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31 Cards in this Set

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SAS 1 (AU 110) Understand objectives oand responsibilities of Audits
Objective fo the ordinary audit of FS by indi auditor is the expression of an opinion on the fairness with which they present, fairly, in all material respects, financial position, results of operations and cash flows in conformity with GAAP
Steps to Develop Audit Objectives (5)
1. understand objectives and responsibilities of audit
2. divide FS into cycles
3. know mgmt assertions about FS
4. know general audit objectives for classes of transactions, accounts and disclosures
5. know specific audit objectives for classes of transactions, accounts and disclosures
Management's Responsibilities
responsible for adopting sound acctg principles, maintaining adequate internal controls and making fair representation in the FS.
SAS 1 (AU 110) Auditor's Resonsibility
auditor has responsibility to plan and perform the audit to obtain reasonable assurance about whether the FS are free of MMS caused by error or fraud.
Reasonable Assurance
-High, not absolute level.
-auditor is not a guarantor of FS
-auditor uses sampling
-acctg has complex estimates
-fraud is hard to detect
Error vs Fraud
Error = unintentional
Fraud = intentional
FS Cycles - Cycle Approach
Divide audit into closely related types of transactions and acct balances.
-sales, sales returns, cash receipts and charge-offs to uncollectible [ sales and collection cycle.
Major cycles (5)
1. Sales and collection
2. Aquisition and payment
3. Payroll and personnel
4. Inventory and warehousing
5. Capital aquistion and repayment
Transaction related audit objectives
six audit objectives that must be met before auditor can conclude that the total for any given class of transactions is fairly stated.
-the general transaction related audit objectives are:
1. occurrence
2. completeness
3. accuracy
4. classification
5. timing
6. posting and summarization
Balance related audit objectives
eight audit objectives that must be met before auditor can conclude that any given acct balance is fairly stated;
the general balance related audit objectives are:
1. existence
2. completeness
3. accuracy
4. classification
5. cutoff
6. detail
7. tie-in
8. realizable value
9. rights and obligations
Management assertions
implied or expressed reps by mgmt about classes of transctions and related accts and disclosures in the FS
Occurence
Mgmt assertion that trnasactions have been recorded
Completeness
mgmt assertion all trnsx and events have been recorded
accuracy
mgmt assertion amts and other data relating to recorded transx have been recorded properly
classification
mgmt assertion that transx and events are in proper accts
Cutoff
mgmt assertion transx and events have been recorded in correct period
Existence
mgmt assertion that assets, liabs, and equity interest exist
Completeness
mgmt assertion that all assets, liabs and equity that should be recorded have been
Valuation and allocation
mgmt assertion that all assets, liabs, equity are included in fs at right amounts and have been adjusted correctly
Occurence and rights obligations disclosures
mgmt assertion that disclosed events and transx have occured and pertain to entity
Completeness disclosures
mgmt assertion that all disclosures that should have been included in the fs have been
Classification and understandability disclosure
FS and other info is approp presented and described clearly
Rights and obligations
mgmt assertion that entity hold or controls the rights to assets, liabs are obligation of entity
Four phases of a FS audit
1. plan and design audit approach
2. perform tests of controls and substantive test of transactions
3. perform analytical procedures and tests of details of balances
4. complete the audit and issue audit report
Phase 1 of FS audit
1. obtain understanding of entity and environment
2. understand IC and assess control risk
3. assess risk of MMS
Phase 2 of FS audit
1. perform tests of controls and substantive tests of transactions -
Substantive tests of transactions
verify monetary amoutns of transactions
Phase 3 of FS audit
perform analytical procedures and tests of details of balances
Analytical procedures
use comparisons and relationships to assess whether acct balances or other data appear reasonable
Tests of details of balances
specific procedures intended to test for monteary misstatements in the balances in the FS
Phase 4 of FS audit
Complete audit and issue audit report