Audit Exam 2

Front 1

What is evidence? (2)

Back 1

To test management's assertions; it forms the basis for the audit opinion

Front 2

What are transactions and events that have been recorded have occurred and pertain to the entity?

JE or Ledger?

Back 2

Occurrence

J/E

Front 3

Assets, Liabilities, and Equity interests exist?

J/E or Ledger?

Back 3

Existence

Ledger

Front 4

The entity hold or controls the rights to assets, and liabilities are the obligations of the entity?

J/E or Ledger?

Back 4

Rights And Obligations

Ledger

Front 5

All transactions and events that should have been recorded have been recorded?

J/E or Ledger?

Back 5

Completeness

J/E

Front 6

All assets, liabilities, and equity interests that should have been recorded have been recorded?

J/E or Ledger?

Back 6

Completeness

Ledger

Front 7

All transactions and events that should have been recorded have been authorized?

J/E or Ledger?

Back 7

Authorization

J/E

Front 8

Amounts and other data relating to recorded transactions and events have been recorded appropriately?

J/E or Ledger?

Back 8

Accuracy

J/E

Front 9

Assets, liabilities and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are recorded appropriately?

J/E or Ledger?

Back 9

Valuation and Allocation

Ledger

Front 10

Transactions and events have been recorded in the correct accounting period?

J/E or Ledger?

Back 10

Cut-Off

J/E

Front 11

Transactions and events have been recorded in the proper accounts?

J/E or Ledger?

Back 11

Classification

J/E

Front 12

Financial information is appropriately presented and described and information in disclosures is expressed clearly?

J/E or FN's and F/S?

Back 12

Understandibility

FN's and F/S

Front 13

Evidence has varying degrees of what? (2)

Back 13

Competence/"Appropriateness
Sufficiency

Front 14

Auditors are required to gain __ __ evidence to support an opinion at the end of the audit.

Back 14

Sufficient appropriate

Front 15

What is key to criteria for evidence?

Back 15

We have to be strongly presuaded by our evidence on opinion we give.

Front 16

What determines the persuasiveness of evidence?

Back 16

Reliability, Relevance, and Sufficiency

Front 17

What are 5 questions of reliability for persuasivenss?

Back 17

Independence of the source, qualifications of the source, effectiveness of client's internal controls (for client-generated evidence), whether auditor has direct knowledge, and form of evidence (documentary v. oral; original v. copy)

Front 18

What is the form of evidence correlated to?

Back 18

inquiring of client personnel

Front 19

What are 2 questions of relevance for persuasiveness?

Back 19

Timeliness and relationship to assertion tested

Front 20

What is question related to sufficiency for persuasiveness?

Back 20

samples sizes, how many do I need to test to get numbers

Front 21

Are you required to be there for GAAP to watch what for public companies?

Back 21

Inventory count

Front 22

What is audit program related to inventory?

Back 22

list of steps; sign-off when done

Front 23

What is completeness test "trace" (forward test) realworld to accounting records; assertion test see for completions?

Back 23

Floor to Sheet

Front 24

What is existence test "vouch"-adding credibility; that it is there; backward test- start in accounting and back out to real world to see if there; assertion test for existence?

Back 24

Sheet to Floor

Front 25

Procedures in audit program? 8

Back 25

Inspection of a tangible asset, confirmation of data with an outside party, inspectin/reading or scanning client documentatoin, tracing and vouching, analytical procedures, Inquiring of client personnel, reperforming client work or recalculating data, Observing client actions

Front 26

What is confirmation of data with an outside party?

Back 26

not client employee; bank, customer, vendor, broker

Front 27

What is tracing?

What is vouching?

Back 27

Completeness (forward)

Existence (backwards)

Front 28

What are analytical procedures?

Back 28

compare expected number to client number; and see if they are different. If they are you are going to fix them.

Front 29

What is reperforming client work or recalculating data?

Back 29

redoing a step client has already performed (recounting inventory); check vertical math of invoice

Front 30

What is observing client actions?

Back 30

very common controls test; actually watch performance

Front 31

On reliability what is higher relationship with types of evidence?

Back 31

Inspection of tangible assets, reperformance, and recalculation

Front 32

On reliability what is moderate relationship with types of evidence?

Back 32

Inspection of records and documents, confirmation, analytical procedures, scanning

Front 33

On reliability what is lower relationship with types of evidence?

Back 33

Observation and Inquiry

Front 34

What is organized listing of all audit procedures related to an audit area?

Back 34

Audit Program

Front 35

As the steps are completed what is created to show proof of completion and results from reperforming the steps (evidence)?

