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40 Cards in this Set

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WHAT IS THE OVERVIEW OF THE RELATIONSHIPS AMONG FINANCIAL STMTS, MNGMT ASSERTIONS, AUDIT PROCEDURES AND THE AUDIT REPORT?
- Management is responsible for fair presentation of the financial statements.
- Assertions are given by management as to the disclosed information in the financial statements and disclosures.
- Auditors gather evidence by conducting audit procedures to test management assertions.
- Auditor reaches a conclusion based on the evidence as to whether financial statements are fairly presented.
- Audit Report is produced.
Ch. 4
WHAT ARE ASSERTIONS?
Expressed or Implied representations by management regarding the recognition, measurement, presentation, and disclosure of information in the financial statements and related disclosures.
Ch. 4
WHAT ARE THE 6 MANAGEMENT ASSERTIONS ABOUT CLASSES OF TRANSACTIONS AND EVENTS FOR THE PERIOD UNDER AUDIT?
A1. Authorization
A2. Accuracy
A3. Completeness
A4. Classification
A5. Cutoff
A6. Occurrence
Ch. 4 - management assertions AACCCO
WHAT IS THE ASSERTION ABOUT CLASSES OF TRANSACTIONS AND EVENTS FOR THE PERIOD UNDER AUDIT WHICH SHOWS ALL TRANSACTIONS AND EVENTS HAVE BEEN PROPERLY AUTHORIZED?
A1 - Authorization
Ch. 4 - A1
WHAT IS WHAT IS THE ASSERTION ABOUT CLASSES OF TRANSACTIONS AND EVENTS FOR THE PERIOD UNDER AUDIT WHICH SHOWS ALL TRANSACTIONS AND EVENTS HAVE BEEN PROPERLY AUTHORIZED?
A2 - Accuracy
Ch. 4 - A2
WHAT IS THE ASSERTION ABOUT CLASSES OF TRANSACTIONS AND EVENTS FOR THE PERIOD UNDER AUDIT WHICH SHOWS TRANSACTIONS AND EVENTS THAT SHOULD HAVE BEEN RECORDED HAVE INDEED BEEN RECORDED?
A3 - Completeness
Ch. 4 - A3
WHAT IS THE ASSERTION ABOUT CLASSES OF TRANSACTIONS AND EVENTS FOR THE PERIOD UNDER AUDIT WHICH SHOWS ALL TRANSACTIONS AND EVENTS HAVE BEEN RECORDED IN THE PROPER ACCOUNTS?
A4 - Classification
Ch. 4 - A4
WHAT IS THE ASSERTION ABOUT CLASSES OF TRANSACTIONS AND EVENTS FOR THE PERIOD UNDER AUDIT WHICH SHOWS THAT TRANSACTIONS AND EVENTS HAVE BEEN RECORDED IN THE CORRECT ACCOUNTING PERIOD?
A5 - Cutoff
Ch. 4 - A5
WHAT IS THE ASSERTION ABOUT CLASSES OF TRANSACTIONS AND EVENTS FOR THE PERIOD UNDER AUDIT WHICH SHOWS TRANSACTIONS AND EVENTS THAT HAVE BEEN RECORDED HAVE OCCURRED AND PERTAIN TO THE ENTITY (SOMETIMES CALLED VALIDITY)?
A6 - Occurrence
Ch. 4 - A6
WHAT ARE THE MANAGEMENT ASSERTIONS ABOUT ACCOUNT BALANCES AT THE PERIOD END?
B1. Completeness
B2. Existence
B3. Rights and Obligations
B4. Valuation and Allocation
Ch. 4 - management assertions - CERV
WHAT IS THE MANAGEMENT ASSERTION ABOUT ACCOUNT BALANCES AT THE PERIOD END THAT SHOWS THAT ALL ASSETS, LIABILITIES, AND EQUITY INTERESTS THAT SHOULD HAVE BEEN RECORDED HAVE BEEN RECORDED?
B1 - Completeness
Ch. 4 - B1
WHAT IS THE MANAGEMENT ASSERTION ABOUT ACCOUNT BALANCES AT THE PERIOD END THAT SHOWS THAT ASSETS, LIABILITIES, AND EQUITY INTERESTS EXIST?
