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105 Cards in this Set

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  • Back
any info used by the auditor to determine whether the info being audited is stated in accordance w/ the established criteria
independent auditors
auditors reporting on financial statements
assurance service
independent professional service that improves the quality of information for decision makers
attestation service
type of assurance service in which the CPA firm issues a report about the reliability of an assertion that is made by another party
5 categories of attestation services
1. audit of historical financial statements
2. attestation on internal control over financial reporting
3. review of historical financial statements
4. attestation services on information technology
5. other attestation services that may be applied to a broad range of subject matter
audit of historical financial statements
management asserts that the statements are fairly stated in accordance with GAAP

auditors issues a written report saying that financial statements are reported in accordance w/ GAAP
internal control over financial reporting
management asserts that internal controls have been developed and implemented following well established criteria

auditors must attest to the effectiveness of internal control
review of historical financial statements
management asserts that statements are fairly stated in accordance with GAAP
attestation services on IT
management makes assertions about the reliability and security of electronic information.
other attestation services
ex: bank has cpa provide assurance about the company's compliance w/ loan
other assurance services
company's use of personal data used by customers
operational audit
evaluates the efficiency and effectiveness of any part of an org's op procedures and methods

management expects recommendations for improving operations
compliance audit
conducted to determine whether the auditee is following specific procedures, rules, or regulations set by some higher authority
financial statement audit
conducted to determine whether the financial statements are stated in accordance w/ specified criteria. typically the criteria are GAAP
government accountability office auditor
auditor working for the US Gov Accountability Office
Public Company Accounting Oversight Board
appointed and overseen by the SEC

provides oversight for auditors of public companies, establishes auditing and quality control standards for public company audits, performs inspections of the quality controls

conducts inspections of accounting firms

(took of responsibilities of AICPA)
AICPA and ASB handles _____ companies
assists in providing investors w/ reliable info upon which to make investment decisions
no spec prescribed form
sig events that are of interest to public investors
annual filing
quarterly filing
voluntary membership
for cpas
sets prof requirements for cpas and promotes the accounting profession

1. ASB pronouncements are SASs
2. Compile and review standards
3. standards for other attestation standards
4. consulting stnadards
5. code of professional conduct
GAAS Categories
General standards
Standards of field work
reporting standards
General standards
1. adequate technical training and proficiency
2. Independence in mental attitude
3. Due professional care (audtitors are professionals responsible for fulfilling their duties diligently and carefully)
Standards of Field Work
1. Adequate Planning and Supervision
2. Understand the entity and its environment, including internal controls
3. Sufficient Appropriate Evidence
Statements on Auditing Standards
provide meaningful guidance to GAS
Quality control
methods used to ensure that the firm meets its professional responsibilities to clients and others
Quality Control Elements
1. Independence, integrity, and objectivity
2. Personnel management
3. Acceptance and continuation of clients and engagements
4. Engagement performance
5. Monitoring
peer review
review by CPAs of a CPA firms practices
interpretations of the rules of conduct and ethical rulings
not enforceable, but must justify departure
audit commitee
selected # of members of a company's BOD whose responsibilities include helping auditors remain independent of managemet

5-7 directors who are not part of company manaement
contingent fees
a member in public practice shall not perform for a contingent fee any prof service if the member all performs for the client an audit, review, or certain compilations of financial statements
do not advertise in forms that are misleading
commissions or referal fees
not happening
failure to follow the rules of conduct can result in expulsion from the AICPA
business failture
business is unable to repay its lenders or meet the expectations of investors because of economic or business conditions
audit failure
auditor issues an incorrect audit opinion because it failed to comply with the requirements of auditing standards
audit risk
possibility that the auditor conclues after conduction an adequate audit that the financial statements were fairly statement when they were in fact materially misstated
prudent person concept
standard of due care

reasonable care and dilligence
ordinary negligence
absence of reasonable care that can be expected of a person in a set of circumstances
gross negligence
lack of even slight care, tantamount to reckless behavior
constructive fraud
extreme or unusal negligence even though there was no intent to deceive or do harm. Recklessness
misstatement is made and there is knowledge and intent
breach of contract
failure of one or both parties to fulfill the obligation
the obj of audit is the expression of an opinion on the fairness with which they present fairly, in all material respects financial position, results of operatoins, and cash flows in conformity with gaap
steps to develop audit obj
1. understand obj and responsibilities for audit
2. divide financial statemetns into cycles
3. know management assertions about financial statements
4. know general audit objectives for classes of transactions, accounts, and disclosures
5. know specific audit obj...
management responsibility
adopt sound accounting policies, maintain adequate ic, make fair rep of fin stmnts

sox increases mngmnt responsibility by requiring the ceo and cfo to certify quarterly and anual financial statements
reasonable assurance
respon of auditor