Back 35

Workpapers

Front 36

What is proof all work is completed?

Back 36

Sign-off on audit

Front 37

What will have detailed list of steps to complete (Sheet to Floor and Floor to Sheet)?

Back 37

Each Audit Procedure

Front 38

What does audit documentation show? (3)

Back 38

Procedures applied, Information obtained, and Conclusions reached

Front 39

What supports the audit report?

Back 39

Audit Documentation

Front 40

Who can only see the audit papers?

Back 40

the audit firm

Front 41

What requires client permission to show outside sources?

Back 41

Confidentiality

Front 42

If it is not document it means what?

Back 42

Work Not Done

Front 43

What are historical or continuing data, applicable to current year and future/past years (corporate charter, state of incorporation, reporting lines charter debt, and contract for 30 years)?

Back 43

Permanent Files

Front 44

What are data applicable to year under audit, may be generated by auditor, client and outside party?

Back 44

Current Files

Front 45

What is the support for assurance given for financials?

Back 45

Working trial balance and all working papers

Front 46

What shows tolerable misstatement % and conclusion- cash fairly stated or material mistated?

Back 46

Lead Sheet

Front 47

What lists accounts summing up for cash balance?

Back 47

Cash Lead Schedule

Front 48

What is when everything must out tie to financials- number agrees with financials?

Back 48

Tie

Front 49

Why do you look at sum for bank and correlate it with what is in cash lead schedule?

Back 49

test validity

Front 50

What is examined A/P voucher for check N/E/N "No exception Noted"?

Back 50

Tick mark

Front 51

How is acceptance/retention determined? (5)

Back 51

Evaluate engagement risk, Talk to predecessor auditor, Is the firm independent, is engagement within regulatory guidelines, does the firm have skillset/expertise

Front 52

In an auditing engagement, the contract is called an what?

Back 52

Engagement Letter

Front 53

What is the purpose of engagement letter?

Back 53

establish understanding

Front 54

What is the engagement letter written by and who signs it?

Back 54

Audit firm and by firm, CEO &/or CFO

Front 55

What happens once engagement letter signed?

Back 55

Initial and planning activities such as continue assessing risk, establish materiality, determine testing strategy, preliminary analytical procedures, identify related parties, and request team

Front 56

What is Our Responsibilities and Limitations paragraph of Engagement Letter equal to?

Back 56

Scope paragraph of audit report

Front 57

What type of tests are looking for deviations from control procedure, evidence that control worked effectively, and indicates reliability of client-produced data?

Back 57

Tests of Controls

Front 58

What are test of summary data, comparing recorded values to auditor's expectations; expectations based on plausible relationships?

Back 58

Analytical Procedures

Front 59

What are testing details of transactions (think journals)?

Back 59

Test of Transactions

Front 60

What are testing details of ending G/L account balances and disclosures?

Back 60

Tests of Account Balances/Disclosures

Front 61

What two tests are detail tests?

Back 61

Tests of transactions and Tests of Account Balances/Disclosures

Front 62

What are 4 tests for testing strategy in bucket?

Back 62

Remaining Assurance needed from tests of details, substantive Analytical Procedures, Tests of Controls, and Risk Assessment Procedures

Front 63

Does a non-public have to test controls?

Back 63

No they have a choice to

Front 64

Does a public company have to test controls?

Back 64

Yes mandatory

Front 65

What is when audit firm will rely some on client's controls to reduce substantive tests because deviation rates are low (CR is low); must test controls?

Back 65

Reliance Strategy

Front 66

What is when audit firm will not rely on clients controls to reduce substantive tests (assuming CR is max)?

Back 66

No-Reliance Strategy

Front 67

What is when rely on internal audit team so don't have to do as much work?

Back 67

Leverage

Front 68

Auditor can rely on IA's work some degree IF?

Back 68

Competent (educated) and Objective (report findings to audit committee)

Front 69

What else does a firm have to do to be able to leverage internal audit team?

Back 69

Must test effectiveness of the work (look at their method and compare what we would use)

Front 70

What are types of analytical procedures?

Back 70

Trend and Ratio Analysis

Front 71

What is generally viewed as a "collection" of changes-multiple financial statement items, "view of the F/S from the air", used for planning/risk analysis or final review?

Back 71

Trend and Ratio Analysis

Front 72

What is generally focuses on one account balance and used as a substantive test?

Back 72

Reasonableness Test

Front 73

When going through the processes dont start without doing what?

Back 73

determining expected value and tolerable difference

Front 74

What is cause of tolerable difference?