B2 - Existence
Ch. 4 - B2
WHAT IS THE MANAGEMENT ASSERTION ABOUT ACCOUNT BALANCES AT THE PERIOD END THAT SHOWS THAT THE ENTITY HOLDS OR CONTROLS THE RIGHTS TO ASSETS, AND LIABILITIES ARE THE OBLIGATIONS OF THE ENTITY?
B3 - Rights and Obligations
Ch. 4 - B3
WHAT IS THE MANAGEMENT ASSERTION ABOUT ACCOUNT BALANCES AT THE PERIOD END THAT SHOWS THAT ALL ASSETS, LIABILITIES, AND EQUITY INTERESTS ARE INCLUDED IN THE FINANCIAL STATEMENTS AT APPROPRIATE AMOUNTS, AND ANY RESULTING VALUATION OR ALLOCATION ADJUSTMENTS ARE APPROPRIATELY RECORDED?
B4 - Valuation and Allocation
Ch. 4 - B4
WHAT ARE THE 4 MANAGEMENT ASSERTIONS ABOUT PRESENTATION AND DISCLOSURE?
C1. Completeness
C2. Occurrence and Rights and Obligations
C3. Classification and Understandability
C4. Accuracy and Valuation
Ch. 4 - management assertions COCA
WHAT IS THE MANAGEMENT ASSERTION ABOUT PRESENTATION AND DISCLOSURE THAT SHOWS THAT ALL DISCLOSURES THAT SHOULD HAVE BEEN INCLUDED IN THE FINANCIAL STATEMENTS HAVE BEEN INCLUDED?
C1 - Completeness
Ch. 4 - C1
WHAT IS THE MANAGEMENT ASSERTION ABOUT PRESENTATION AND DISCLOSURE THAT SHOWS THAT DISCLOSED EVENTS, TRANSACTIONS, AND OTHER MATTERS HAVE OCCURRED AND PERTAIN TO THE ENTITY?
C2 - Occurrence and Rights and Obligations
Ch. 4 - C2
WHAT IS THE MANAGEMENT ASSERTION ABOUT PRESENTATION AND DISCLOSURE THAT SHOWS THAT FINANCIAL INFORMATION IS APPROPRIATELY PRESENTED AND DESCRIBED, AND DISCLOSURES ARE CLEARLY EXPRESSED?
C3 - Classification and Understandability
Ch. 4 - C3
WHAT IS THE MANAGEMENT ASSERTION ABOUT PRESENTATION AND DISCLOSURE THAT SHOWS THAT FINANCIAL AND OTHER INFORMATION ARE DISCLOSED FAIRLY AND AT APPROPRIATE AMOUNTS?
C4 - Accuracy and Valuation
Ch. 4 - C4
DEFINE AUDIT EVIDENCE and why it is collected.
All the information, from whatever source, used by the auditor in arriving at the conclusions on which the audit opinion is based.
Auditors gather evidence by conducting Audit Procedures to TEST MANAGEMENT ASSERTIONS.
Ch. 4
IN WHAT FORMS CAN AUDIT EVIDENCE TAKE?
- Accounting records (journal entries, subsidiary ledgers, etc)
- Minutes of meetings
- Confirmations from third parties
- Analysts' reports
- Information obtained via inquiry, observation, inspection
Ch. 4
What types of EVIDENCE must be collected?
Collect SUFFICIENT and APPROPRIATE evidence.
Ch. 4
WHAT IS SUFFICIENCY OF AUDIT EVIDENCE?
The measure of the quantity of audit evidence.
-- GREATER RISK requires HIGHER QUANTITY OF audit evidence
-- HIGHER QUALITY audit evidence RESULTS in a LOWER QUANTITY of audit evidence
Ch. 4
WHAT IS REQUIRED IF YOU HAVE A GREATER RISK (Sufficiency) OF MISTATEMENT?
Higher QUANTITY of audit evidence
Ch. 4
WHAT IS REQUIRED IF YOU HAVE A HIGHER QUALITY (Sufficiency) OF AUDIT EVIDENCE?
A lower QUANTITY of audit evidence.
Ch. 4
WHEN IS EVIDENCE CONSIDERED APPROPRIATE?
When the evidence provides information that is both RELEVANT and RELIABLE.
Ch. 4 - R & R
DEFINE EVIDENCE RELEVANCE.
