Audit Test #1: Chapters 1-5
indecencies of provider of analytical procedures
high when the auditor does it and low when the client responds
control risk
the risk that the clients internal controls fail to id or prevent a transaction from being improperly recorded or not recorded at all
what does the SEC have considerable influence over?
the setting of GAAP and disclosure requirements considered necessary for fear disclosure to investors -rules for any CPA associated with audited financial statements
the goal of the IAASB
to improve the uniformity of auditing practices and related services throughout the world by issuing pronouncements on a variety of audit and attest functions and by promoting their acceptance
reasonable assurance
to indicate that an audit cannot be expected to completely eliminate the possibility that a material misstatement will exist in the financial statements
the independence of provider of observation
high
the independence of provider of recalculation
high
foot
addition of a column of numbers to determine whether the total is the same as the clients;recalculation
detection risk
the risk that the auditors procedures fail to detect a misstatement
how reliable is a confirmation?
because it comes directly from reliable 3rd party they are highly regarded and often used type of evidence
client acceptance steps
-audit risk model is analyzed for to determine whether client can be accepted -engement letter -predecessor auditor communication -staffing levels determined -provide list of documents to be provided by client to auditor
So how do auditors reduce in formation risk?
- users may go to the business premises to examine record and obtain information about he reliability of the statements, its difficult and impractical - it is the managers responsibility to share reliable information to users, but some may become reluctant to share negative information at the risk of financial loss and lawsuits -independent auditors are able to provide reliability and accurate information to users through audits of the financial statements, in turn investors and stockholders who rely on these financials are able to be confident in their decisions
steps in understanding clients business and industry
-"brainstorming" session to assess likelihood of fraud or material misstatements -perform analytical procedures to id risky account balances -document business processes -document understanding of industry environment and asses inherent risk -obtain an understanding of internal control environment and design/asses preliminary control risk -determine materiality -design audit program
reporting phase steps
-consider any events following FYE that should be reflected in the notes to the financial statements or in the audit report -document management représentations in work papers -issue audit report -communicate management recommendations to the client to implement in future years
examples of analytical procedures
-comparing current year recorded commission expense to an expectation of commission expense based on total recorded sales x average commission rate - calculation of ITO before its done -comparing insurance policies
permanent audit files
-contain data of a historical or continuing nature pertinent to the current audit -these files provide a convenient source or info about the audit that is of continuing interest from year to year
compliance audit
-determines whether the auditee is following specific procedures, rules, or regulations set by some higher authority -examples include whether account personnel are following procedures prescribed by the controller, review wage rate for compliance with minimum wage laws, examine contractual agreements, and more
operational audit
-evaluates the efficiency and effectiveness of any part of an organizations operating procedures and methods -at the completion of an operational audit, management normally expects recommendations for improving operations and are not limited to accounting such as organizational structure, computer operations, production methods, marketing and more
intro paragraph main points
-indicates that an audit was performed and the financial statements that we're audited. -indicates that the financial statements are the responsibility of management and that the auditor's responsibility is to express an opinion on the financial statements
performing Y/E testing of accounts balances and transactions steps
-obtain previously requested documentation -clerically test documentation -compute sample sizes and make selections -determine whether material misstatements exits in tested accounts and propose adjusting J/E -communicate with client legal counsel regarding ongoing legal proceedings -present audited financial statements to clients audit committee
testing internal control's operating effectiveness steps
-sample transactions already process by client and determine whether evidence of I/C are present -compute actual deviation rate and compare
opinion paragraph main points
-states conclusions based on the results of that audit
tracing vs vouching
-tracing refers to first selecting an accounting transaction and then following it to the journal or ledger -vouching referes to first selecting an item from accounting journals/ledgers and then examining the underlying source document
the 4 most common types of auditors
1. CPAs 2. government accountability office auditors 3. internal revenue agents 4. internal auditors
Big four international firms
1. Deloitte 2. PWC 3. E & Y 4. KPMG
what 5 conditions must be met to issue a standard unqualified report?
