audit final – Flashcards
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| revenue and expense accounts attorney letters management representations audit documentation review subsequent events |
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| activities between end of year and last day of fieldwork |
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| inquiry of clients minutes of meetings review contracts/loan agreement review taxing/governmental agencies guarantees from bank confirmations legal services documentation |
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| procedures for contingent liabilities, hidden liabilities, litigation, claims and assessments |
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| cannot issue audit opinion unless you have management representations letter |
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| audit report date (aka audit completion date) |
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| what is the date of the management representations letter? |
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| alleviates liability on auditors, shows management responsibility for the fairness of the financial statements and fraud program and controls |
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| purpose of the management representations letter? |
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| rollover method |
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| considers the current period income effects of misstatement |
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| iron curtain method |
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| considers the aggregate effect of the adjustments on the entity's balance sheet |
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| review latest interim financial statements inquire officers/other executives read minutes of meetings obtain attorney letters obtain mgmt representations letter |
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| procedures in subsequent period |
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| Type I subsequent events |
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| provide new information about conditions existing at balance sheet date |
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| adjust financial statmenets to reflect new information |
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| What do you do with Type I subsequent events |
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| Type II Subsequent Events |
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| involve events occurring after balance sheet date |
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| disclose in financial statements (if extreme, prepare pro forma financial statements) |
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| What to do with Type II subsequent events |
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| Type II subsequent events |
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| non-recognized subsequent events |
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| Type I Subsequent events |
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| recognized subsequent events |
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| subsequent discovery of facts omitted procedures communication with audit committee management letters |
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| activities following issuance of auditor's reports |
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| significant deficiency |
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| a control deficiency that adversely affects the accounting and reporting function such that there is more than a remote likelihood that a more than inconsequential F/S misstatement will not be prevented or detected |
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| material weakness |
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| significant deficiency that results in more than a remote likelihood that a material F/S misstatement will not be prevented or detected |
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| management letters are NOT required under GAAS |
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| management letters |
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| provide recommendations to client for improving effectiveness and efficiency of operations, delivered by auditor to client following audit engagement |
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| subseuent discovery of facts omitted porcedures communication with those charged with governance management letters |
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| review following audit report release date |
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| within 60 days of report release date |
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| documentation completion date for ALL audits (public and private) |
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| 1. all audit documentation is reviewed 2. F/S prepared (and footnotes) 3. signed mgmt rep letter by CEO/CFO |
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| 3 requirements for the earliest the opinion date can be |
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| test basis materiality significant estimates |
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| specific references in the scope paragraph of the standard report |
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| unqualified opinion adverse opinion (material weakness) disclaimer |
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| types of internal control opinions |
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| qualified |
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| issued when departure from GAAP is material but not pervasive |
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| circumstance imposed scope limitation |
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| situation in which matters beyond auditors' and client's control limit procedures performed by the auditor |
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| client imposed scope limitation |
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| situation in which client specifically limits auditors procedures (use disclaimer) |
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| qualified opinion |
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| issued when scope limitation material, but not pervasive |
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| disclaimer of opinion |
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| issued when pervasive scope limitation (usually client imposed) |
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| disclaimer of opinion |
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| if serious going concern uncertainty, issue |
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| rule 203 |
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| allows for unqualified opinions on FS that are not in conformity with GAAP if GAAP would be misleading |
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| financial relationships management relationships |
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| two general types of relations that can compromise auditors independence |
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| qualified unqualified disclaimer adverse |
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| 4 types of audit opinions |
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| 1. assess fraud risk 2. design the audit to detect fraud 3. report findings to appropriate persons |
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| 3 SAS 99 activities that must be performed |
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| nature of audit procedures |
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| effectiveness of tests; type of procedures preformed; quality of evidence |
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| timing of audit procedures |
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| when the procedures are performed |
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| extent of the audit procedures |
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| how many procedures are performed; quantity |
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| early planning stages and wrap up |
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| when are analytical procedures required during audit engagements? |
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| ar = ir * cr * dr |
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| audit risk model |
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| effective internal controls; increase detection risk |
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| what can lower assessment of control risk? how does this impact detection risk? |
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| tracing |
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| are all transactions recorded? moving forward from original source documents to see if recorded in general ledger/FS |
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| completeness |
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| what management assertion is associated with tracing? |
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| vouching |
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| taking the accounts/transactions and looking back to determine their original source |
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| existence |
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| management assertion associated with vouching |
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| independence in fact |
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| auditors' mental attitude and impartiality with respect to the client |
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| independence in appearance |
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| the extent to which others perceive auditors to be independent |
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| detection risk |
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| the risk that the audit team's procdres will fail to detect a material misstatement |
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| control risk |
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| the probability that material misstatement will not be prevented or detected on a timely basis by the entity's internal controls |
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| inherent risk |
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| the probability that a material misstatement will occur |
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| errors |
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| unintentional misstatements or omissions |
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| fraud |
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| knowingly making material misrepresentations of fact with the intent of inducing someone to believe the falsehood and act on it and thus suffer loss or damage |
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| schedules and analysis to be prepared by the client's employees |
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| an audit engagement letter should normally included what matters of agreement between the auditor and the client |
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| identifying related parties |
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| would be performed during planning |
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| 1. attempt to contact the predecessor auditors 2. evaluate the integrity of management 3. assess the firm's resources to ensure that they are sufficient to permit them to accept the engagement |
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| prior to accepting a new audit engagement, a public accounting firm should: |
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| performing tests of controls |
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| major stage of the audit that is closely related to attributes sampling |
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| the expected population deviation rate with probability equal to the risk of over reliance that the population deviation rate is higher |
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| the interpretation of the upper limit rate of deviation in an attributes sampling application |
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| use attributes sampling in selecting purchase orders for indication of proper authorization |
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| simpler to use |
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| primary benefit of using non statistical sampling |
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| examine sample items and determine the sample estimate |
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| step normally performed last in a sampling application |
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| provide objective basis for quantitatively evaluating sampel risk |
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| an advantage of statistical sampling over non statistical sampling methods is that statistical methods: |
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| Compliance Efficiency and effectiveness Reliability |
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| The COSO provides a definition of internal controls which includes the following 3 categories from most important to least important |
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| Observation Inquiry Document examination Reperformance |
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| There are several phases to the auditor’s evaluation of a client’s internal controls. Phase 3 requires that auditors perform tests of controls and reassess risk of material misstatement rely on 4 different testing methods. What are they? |
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| Custody Authorization Recording Reconciliation |
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| List 4 different separation of duties |
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| Vouching and Tracing |
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| Primary PCAOB assertion for each of the 2 cycles? (Revenue and Collection) |
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