How the evidence is related to the assertion or to the objective of the control being tested. (Relates to whatever you are testing)
Ch. 4
DEFINE EVIDENCE RELIABILITY.
If a particular type of evidence can be relied upon to signal the true state of an assertion.
1. Auditors' direct PERSONAL KNOWLEDGE - see it with your own eyes (observe PPE, inventories)
2. EXTERNAL documentary EVIDENCE - originates from outside firm (A/R confirmations, bank confirmations)
3. EXTERNAL / INTERNAL DOCUMENTS - info comes to you from outside firm - within the client (vendor invoices for purchases)
4. INTERNAL documentary evidence - produced inside client (client sales invoices)
5. VERBAL and WRITTEN representations (management representations - memos)
1 = More reliable --> 5 = Less reliable
Ch. 4
WHAT IS REQUIRED OF AN AUDITOR IN EVALUATING AUDIT EVIDENCE? (2)
1. Understanding of the TYPES of EVIDENCE available.
2. Understanding of the relative RELIABILITY or Diagnosticity of available evidence.
Ch. 4
WHAT MUST AN AUDITOR BE CAPABLE OF DOING IN ASSESSING EVIDENCE?
Knowing when there is a SUFFICIENT amount of APPROPRIATE evidence has been obtained in order to determine the fairness of management's assertions.
Ch. 4
HOW SHOULD AN AUDITOR CONDUCT A SEARCH FOR INFORMATION?
1. Be thorough in searching for evidence
2. Be unbiased in the evaluation of the evidence.
Ch. 4
WHAT TYPES OF AUDIT EVIDENCE DOES AN AUDITOR EXAMINE?
1. Inspection of records or documents
2. Inspection of tangible assets
3. Observation
4. Inquiry
5. Confirmation
6. Recalculation
7. Reperformance
8. Analytical procedures
9. Scanning
Ch. 4 - Audit evidence types
WHAT IS AN AUDIT PROGRAM?
A set of audit procedures prepared to test assertions for a component of the financial statements.
- Based, in part, on the OUTPUT of AUDIT RISK MODEL. The steps are signed off as the procedures are performed or reviewed.
Ch. 4 - Audit procedures
WHAT IS AN AUDIT PROCEDURE?
Specific acts performed by the auditor to gather evidence about whether specific assertions are being met. (i.e., Risk assessment procedures, Test of controls, Substantive procedures)
Ch. 4 - Audit procedures
WHAT IS THE HIERARCHY OF EVIDENCE QUALITY, FROM HIGHEST TO LOWEST?
1. Auditors' direct personal knowledge (Observe PPE, inventories)
2. External documentary evidence (A/R confirmations, bank confirmations)
3. External-Internal evidence
(vendor invoices for purchases)
4. Internal documentary evidence (client sales invoices)
5. Verbal and Written representations (management representations)
Ch. 4 (from ch. 2)
EXPLAIN THE PROCEDURES FOR OBTAINING AUDIT EVIDENCE - INSPECTION OF RECORDS AND DOCUMENTS.
- Examine internal or external records or documents that are in paper form, electronic form, or other media.
- Inspection makes up most of the evidence collected in most audit engagements
- The SOURCE MATTERS (hierarchy of evidence quality)
Ch. 4 - Audit evidence
DESCRIBE VOUCHING and what direction of testing and which management assertion it tests.
Selecting an item for testing from the accounting records (journals or ledgers) and then examining the underlying source document. (Look at supporting documents for an amount in a journal entry - Existence or Occurrence)
Ch. 4 - Audit evidence
DESCRIBE TRACING, which direction of testing and which management assertion it tests.
Selecting an item for testing from the population of source documents and then following it into the accounting records (journals or ledgers)
(Take a source document and trace back to summary accounting records - Completeness)
Ch. 4 - Audit evidence
EXPLAIN THE PROCEDURES FOR OBTAINING AUDIT EVIDENCE - INSPECTION OF TANGIBLE ASSETS
Physical examination of a tangible asset (e.g., inventory observation, physical examination of fixed assets)
- Assertions: Existence, Valuation
Ch. 4 - Audit evidence
EXPLAIN THE PROCEDURES FOR OBTAINING AUDIT EVIDENCE - OBSERVATION
The process of watching a process or procedure being performed by others
- Used mostly during control testing
- Limitations? the person behaves differently while the auditor is around.
Ch. 4 - Audit evidence