1. all financial statements are included 2. the 3 general standards have been followed in all respects on the engagement 3. sufficient evidence has been accumulated to conclude that the 3 standards of field work have been met 4. the financial statements are presented in accordance with GAAP 5. there are no circumstances requiring the addition of an explanatory paragraph or modification of the wording of the report
the major ties of supporting schedules
1. analysis 2. trail balance or list 3. reconciliation of amounts 4. tests of reasonableness 5. summary of procedures 6. examination of supporting documents 7. informational 8. outside documentation
the 3 main sets of auditing standards
1. International standards on auditing 2. U.S. generally accepted auditing standards 3. and PCAOB standards
activities of CPA firms
1. accounting and bookkeeping 2. tax services 3. management consulting services
non assurance services provided by CPAs
1. accounting and bookkeeping 2. tax 3. management consulting services
the 3 types of audits
1. operational 2. compliance 3. financial statement
the responsibilities of an auditor according to GAAP and the PCAOB
1. appropriate competence and capabilities 2. comply with relevant ethical requirements 3. maintain professional skepticism and exercise professional judgement 4. adequate planning and supervision 5. determine and apply materiality levels 6. asses risks of material misstatement 7. sufficient appropriate evidence
the 3 general standards of GAAP
1. audit is to be performed by a person or personals having adequate technical training and proficiency as an auditor 2. in all matters relating to the assignment, an independence in mental attitude is to be maintained by the auditor/auditors 3. due professional care is to be exercised in the performance of the audit and preparation of the report
the 5 categories of attestation services
1. audit of historical financial statements 2. audit of internal control over financial reporting 3. review o historical financial statements 4. attestation services on information technology 5. other attestation services that may be applied to a broad range of subject matter
the types of info in current files
1. audit program 2. general info 3. working trial balance 4. adjusting and reclassification entries 5. supporting schedules
the components of the audit risk model
1. audit risk 2. inherent risk 3. control risk 4. detection risk
the four major areas in which the AICPA has authority to set standards and make rules are
1. auditing standards 2. compilation and review standards 3. other attestation standards 4. code of professional conduct
what 2 traits must an auditor poses?
1. competence 2. independent mental attitude
how to select a sample
1. decided which items to test in the population 2. decide how many to test 3. decide which to test -a specific week -random -certain amounts -use discretion
typical deficiencies found by the PCAOB
1. deficiencies in systems, policies, procedures, practices, or conduct 2. violations of law, rules, or professional standards 3. failure to id departures from GAAP
the 4 types of evidence
1. electronic/ documentary data about transactions 2. written/electronic communication with outsiders 3. observations by the auditor 4. oral testimony of the auditee/client
the 8 types of evidence
1. physical examination 2. confirmation 3. inspection 4. analytical procedures 5. inquires of the client 6. recalculation 7. reperformance 8. observation
permanent audit files typically contain
1. extracts/copies of such company documents of continuing importance as the articles of incorporation, bylaws, bond indentures, and contracts 2. analyses from previous years of accounts that have continuing importance to the auditor 3. info related to understanding internal control and assessing control risk 4. the results of analytical procedures from previous years audits
the 4 specific reports required by the SEC
1. form s-1 2. form 8-k 3. form 10-k 4. form 10-q
the 3 categories of GAAP standards
1. general standards 2. standards of field work 3. reporting standards
the 6 characteristics of reliable evidence
1. independence of provider 2. effectiveness of clients internal controls 3. auditors direct knowledge 4. qualifications of individuals providing the information 5. degree of objectivity 6. timeliness
the 5 types of analytical procedures
1. industry data 2. similar prior period data 3. client determined expected results 4. auditor determined expected results 5. expected results using non financial data
the elements of a internal control report?
