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49 Cards in this Set
- Front
- Back
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What are the Three General Standards of Auditing?
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1st General Standard: The auditor must have adequate technical training and proficiency to perform the audit.
2nd General Standard: The audito must maintain independence in mental attitude in all matters relating to the audit. 3rd General Standard: The auditor must exercise due professional care in the performance of the audit and the preparation of the report. |
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What are the Three General Standards of Auditing?
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1st General Standard: The auditor must have adequate technical training and proficiency to perform the audit.
2nd General Standard: The auditor must maintain independence in mental attitude in all matters relating to the audit. 3rd General Standard: The auditor must exercise due professional care in the performance of the audit and the preparation of the report. |
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What are the Three Standards of Fieldwork?
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1st Standard of Fieldwork: The auditor must adequately plan the work and must properly supervise any assistants.
2nd Standard of Fieldwork: The auditor must obtain a sufficient understanding of the entity and its enviroment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, time, and extent of further audit procedures. 3rd Standard of Fieldwork: The auditor must obtain a sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion reguarding the financial statements under audit. |
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What is the purpose of the Three Standards of Fieldwork?
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Used to apply the process of obtaining and evaluating evidence for the purpose of forming an opinion on the FS.
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What is the correspondence between assertions and established criteria?
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GAAP represents the established criteria upon which assertions are evaluated.
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What are the Public benefits of Audits?
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Creditbility, Capital formation and flow, Freedom from bias, and Freedom from material error
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What are the responsibilities of the entity's management?
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1-The entity's FS and the selectiong and application of accounting principles
2-Establishing and maintaining effective internal control over financial reporting. 3-Designing andd implementing programs andcontrols to prevent and detect fraud. 4-Identifying and ensuring that the entity complies with the laws and regulations applicable to its activities. 5-Making all financial records and related information available to the auditor. 6-At the conclusion of the engagement, providing the auditor with a leeter that confirms certain representations made during the audit. |
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What are the responsibilities of the CPA?
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1-Establishing and understanding with the client reguarding the servi ces to be performed for each engagement and documenting the communication through a written communication with the client.
2-Conducting the audit in accordance with GAAS 3-Ensuring that those charged with goverance are aware of any significant deficiencies that come to their attention. 4-Either expressing an opinion reguarding the FS, taken as a whole, or stating that an opinion cannot be expressed. |
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What is the purpose of the application of the standards of reporting?
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The standards of reporting apply to the preparation and communication of the auditor's report.
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What are the four standards of reporting?
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1st Standard of Reporting: The auditor must state in the auditor's report whether the FS are presented in accordance with GAAP.
2nd Standard of Reporting: The auditor must identify in the auditor's report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period. 3rd Standard of Reporting: When the auditor determines that informative disclosures are not reasonably adequate, the auditor must so state in the auditor's report. 4th Standard of Reporting: The auditor must either express an opinion reguarding the FS taken as a whole or state that an opion cannot be expressed. |
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What is the purpose of a SAS?
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Statement on Auditing Standards (SAS) are authoritative interpertations of the 10 GAAS.
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Can an auditor use other publications to find SAS guidance?
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Other auditing publications have no authoritative status; however, they may help the auditor to understand and apply the SASs. If an auditor applies the auditing guidance included in another auditing publication, he or she should be satisfied that, in his or her judgements, it is both relevant and appropriate.
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What is the purpose of PCABO?
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PCABO is empowered to establish auditing standards for the audits of publicly traded companies. These standards will remain effective untill superseded by another standard issued by the PCABO.
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What are the four opinions a CPA can conclude with respect to the FS?
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1. unqualified opinion
2. qualified opinion 3. adverse opinion 4. disclaimer of opinion |
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When should a compliation report be issued verses an audit report?
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Only a compliation report should be issued if the auditor is not independent of the entity, not an audit report.
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What is audit risk?
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Audit risk is the risk that the auditor may unknowingly fail to appropiately modify hi/her opinion on FS that are materially misstated.
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What is the definition of materiality as defined by FASB FS concepts #2?
