Wsu Msa Comprehensive - Auditing And Attestation

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Audit Programs

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Detailed set of very specific instructions for entire collection of evidence for an audit area or for entire audit to help in meeting specific requirements

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Audit Report: Disclaimer

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Auditor is not independent
Unable to be satisfied that financial statements are fairly stated
Severe scope limitation
Material portion audited by another auditor and primary auditor is not willing to take responsibility

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Audit Report: Adverse

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Financial statements are so materially misstated that they do not present fairly in accordance with GAAP

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Audit Report: Qualified

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Overall financial statements are fairly stated except for:
May have scope and opinion qualification or just an opinion qualification
Usually "material" misstatement or estimated misstatement
- except for -
but not so pervasive as to render financial statements non-useful

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Audit Report: Unqualified with explanatory paragraph or modified wording

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Complete audit performed with satisfactory results
Financial statements presented fairly in accordance with GAAP
feel that additional information is important or required
lack of consistency of GAAP
Substantial doubt regarding going concern
Departure from GAAP
Emphasis of a matter
Report sharing responsibility with another auditor

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Audit Report: Standard Unqualified

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All financial statements included with adequate disclosures
All general audit standards and fieldwork auditing standards are met
Financial sttements are fairly presented in accordance wiht GAAP
Explanatory paragraph or modified wording are not necessary

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Components of Internal Control

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Control environment
Risk assessment
Existing control activities
Information and communication system
Monitoring

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Date of Audit Report

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Last date of significant fieldwork

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Required opinions to be issued for auditor's of public companies

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Opinion on financial statements
Opinion on management assessment of internal control
Opinion on effectiveness of internal control

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Public Company Accounting Oversight Board (PCAOB) provides:

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Provides oversight for auditors of public companies
Establishes auditing and quality control standard for public company audits

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Tests of controls

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To determine effectiveness of clients internal control system and to support assessed control risk

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Substantive Tests

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Three types generally designed to test for monetary misstatements directly affecting the correctness of the financial statements.
An error in substantive IS a financial misstatement
Tests of transactions, analytical procedures, tests of details of balances

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Dual purpose tests

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Tests of controls and substantive tests of transactions are done at the same time; enhances audit efficiency

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Materiality

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Error (or omission) that would affect the judgment of a reasonable user

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Transaction-related audit objectives

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Occurrence
Completeness
Accuracy
Posting and summarization
Classification
Timing

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Balance-related audit objectives

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Existence
Completeness
Accuracy
Classification
Cutoff
Detail tie-in
Realizable value
Rights and obligations

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Presentation and disclosure-related audit objectives

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Occurrence
Rights and Obligations
Completeness
Accuracy and valuation
Classification
Understandability

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Auditors responsibility for detection of errors, fraud and direct effect illegal acts

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Plan and perform the audit using due care and with an attitude of professional skepticism to provide "reasonable assurance" regarding whether statements are free from material misstatement

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Reasonable Assurance of Internal Controls

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Provide reasonable assurance that internal controls will prevent / detect misstatements considering cost / benefit of internal control

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Existence or occurrence assertion

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Vouch from accounting record to source documents to determine that the item in balance exists or transaction occurred

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Examples of control activities

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Independent checks on performance
Adequate documents and records
Proper authorization
Physical controls for safeguarding assets
Adequate segregation of duties

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Types of audit evidence

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Physical Examination
Confirmation
Documentation
Analytical procedures
Inquiries of the client
Recalculation
Re-performance
Observation

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Audit evidence: relevance

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Must pertain to the audit objective being tested

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Audit evidence: reliability

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Affected by independence of provider
Effectiveness of internal controls
Auditors direct knowledge
Qualifications of provider
Degree of objectivity of evidence
Timeliness

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Audit Evidence: sufficiency

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Sample size considerations
Does sample represent population?