1. intro, scope, and opinion paragraphs 2. intro and opinion paragraphs refer to the framework used to evaluate internal control 3. a paragraph defining internal control over financial reporting 4. a paragraph the addresses the limitations of intern control 5. opinion addresses multiple reporting periods and effectiveness of internal controls 6. a paragraph that cross references to the auditors separate report on the financial statements
when do you need to issue an unqualified report with an explanatory paragraph?
1. lack of consistent application of GAAP 2. substantial doubt about going concern 3. auditor agrees with a departure from promulgated accounting principals 4. emphasis of a matter 5. reports involving other auditors
the 6 elements of quality control that CPAs must follow
1. leadership responsibilities for quality within the firm 2. relevant ethical requirements 3. acceptance and continuation of clients and engagements 4. human resources 5. engagement performance 6. monitoring
the 3 main factors that influence the organizational structure of all firms
1. need for independence from clients 2. importance of a structure to encourage competence 3. increased litigant risk faced by auditors
the two objectives that the principals of GAAP fulfill
1. obtain reasonable assurance about whether the financial statement as a whole are free from material misstatement 2. report on the financial statements and communicate as requirement by GAAS
the 4 stages of the audit process
1. planning 2. preliminary fieldwork phase 3. fieldwork phase 4.reporting phase
the 6 organizational structures available to CPA firms
1. proprietorship 2. general partnership 3. general corporation 4. professional corporation 5. LLC 6. LLP
The four factors that affect information risk
1. remoteness of information 2. biases and motives of the provider 3. voluminous data 4. complex exchange transactions
the 7 major components of an unqualified report
1. report title 2. audit report address 3. intro paragraph 4. scope paragraph 5. opinion paragraph 6. name of CPA firm 7. audit report date
when are analytical procedures performed?
1. required during planing phase to assist determining the nature, extent, and timing of an audit procedures 2. during the testing phase as substantive test in support of account balances 3. required during the completion phase of the audit
what 4 circumstances result in substantial doubt about going concern
1. significant recurring operating losses or working capital deficiencies 2. inability of the company to pay its obligations as they come due 3. loss of major customers, the occurrence of uninsured catastrophes 4. legal proceedings, legislation that might jeopardize the entity's ability to operate
the 4 staff levels of a CPA firm
1. staff assistant 2. senior 3. manager 4. partner
the 4 types of audit reports
1. standard unqualified 2. unqualified with emphasis of matter explanatory paragraph or modified wording 3. qualified 4. adverse/disclaimer
the 2 most important factors in determining appropriate sample size
1. the auditors expectation of misstatements 2. the effectiveness of the clients internal controls
the 4 standards of reporting of GAAP
1. the report shall state whether the financial statements are presented in accordance with generally accepted accounting principles 2. the report shall id those circumstances in which such principles have not been consistently observed in the current period n relation to the preceding period 3. informative disclosures in the financial statements are to be regarded as reasonable adequate unless otherwise stated in the report 4. the report shall contain either an expression of opinion regarding the financial statements, or an assertion to the effect that an opinion cannot be expressed. in all cases the auditors name is associated with the financial statements
the 3 circumstances in which there is a departure from an unqualified audit report
1. the scope of the audit has been restricted 2. the financial statements have not been prepared in accordance with GAAP 3. the auditor is not independent
the 3 standards of field work of GAAP
1. the work is to be adequately planned and assistants, if any, are to be properly supervised 2. a sufficient understanding of internal control is to be obtained to plan the audit and to determine the nature, timing, and extent of tests to be performed 3. sufficient appropriate evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford reasonable basis for an opinion regarding the financial statements
the purposes of analytical procedures
1. understanding the clients industry and business 2. assess the entity's ability to continue as a going concern 3. indicate the presence of possible misstatements in the financial statements 4. reduce detailed audit tests
To do an audit there must be
1. verifiable form 2. some standards/criteria by which the auditor can evaluate the information
the 2 contexts when audit risk is determined
1. when retaining old clients 2. deciding when to accept new clients
the 4 decisions about what evidence to gather and how much of it to accumulate
1. which audit procedures to use 2. what sample size to select for a given procedure 3. which items to select from the population 4. when to perform the procedures
what occurs during the planning phase of an audit and when does it happen?