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"The magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the ommission or misstatement."
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What is the auditing opinion reguarding the difference between an the term error and the term fraud?
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Fraud refers to an intentional act by one or more individual whereas an error is an unintentional misstatment of amounts or disclosures in FS.
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What are the two types of misstatements resulting from fraud that are relevant to an auditor?
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a) fraudulent financial reporting
b) missappropriation of assets |
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Misstatements may be known or likely, what are the definitions of each?
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Known- misstatements that consist of an amount specifically identified.
Likely- misstatments represent the auditor's best estimate of the total misstatements in the account balances or classes of transactions that the auditor has examined. |
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What risks are independent from the FS?
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Inherent risk and control risk is independent of FS audits because it is a reflection of the client and its enviroment.
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What is inherent risk?
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Inherent risk is the likelihood of material misstatement of an assertion.
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What is the risk of material misstatment?
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The auditor's combined assessment of inherent risk and control risk; however, the auditor may make seperate assessments of inherent risk and control risk.
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What is detection risk?
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The risk that an auditor will not detecta a misstatment that exists in a relevant assertion that could be material, either individually or when aggregated with other misstatments.
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What is the relation of material misstatement to detection risk?
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Detection risk relates to the substantive audit procedures and is managed bu the auditor's response to risk of material misstatement. The greater the risk of material misstatment, the less the detection risk that can be accepted by the auditor.
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What should be considered when determining materiality?
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Prior Periods financial results and financial positions, the period to date financial results and financial position, and the budgets or forecasts for the currrent period.
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What is a tolerable misstatement?
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The maximum error in a population that the auditor is willing to accept. The auditor should determine onr or more levels of tolerable misstatements for classes of transactions, account balances, and disclosures.
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What is the auditor's responsibility with reguard to reporting misstatements?
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The auditor should request management to correct all known misstatements, other than those that the auditor believes are trivial. If management refuses to correct some or all of the misstatements communicated to it by the auditor, the auditor should obtain an understanding of managemenet's reasons for not make the corrections and should take that into account when considering the qualitative aspects of the entity's accounting principles.
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To identify the effect of identified uncorrected misstatements, the auditor should consider: ?
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1. Its effect in relation the relevant individual classes of transactions, account balances, or disclosures, including whether materiality levels for particular items of lesser amounts than the materiality level for the financial stateements as a whole have been exceeded.
2. Whether, in considering the effect of the individual misstatement on the financial statements as a whole, it is appropriate to offset misstatements. 3.The effect of misstatements related to prior periods. |
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What are qualitative misstatements?
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Factors that the auditor may consider relevant to his or her consideration of whether misstatements are material. The auditorr should evaluate whether the financial statment as a whole are free of material misstatment considering both uncorrected misstatments and the qualitative considerations.
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What should be documented by the auditor?
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1--The levels of materiality and tolerable misstatement, including any changes thereto, used in the audit and the basis on which those levels were determined
2--A summary of uncorrected misstatements, other than those that are trivial, related to known and likely misstatements; and 3--The auditor's conclusion as to whether uncorrected misstatements, individually, or in the aggregate do or do not cause the financial statements to materiallt misstated, and the basis for that conclusion. |
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What is the definition of the General Standard 1?
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AU 210--Technical training and proficiency--all persons must have proper education and experience in the field of auditing and be well educated on current developements in business
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What is the definition of the General Standard 2?
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AU 220-Independence--The CPA's attitude is to be one of judicial impartiality. The CPA must in fact be intellectually honest and be recognized in appearance as independent by third parties. Strengthening independence is the formation of an audit committee.
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What is an audit committe and what is their role in the audit process?
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An audit committee is a standing committee of the BOD of a public corporation which main responsiblity is dealing with the company's FS, external audits, and internal controls.
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There are seven main functions of an audit committee. What are they?
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1. Recommend the selection, rention, or termination of the company's external auditors.