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Completeness assertion

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Trace from source documents to accounting records to determine that the item or transaction / event have been recorded

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Inventory audit procedures: existence

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Tag to Floor
Take sample of inventory tags
find item on floor
count and verify all information on inventory tag

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Inventory audit procedures: completeness

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Floor to Tag
Find inventory items on floor
Verify with inventory tag
During testing after-year-end, trace auditor's test counts into client's final priced inventory summary

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Positive confirmations

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Response whether amount noted on confirmation is "correct" or "incorrect"

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Negative confirmations

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Response only if amount noted on confirmation is "incorrect"
may be used only when certain criteria are met including:
combined level of assessed inherent and control risk is low
large number of small balances
no reason to believe that recipients will not give the confirmation adequate consideration

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Blank confirmation

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Requests recipient to provide the amount and return
greater assurance but lower response rates

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Alternate procedures regarding Accounts Receivable confirmations

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Must perform alternative procedures on all positive and blank confirmations not returned:
Review subsequent cash receipts
Inspection of shipping records

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Audit procedures
Bank reconciliation
Balance per bank

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Confirm directly with bank
Agree to cut-off bank statement received directly from the bank

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Audit procedures
Bank reconciliation
Deposits in transit

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Trace to cash receipts journal before year-end
Trace to inclusion on the cut-off bank statement
Ascertain reasons for any unusual delays in deposit
Inspect supporting documents for any not appearing on the cut-off bank statement and ascertain why they did not appear on cut-off

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Audit procedures
Bank reconciliation
Outstanding checks

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Trace to cash disbursements journal before year-end
Trace to clearing on the cut-off bank statement
Ascertain reasons for any unusual delays
Inspect supporting documents for any material outstanding checks not clearing on the cut-off bank statement
Ascertain the reason for any checks not clearing the cut-off bank statement

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Audit procedures
Bank reconciliation
Bank debit / credit memos

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Inspect bank debit / credit memos as appropriate
Agree information from period end bank statement to bank reconciliation
Verify client's adjustment to record items

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Audit procedures
Bank reconciliation
Balance per books

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Agree to clients general ledger
Verify mathematical accuracy of reconciliation

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Compensating Control

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An internal control elsewhere in system that offsets absence of a key control

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Common audit procedures for inventory

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Observation of physical inventory
Performing & tracing of test counts
Cutoff testing re: purchases & sales
Inquiry regarding obsolete or damaged goods
Analytical review procedures
During testing after year end: trace auditor's test counts into clients final priced inventory summary

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Tests of details of balances

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Objective is to establish MONITARY correctness of accounts
Focus is on ENDING GENERAL LEDGER BALANCES with primary emphasis on balance sheet accounts with idea that balances of Income statement accounts are tested by "flow-through" due to double entry accounting system

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Inherent Limitations of Internal Controls

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Effectiveness depends on: user competence & dependability (errors may occur - ie mistake in judgement)
Collusion
Management Override
Difficult to achieve effective Internal Control in smaller business entries due to lack of personnel so owner involvement is important

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Professional Skepticism

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Plan and perform audit with questioning attitude and critical review / assessment of evidence

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Walk-through

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Auditor selects one or a few documents of a transaction type and traces them from origination through entire accounting info system to a company's financial statements to verify auditor's understanding of the accounting process

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Objective of independent audit

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To express an opinion on whether financial statements as a whole are fairly presented in all material respects in conformity with GAAP
True for both public & private companies

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Segregation of duties

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Segregate authorization for transactions, recording keeping & custody of the related asset
Many times may be tested using inquiry of client & observation of individual performing their duty

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Search for unrecorded liabilities

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Do this because an unrecorded liability will usually understate expenses
Audit procedures include:
Testing of cash disbursements AFTER year end to ascertain recorded in correct period
Review of unpaid invoices / receiving reports to ascertain recorded in correct period

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Objectives of Internal Control

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To promote efficiency & effectiveness of operations
To ensure reliability of financial reporting
To encourage compliance with applicable laws and for regulations

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Analytical procedures

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Uses a study of plausible relationships among financial & non-financial data to aid in evaluation of financial info
Required in planning & completion phase of the audit
May be used in testing phase as a substantive tests though are not required