August -client acceptance -understanding client's business and industry
the criteria for the audit of historical financial statements by CPA firms has historically been
GAAP and sometimes IFRS
the SOX act established the
PCAOB
the most important legislation affecting the auditing profession since 1933 and 1934 securities act?
Sarbanes-Oxley Act
count
determination of assets on hand at a given time. should be associated only with the type of evidence defined as physical examination
objectivity of inspection
high
attestation services
a type of assurance service in which the CPA firm issues a report about a subject matter or assertion that is made by another party
recompute
a calculation done by the auditor independent of the client; recalculation
compare
a comparison of info in two different locations. the instruction should state which informant is being compared in as much detail as practical; inspection
unqualified with emphasis of matter Explanatory paragraph or modified wording
a complete audit took place with satisfactory results and financial statements that are fairly;y presented, but the auditor believes that it is important or is required to provide additional info
International Federation of Accountants (IFAC)
a worldwide organization for the accountancy profession
audit program
a list of audit procedures for an audit area or an entire audit
working trial balance
a listing of the general ledger accounts and their year end balances
appropriateness of evidence
a measure of the quality of evidence, meaning its relevance and reliability in meeting audit objectives for classes of transactions, account balances, and related disclosures
material misstatement
a misstatement that significantly affects the financial reports
examination of supporting documents
a number of special purpose schedules are designed to show detailed tests performed
examine
a reasonably detailed study of a document or record to determine specific facts about it, a types of inspection
relevant ethical requirements
all personnel on engagements should maintain independence in fact and in appearance, perform all professional responsibilities with integrity, and maintain objectivity in performing their professional responsibilities
the Securities and Exchange commission (SEC)
an agency of the federal government that assists in providing investors with reliable info upon which to make investment decisions
engagement letter
an agreement between the CPA firm and the client as to the terms of the engagement for the conduct of the audit and related services
center for audit quality (CAQ)
an autonomous public policy organization affiliated with the AICPA serving investors, public company auditors, and the capital markets.
objectivity of physical examination
high
assurance service
an independent professional service that improves the quality of information for decision makers
trace
an instruction normally associated with inspection or reperformance. the instruction should sate what the auditor is tracing and where it is being traced from and to. often, an audit procedure that includes the term trace will also include a second instruction
evidence
any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria
The PCAOB (Public Company Accounting Oversight Board)
appointed and overseen by the SEC, the PCAOB provides oversight for auditors of public companies, establishes auditing and quality control standards for public company audits, and performs inspections for the quality controls at audit firms
the two determinants of the persuasiveness of evidence
appropriateness sufficiency
internal auditors
are employed by all types of organizations to audit for management, much as the GAO does for congress. -responsibilities vary considerably depending on the employer -to maintain independence the internal auditors typically report directly to the president
why do businesses invest in assurance services?
assurance providers are perceived to be independent and unbiased and are used to help improve the reliability and relevance of the information used as the basis for their decisions
why is there so much more completion for assurance services?
assurance services are not limited by regulation to licenses CPAs like attestation
attestation vs assurance
attestation is a type of assurance in which a CPA firm issues a report on the accuracy of a claim made by another party, can be about the financials, part of them, or unrelated to the financials
Primary functions of the big 4 international firms
audit nearly all the largest companies both in the US and worldwide and many smaller companies as well
independent auditors
auditors reporting on financial statements
objectivity of recalculation
high
what factors play into inherent risk?
business climate and industry/economic factors
how is detection risk influenced?