2. Review the overall scope of the audit with the external auditors. 3.Review the FS and external audit results, including communication of material weaknesses in internal accounting control. 4. Handle unforeseen problems when the external auditor needd access to the board. 5. Prepare the committee's report to the board. 6. Approve the budget and audit plan of the company's internal audit activities. 7. Approve the selection or termination of the director of internal auditing. |
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What is the defintion of the General Standard 3?
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AU 230- Due Care- Imposes an obligation on each person within a CPA's organization to observe the standards of fieldwork. (An audit conducted in accordance with GAAS may not detet a material misstatement)
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What are the element of quality control policies and procedures applicable to a firm's accounting and auditing practice?
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1. Independence
2. Personnel management 3. Acceptance and continuance of clients and engagements 4. Engagement performance 5. Monitoring |
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What is a system of quality control?
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A system of quality control is broadly defined as a process to provide the firm with reasonable assurance that its personnel comply with applicable professional standards and the firm's standards of quality.
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Quality Control Standard 3 is entitled "Monitoring a CPA Firm's Accounting and Auditing Practice." What should be evaluated to meet this requirement?
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Monitoring involves an ongoing consideration and evaluation of the following:
1. Relevance and adequacy fo the frim's policies and procedures 2. Appropriateness of the firm's guidance materials and any practice aids 3. Effectiveness of professional developement activities 4. Compliance with the firm's policies and procedures. (A peer review does not substitue from monitoring procedures) |
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Define Quality Control Standard 5.
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The Personnel Management Element of a Firm's system of QC- Competencies Required by a Practitioner-in-Charge of an Attest Engagement
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What is the practitioner in charge?
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The person responsible for supervising accounting, auditing, and attestation engagements and signing or authorizing an individual to sign the accountant's repoprt on such engagement.
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What are the appropriate Step of an Audit Engagement?
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1st-Evaluate the client and, if possible, accept the engagement.
2nd-Prepare the engagement letter 3rd-Perform planning procedures 4th-Assess Control Risk and perform Control Risk assessment procedures only if internal controls appear reliable. 5th- Design audit tests for areas where audit procedures will be performed 6th- Perform analytical procedures in the overall review stage 7th-Supervise and review the work of audit assistants continuously 8th-Form conclusions on the basis of evidence obtained and issue the audit report. |
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What are the appropriate planning procedures?
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--Gain an understanding of the internal control structure
--Perform analytical procedure --Assess audit risk |
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What objectives should be included in the client's understanding of services to be performed?
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The understanding should include the objectives of engagement, management's responsibilities, the auditors responsibilities, and limitations of the engagement. If the auditor believes that this understanding has not been established, the auditor should decline to accept or perform the engagement.
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What is the procedure for establishing predecessor and sucessor auditor communications?
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Since the Code of Professional Conduct precludes an auditor from disclosing confidential information obtained in an audit unless the client consents, the successor auditor must ask the prospective client to authorise the predecessor auditor to repond fully to the successor's inquiries.
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What are the elements of the engagement letter?
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a. Objective of the engagement
b. The scope of the audit work to be performed c. The fact that the purpose of the audit is not to detect fraug but to enable the auditor to express an opinion as to the fiarness of the FS d. A management letter e. Additional work to be performed, such as tax, consulting, or orhter services (if any) f. Any limitation of restrictions on the scope of the study g. Work to be performed bu the client's staff (if any) h. The basis of the auditor's fee i. Audit work schedule and estimated date of completion |
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What are the ratios that measure liquidity:
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1) Current ratio
2) Quick ratio 3) Inventory Turnover 4) Recievables turnover 5) Cash from operating activities to current liabilities |
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What are the ratios that measure returns on investments:
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1) Total Asset turnover
2) Rate of return on total assets 3) Return on common stockholders equity 4) Price-earnings ratio 5) Dividend yield 6) Profit magin on sales 7) Payout ratio to common shareholders |
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What are the ratios that measure solvency:
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1) Debt to equity ratio
2) Equity ratio 3) Times interest earned 4) Book vlaue per common share 5) Cash flow per common share 6) Cash flow operating activities to net income |
