Aud - Engagement Planning

Front 1

Is the auditor responsible for detecting theft or fraud?

Back 1

No. Only responsible for providing reasonable assurance against errors, fraud, and illegal acts with a DIRECT effect on the FS.

Front 2

Transaction Class Assertions

Back 2

Occurrence
Completeness
Cutoff
Classification
Accuracy

Front 3

Account Balance Assertions

Back 3

Existence
Completeness
Rights and obligations
Valuation and allocation

Front 4

Disclosure Assertions

Back 4

Occurrence
Completeness
Classification and understandability
Accuracy and valuation

Front 5

When can audit procedures be carried out at interim dates, rather than YE?

Back 5

When control risk for accounts/transactions is low.

Front 6

The auditor uses professional skepticism to plan the

Back 6

scope and objectives of the audit

Front 7

What are the foundations of GAAS?

Back 7

Materiality
Audit Risk

Front 8

Which standards of reporting (GAAS) are implied?

Back 8

Consistency
Disclosures

Front 9

What does an auditor need to do prior to accepting an engagement?

Back 9

Review FS
Speak to 3rd parties
Consider scope limitations
Talk to predecessor auditor
--** must have permission from client to contact

Front 10

Questions to ask predecessor auditor when considering the engagement

Back 10

1. Why the change?
2. Serious discussions w/ AC?
3. How is management integrity? Disagreements?
4. How is IC?

Front 11

Engagement letter must be written and includes:

Back 11

LMAO INC

Limitations of engagement
Mgt responsibilties
Auditor's responsibilities
Objectives
Internal control requirements
Need to access records
Compliance with the law

Front 12

The audit committee must agree with the auditor on:

Back 12

Responsibility of parties
Audit fee
Timing of audit
Audit plan

Front 13

Materiality can include ___ and ___ measurements

Back 13

qualitative and quantitative

Front 14

Materiality is measured on what levels?

Back 14

Transactional OR Financial Statement levels

Front 15

If materiality thresholds differ among FS, what do you use?

Back 15

The lowest threshold. DONT average!

Front 16

What is the formula for audit risk?

Back 16

Inherent risk x Control risk x Detection risk

Front 17

How is a lower acceptable audit risk achieved?

Back 17

Through obtaining more audit evidence

Front 18

Which components of audit risk are beyond the auditors control?

Back 18

Inherent risk
Control risk

Front 19

How is detection risk related to audit risk?

Back 19

directly related.

Front 20

How can risk components be measured quantitatively/qualitatively

Back 20

Quantitatively - measured in terms of percentages
Qualitatively - measured in terms of acceptable ranges

Front 21

What is the risk of material misstatement?

Back 21

IR x CR

Front 22

What things will increase/decrease inherent risk?

Back 22

Declining industry
Lack of working capital
High rate of obsolescence

More profitable than industry average
Low management turnover

Front 23

What will increase/decrease control risk?

Back 23

Ineffective IC
Weak mgt oversight

Effective IC
Strong mgt oversight

Front 24

What will increase/decrease detection risk?

Back 24

Decreased substantive testing
Perform early tests

Increase substantive testing
Use more effective tests
YE tests

Front 25

Steps to apply audit risk model:

Back 25

1. Establish level of AR
2. Measure IR
3. Establish CR
4. Compute necessary DR = AR/(IR + CR)
5. Determine level of testing needed.

Front 26

Items may be material due to either

Back 26

high dollar amount
non-monetary (qualitative) significance

Front 27

Who is responsible for detecting fraud?

Back 27

Management

Front 28

What are the two types of fraud?

Back 28

Fraudulent financial reporting (misstatements/omissions)
Misappropriation of assets (stealing, embezzlement)

Front 29

What is the fraud triangle?

Back 29

Pressure
Opportunity
Rationalization

Front 30

How should management report findings of fraud?

Back 30

If minor and by low level employees - dont report to audit committee

Any fraud (major or minor) by management - report to AC

Front 31

Steps in consideration of fraud:

Back 31

1. Discussion of RMM
2. Obtain info
3. ID risks
4. Assess risks after considering controls
5. Respond to results
6. Evaluate evidence
7. Communicate
8. Document

Front 32

Examples of audit red flags. Audit procedures may need to be reconsidered if red flags exist.

Back 32

HH FUN CAVE

High use of estimates
High turnover
Former auditor disagreed with mgt
Unavailable records
Negative cash flows
Compensation tied to stock
Aggressive financial forecasting
Volatile industry
Employees stressed

Front 33

What is the authoritative literature hierarchy?

Back 33

Statements on Auditing Standards
Auditing Interpretations, AICPA Guides, & SOPs
Industry Articles

Front 34

Quality control elements

Back 34

Leadership
Monitoring
Relevant Ethical Requirements
Competent & Ethical Personnel
Compliance with regulations
Accept/continue engagements based on:
---client integrity
---auditor competency
---legality

Front 35

What is SSARS?

Back 35

Statements on Standards for Accounting and Review Services

Front 36

Compilation services

Back 36

Private entities only
No independence necessary
No internal control work allowed
No assurance given

Front 37

Review services

Back 37

Private entities only
Provides negative assurance
REQUIRES independence
No internal control work
Analytical procedures
No direct/material indirect financial interest allowed

Front 38

Attestation services

Back 38

Independence required.
CPA expresses conclusion about assertion

Front 39

Consulting services

Back 39

Independence not required

Front 40

Prospective financial statements

Back 40

Report restricted to specified users
AUP implemented