by the extensiveness of the audit procedures
compute
calculation done to determine whether a clients calculation is correct; analytical procedure
clerical testing of provided by client documents
checking if the numbers/documents are correct (footing, cross footing)
audit report
communicates the auditor's finding to users
quality control
compromises the methods used to ensure that the firm meets its professional responsibilities to clients and others
financial statement audit
conducted to determine whether the financial statements are stated in accordance with specified criteria (often GAAP or IFRS)
objectivity of reperformance
high
the 2 most expensive types of evidence?
confirmation and physical examination
analytical procedures
consists of evaluations of financial information through analysis of plausible relationships among financial and non financial data
lead schedule
containing detailed accounts from the general ledger making up the line item total
informational schedule
contains info as opposed to audit evidence
tests of reasonableness
contains info that enables the auditor to evaluate whether the clients balance appears to include a misstatement considering the circumstances in engagement
responsibilities of a senior accountant
coordinates and is responsible for the audit field work, including supervising and reviewing staff work
analysis
designed to show the activity in a general ledger account during the entire period under audit, tying together the beginning and ending balances
if the material level is highly material what type of opinion will be issued?
disclaimer or adverse
physical examination vs documentation
documentation deals with the examinations of items with no inherent value, while physical examination deals with tangible assets
two way referencing
documents that are tied/referenced to each other aka cross referencing
when is deviation risk determined
during internal control testing and is compared to the acceptable deviation risk
preliminary fieldwork phase timing and steps
early as October -update analytical procedures as necessary - test internal control's operating effectiveness
analytical procedures definition
evaluations of financial info through analysis of plausible relationships among financial and non financial data
relevance of evidence
evidence must pertain or be relevant to the audit objective that the auditor is testing before it can be appropriate
read
examination of written info to determine facts pertinent to the audit; inspection
the independence of provider of confirmation
high
when does detector risk occur?
fieldwork phase
form 8-k
file to report significant events that are of interest to public investors
form 10-k
filed annually within 60-90 days after the close of the fiscal year with extensive detailed financial information, including audited financial statements
form 10-q
filed quarterly for all public companies, and contains certain financial information and requires auditors reviews of the financial statements before filing for the commission
auditing standards
general guidelines to aid authors in fulfilling their professional responsibilities in the audit of historical financial statements
external document
has been handled by someone outside the clients organization who is party to the transaction being documented, but which is ether currently held by the client and is readily available
disclaimer report
he/she is unable to form an opinion as to whether the financial statements are fairly presented or he/she is not independent
peer reviews benefits individual firms by
helping them meet quality control standards, in turn, benefits the profession through improved practitioner performance and higher quality audits
responsibilities of a manager
helps the senior plan and manage the audit, reviews the senior's work, and manages relations with the client. a manager may be responsible for more than one engagement at the same time
independence of provider of physical examination
high
independence of provider of reperformance
high
objectivity of confirmation
high
if the materiality level is immaterial what type of opinion will be issued?
immaterial
current files
include all audit documentation applicable to the year under audit
CPAs responsibilities
include auditing the published historical financial statements of all publicly traded companies, most other large companies, and many smaller companies and noncommercial organizations
scope paragraph main points
indicated that an audit is designed to provide reasonable assurance that the financial statements are free of material misstatement
the economic demand for auditing is driven by
information risk
audit risk =
inherent risk x control risk x detection risk
what type of audit evidence is tracing/vouching
inspection
the moderately costly evidence
inspection, analytical procedures, and reperforomacne
the reliability of documents?
internal - not as reliable external - more reliable
recalculation
involves rechecking a sample of calculations made by the client
government accountability office auditor
is an auditor working for the US gov't accountability office (GAO), a nonpartisan agency in the legislative branch -a GAO's primary responsibility is to perform the audit function for Congress, and it has many of the same audit responsibilities of a CPA firm and an increasing portions of efforts are devoted to evaluating the operational efficiency an effectiveness of various federal programs
IRS agents
is responsible for enforcing the federal tax laws as they have been defined by congress and interpreted by the courts - a major responsibility of the IRS is to audit taxpayer's returns
International Standards on Auditing (ISAs)
issued by the international auditing and assurance standards board
the reliability of inquiries?
