- professional negligence claims
- disciplinary proceedings
- loss of reputation and consequences
- collapse of firm
transaction assertions
- occurrence
- completeness
- accuracy
- cutoff
- classification
- presentation
balance assertions
- existence
- rights and obligations
- completeness
- accuracy, valuation and allocation
- classification