Back 74

must consider how precise the expected is - may impact your conclusion

Front 75

If you have to ask management, __ __.

Back 75

Corroborate explanation (reliability of inquiry- lowest)

Front 76

If auditor doesn't see/find what is expected?

Back 76

There is a potential problem (misstated account balance? Error or fraud?, Poorly functioning control? Good Explanation (no problem)?) and Remember to focus on summaries- won't find individual items with misstatements

Front 77

Why use analytical procedures?

Back 77

at planning (required): helps auditor understand client and As substantive test: efficient first pass

Front 78

What does COSO for COSO control Framework stand for?

Back 78

Committee of Sponsoring Organizations

Front 79

What are the 5 necessary elements of control?

Back 79

Monitoring, Information & Communication, Control Activities, Risk Assessment and Control Environment

Front 80

What element of control is the tone at the top, corporate code of ethics,executive compensation incentives?

Back 80

Control Environment

Front 81

What element of control is clients own risk assessment?

Back 81

Risk Assessment

Front 82

What element of control reports on how well controls are working for management?

Back 82

Information & Communication

Front 83

What element of control goes with information & communication; tests for compliance what are we going to do to make it work better; correlates to internal auditors?

Back 83

Monitoring

Front 84

What type of control is preventative and detective; try to prevent at front and detect problem at back?

Back 84

Purpose

Front 85

What is a preventative type of control?

Back 85

credit approval of customers

Front 86

What type of control is separation of duties, information processing, physical safeguarding, and performance review?

Back 86

Functionality

Front 87

What type of control is made up of manual, automation,and semi-automated?

Back 87

Automation

Front 88

What type of control is made up of general- systematic control and they protect whole system, tested first; application- controls within each aspect and no bearing anywhere else?

Back 88

System Level

Front 89

What are the three control concerns?

Back 89

Human Error, Management Override, and Collusion

Front 90

What control concern is manual and semi-automated?

Back 90

Human Error

Front 91

What control concern is the abuse of position at avoid policy procedure; toughest at executive level?

Back 91

Management Override

Front 92

What control concern is the separation of duties, automation; don't give incentives that would prompt this kind of acts?

Back 92

Collusion

Front 93

What helps us evaluate control risk?

Back 93

Understanding of company's controls

Front 94

What are the 5 steps of evaluating controls for the audit?

Back 94

Gain an Understanding of Client's Internal Controls and business processes (must document), Assess Preliminary Control Risk, Test Controls for Effectiveness, Assess Achieved Control Risk,and Compute Detective Risk & Determine Necessary Substantive Tests

Front 95

What is the question asked for assessing preliminary control risk?

Back 95

Does Auditor plan to rely on these controls?

Front 96

What is the question asked for test controls for effectiveness?

Back 96

Do tests support preliminary assessment?

Front 97

What is the question asked for assess achieved control risk?

Back 97

Can controls be relied upon?

Front 98

What is important about gaining an understanding of ICS?

Back 98

It is required for all audits

Front 99

What is the most common techniques of gaining an understanding of ICS?

Back 99

Interviews/ Questionaires and Transaction walk-throughs

Front 100

Where must you document understanding of ICS? (narratives/memos, flowcharts, completed questionaires and risk matrices)?

Back 100

WPs

Front 101

What is when you trace one representative transaction through the accounting records & procedures to the financial statements - "cradle to grave"?

Back 101

Walk-throughs

Front 102

During the walk-throughs what questions do you ask for a transaction? (5)

Back 102

How is a transaction initiated, authorized, recorded, processed, and reported?

Front 103

What are you looking for during a walk-through?

Back 103

Points where material misstatement may occur and Controls implemented by management to stop the Material Misstatements

Front 104

What will you do during a walk through?

Back 104

Question personnel, Ask for Demonstration and Reperform the ICs

Front 105

What are the low detection risk strategies for nature?

Back 105

physical examination (conducted at year end), review of external documents, confirmation, and reperformance

Front 106

What is the low detection risk strategy for timing?

Back 106

All significant work completed at year-end

Front 107

What is the low detection risk strategy for extent?

Back 107

Extensive testing of significant accounts or transactions

Front 108

What is the high detection risk strategy (reliance strategy) of nature?

Back 108

Corroborative audit tests using the following types of audit tests: physical examination (conducted at an interim date),analytical procedures, and substantive tests of transactions and balances

Front 109

What is the high detection risk strategy of timing?

Back 109

interim and year-end

Front 110

What is the high detection risk strategy of extent?

Back 110

Limited testing of accounts or transactions