it is not regarded as conclusive because it is not form an independent source and may be biased in the clients favor
how sufficient is physical examination?
it is not sufficient to verify that existing assets are owned by the client and proper valuation for financial statement purposes usually cannot be determined
fieldwork phase, timing and steps
late January at earliest -update analytical procedures as necessary -perform year end substance testing of account balances and transactions
scan
less detailed examination of a documents or record detrain whether there is something unusual warranting further investigation, a type of analytical procedure
observation
looking at a process or producers being performed by others
the indecencies of inquires of a client
low
audit of internal control over financial reporting
management asserts that internal controls have been developed and implemented following well established criteria. an audit tests these controls and issues an opinion. users can feel confident about future financial reporting, because effective internal controls reduce the likelihood of misstatements
audit of historical financial services
management asserts that the statements are fairly state in accordance with criteria and an audit expresses an opinion about whether the financial statements are fairly stated in accordance with the criteria
review of historical financial statements
management asserts that the statements are fairly stated in accordance with accounting standards. The CPA provides a lower level of assurance for reviews of financial statements compared to a high level for audits, therefore less evidence is needed.
attestation services on information technology
management makes various assertions about the reliability and security of electronic information, auditors test the accuracy and issue an opinion
other attestation services
many of these services are natural extensions of that audit of the financials
objectivity of observation
medium
outside documentation
much of the content of the audit files consists of outside documentation gathered by auditors, such as confirms replies and copies of client agreements
form s-1
must be completed and registered with the SEC when a company plans to issue new securities to the public
how reliable is observation?
not very, because it only depicts a point in time
to satisfy the purpose of a audit, auditors must
obtain sufficient quality and volume of evidence
tick mark legends
often at the base of a w/p that contains additional explanatory information about a tick mark
responsibilities of a staff accountant
performs most of the detailed audit work
when does inherent risk occur?
planning phase
acceptance and continuation of clients and engagements
policies and procedures should be established for deciding whether to accept or continue a client relationship and minimize the risk of associating with a client whose management lacks integrity
human resources
policies and procedures should be established to provide the firm with reasonable assurance that - all new personal should be qualified to perform competently - work is assigned to personal who have adequate technical training and proficiency - all personnel should participate in continuing professional education and professional development activities - personnel selected for advancement have the qualifications necessary for the fulfillment of their assigned responsibilities
monitoring
policies and procedures should exist to ensure that the other quality control elements are being effectively applied
engagement performance
policies and procedures should exist to ensure that the work performed by engagement personnel meets applicable professional standards, regularity requirements, and the firms standards of quality
when does control risk occur?
preliminary fieldwork phase
internal document
prepared and used within the clients organization and is retained without ever going to an outside party
supporting schedules
prepared by the client or the auditors in support of specific amounts on the financial statements
if the materiality level is material what type of opinion will be issued?
qualified
reliability of evidence
refers to the degree to which evidence can be believable or worthy of trust
becoming a CPA
requirements vary from state to state but include -passing the uniform exam -education requirments -work experience
the securities act of 1933
requires most companies planning to issue new securities to the public to submit a registration statement to the SEC for approval -requires the issuance of financial statements accompanied by the opinion of an independent public accountant
partner responsibilities
reviews the overall audit work and is involved in significant audit decisions. a partner is an owner of the firm and therefore has the ultimate responsibility for conducting the audit and serving the client
Sarbanes-Oxley Act
set new or expanded requirements for all U.S. public company boards, management and public accounting firms.
the AICPA responsibilities
sets professional requirements for CPAs, conducts research, and publishes materials on many different subjects related to accounting, auditing, attestation and assurance services, management consulting services, and taxes
audit strategy
sets the scope, timing, and direction to the audit and that guides the development of the audit plan
adverse report
the auditor concluded that the financial statements are not fairly presented
the effectiveness of a client's internal controls has
significant influence on the reliability of most types of evidence
Regional and large local firms
some have only one office and service clients primarily within commuting distance while others have several offices and serve a larger radius of clients.