- measure of the level of certainty that the auditor has obtained at the completion of the audit

reasonable, not absolute:
1) sampling
2) complex calcs: persuasive, not convincing
3) fraudulently prepared fin stmnts are nearly impossible to detect- esp with collusion from mgment
unintential mistake
intentional misktake
misappropriation of assets
defalcation or employee fraud

ex: cleark taking cash at time of sale
fraudulent financial reporting
management fraud

ex: intentional overstatement of sales
professional skepticism
attitude that includes an questioning mind and a critical assessment of audit evidence
illegal acts
violations of laws or gov reg other than fraud
reason to believe there is a direct/ indirect effect
1. auditor should inquire at mgmnt above those involved in illegal act
2. consult w/ client's legal counsel
3. accum addtl evidence
actions when know of illegal act
consider effects on financial statements

question the relationship of cpa firm w/ managment (are they being honest)

communicate to audit committee or others of equiv authority
transaction-related audit objectives
must be met before an auditor can conclude that the trans are properly booked
balance-related audit obj
met for acct balance
presentation and disclosure obj
ex: specific for a/r
management assertions
implied or expressed representations by management about classes of trans and the related accounts and disclosures in the financial statements

ex: cash on bs, unless otherwise stated assume unrestricted and available
trans and events that have beenr ecorded occured

assertion about trans and events
all trans and events that should ahve been recorded were

assertion about trans and events
amnts and other data rellating to recorded trans are appropriate

assertion about trans and events
recorded in proper acts

assertion about trans and events
correct acting pd

assertion about trans and events
assets, liabilities, and equity interests exist

assertions about account balances
all assets, liabilities, and equity interests that should have been recorded have

assertions about account balances
valuation and allocation
assets, liab and equity interests are included at approp amnts

assertions about account balances
rights and oblig
the entity holds or controls the rights to assets, and the liab are the obl of the entity

assertions about account balances
occruents and rights and obligations
disclosed events and trans have occrued

assertion about pres and disclosure
all disclosures are included

assertion about pres and disclosure
accuracy and valuation
financial and other info are disclosed approp.

assertion about pres and disclosure
class and understandability
accruately pres and described

assertion about pres and disclosure
4 phases of audit process
1. plan and design an audit approach
2. perform tests of controls and substantive tests of trans
3. perform analytical procedures and tests of details of balances
4. complete the audit and issue an audit report
plan phase
obtain understanding of entity and env

understand ic and assess control risk

assess risk of material mistatement
test of controls
test the effectiveness of internal controls: are they effective
substantive tests of trans
eval the client's recording of trans

ex: compare price list with sales price

analytical procedures
comparisons and relatinships to assess reasonablness
tests of details of balances
test monetary misstatements in the balances of fin statements.
questions about what evidence to gather and how much?
1. audit procedure?
2. sample size?
3. which items from pop?
4. who?
audit procedure
detailed instruction that explains the audit evidence
persuasiveness of evidence
are appropriateness and suffiency
appropriateness of evidence
measure of the quality of evidence (relevance and reliability)
must pertain to or be relevant to the audit obj that the auditor is testing
believable and worthy of trust
sufficiency of evidence
measured by sample size the auditor selects
types of audit evidence
1. physical examiniation
2. confirmation
3. documentation
4. analytical procedures
5. inquiries of the client
physical examiniation
inspection or count by auditor of tangible asset (can include documentation)
receipt of a writen or oral response from an independent third party verifying the accuracy of info
auditor's inspection of the client's docuents and recordds to substantiate the info that is, or should be, included in the financials.
internal document
prepared and used w/in the client's org and is retainedd w/out going to outside party
external document
handled by someone outside org
when auditors use documentation to support recorded trans or amnts
analytical procedures
use comparisons and relationships to assess whether the act balances or other data appear reasonable compared the auditor's expecations

requrires that the auditor understand the client's industry and business, assess the entity's ability to continue as going concer, and indicate unusual fluctuations
obtain written or oral info from client in response to questions from the auditor

not usually regarded as conclusive
rechecking a sample of clacs made by the client
independent tests of client acting procedures or controls that were origonally done as part of the system

ex: reperform the aging of a/r
use of the senses to assess client activities
two most expensive types of evidence
physical examination and confirmation
least expensive
observation, inquiries, recalculation
audit documentation
principal record of auditing procedures applied, evidence obtained, and conclusions reached by the auditor in the engagementT
audit documetnation is the property of the
permanent files
data of a historical or continuing nature pertinent to the current audit
- extracts or copeis of company documents of continuing importance as the atricle of incorporation
- analyses from prev yrs
- info related to understanding Ic and control risk
- results of analystical proc from prev yrs audits
current files
all audit documentation applicable to the yr aunder audit
- audit program
- general info
- working trial balance (gl acts and yr end balances)
- lead schedule- detailed accounts from the G/L making up the line item total
- adj ad reclass entries
- supporting schedules- prepared by the client or auditor in support of specific amnts in the fin statements