SAS
statement of auditing standards -the auditing standards boards pronouncements on auditing matters in the US for all entities other than publicly traded companies
qualified report
the auditor concludes that the overall financial statements are fairly presented, but the score of the audit has been materially restricted or applicable accounting standards were not followed in preparing the financial statements
the quantity of evidence obtained determines its
sufficiency
summary of procedures
summarizes the results of a specific audit procedures
reconciliation of amounts
supports specific amount and is normally expected to tie the amount recorded in the clients records to another source of info
tick marks
symbols used on an audit schedule that provide additional information or details of audit procedures performed
what does PCAOB auditing standard 5 require?
that internal control to be integrated with the audit of the financial statements
standard unqualified report
the 4 conditions have been met
where can you find requirements for becoming a CPA in your state?
the NASBA website
Auditing definition
the accumulation and evaluation of evidence about information to determine the report on the degree of correspondence between the information and established criteria. Auditing should be done by a competent, independent person.
inquire
the act of inquiry should be associated with the type of evidence defined as inquiry
inspection
the auditors examination of the clients documents and records to substantiate the info that is/should be included in the financial statements
reperformance
the auditors independent tests of client accounting procedures or controls that were originally done as part of the entity's accounting and internal control system
audit procedure
the detailed instruction that explains that audit evidence to be obtained during the audit
leadership responsibilities for quality within the firm
the firm should promote a culture that quality is essential in performing engagements and should establish polices and procedures that support that culture
physical examination
the inspection or count by the auditor of a tangible asset and is most often associated with inventory and cash
inherent risk
the risk that factors beyond the control of either management of the auditors may lead to a misstatement
National firm responsibilities
the national firms perform the same services as the big four and compete directly with them for clients. Each national firm is affiliated with firms in other contours and therefore has international capability
American Institute of Certified Public Accountants (AICPA)
the national organization of CPAs
inquiry
the obtaining of written or oral info from the client in response to questions from the auditor
information risk definition
the possibility that the information upon which the business risk decision was made was inaccurate.
what happens when actual deviation risk exceed the acceptable deviation rate
the preliminary control risk is revised upwards
audit risk definition
the primary business risk faced by CPA firms, it is the risk that we issue an unqualified audit opinion that states that the financial statements are free from material misstatements, when in fact they are not
document indexing
the process of associating or tagging documents with different "search" terms.
confirmation
the recipient of a direct written response from a third party verifying the accuracy of info that was requested by the auditor
accounting
the recording, classifying, and summarizing of economic events in a logical manner for the purpose of providing financial information for decision making purposes
peer review
the review, by CPAs, of another CPA firm's compliance with its quality control system
tracing
the use of documentation to determine if transactions or amounts are included in the accounting records
vouch
the use of documentations to verify recorded transactions or amounts; inspection
the requirement of the report title?
the word independent
small local firms
they perform audits and related services primarily for smaller businesses and not for profit services -many do not perform audits and primarily perform tax and accounting services
when does audit risk occur?
throughout the audit
purpose of the PCAOB inspections and inspection reports
to assess their compliance with the rules of the PCAOB and SEC, professional standards, and each firms own quality control policies -to protect the interests of investors and further the public interest in the preparation of informative, accurate and independent audit reports
the purpose of a peer review
to determine and report whether the CPA firm being reviewed has developed adequate quality control policies and procedures and follows them in practice
auditing vs accounting
while accounting is the recording of economic events for the purpose of decision making, auditing focuses on determining whether recorded information properly reflects the economic events that occurred during the accounting period
indolence of provider of inspection
varies
objectivity of inquires
varies - low to high
objectivity of analytical procedures
varies - usually low
vouching
when auditors use documentation to support recorded transactions or amounts