Audit SB Chp 6

auditors perform a number of procedures near the completion of the audit including:

-performing final analytical procedures -completing the review of minutes of meetings -completing the search to identify contingencies -obtain representation letter

Which is not a relevant assertion? A) existence of occurrence B) Materiality and appropriation C) Rights and Obligations D) Cutoff

B) Materiality and appropriation

Materiality planning is commonly based on % of

Net income Total Revenues Total Assets

What do auditors perform to obtain the understanding of the entity and its environment?

Risk Assessment Procedures

auditors test completeness of receivables in order to determine:

all receivables have been recorded

Tolerable Misstatement

application of performance materiality to a particular audit procedure

Dual Purpose Procedure

audit procedure that serves as a test of controls and a substantive test of the details of the transactions that occurred during the year is known as

Auditors should document several elements of risk assessment including:

audit team discussion, understanding of the entity and its environment, the nature, timing and extent of further audit procedures

At planning stages of an audit

auditors consider materiality to determine scope of the audit

Audit Risk

auditors may unknowingly fail to appropriately modify their opinion on financial statements that are materially mistated

achieving management objectives is always subject to

business risk

Significant business risk for clients include:

changes in government regulations interest rate increase competition material price volatility

Further audit procedures include a combo of additional tests of:

control and substantive procedures

What do auditors consider when it comes to fraud?

defalcations and management fraud

Audit Plan should include:

description of the nature, timing, and extent of planned risk assessment procedures

substantive procedures are performed to restrict:

detection risk

overall audit strategy involves determining overall characteristics of the engagement that:

determine the focus of the audit team determine the timing of procedures define the audit scope

Systems portion of the audit addresses:

effectiveness of client's internal controls

overall risk of association with a particular business is referred to as:

engagement risk

Relevant assertions include:

existence of occurrence, valuation or allocation, completeness

Materiality

idea that some matters are important to the fair presentation of financial statements while others are not

if auditors identify fraud risks, auditors may modify their overall approach by:

increasing third party confirmations adding specialized audit staff

Risk assessment procedures include;

inquiry of external parties analytical procedures observation and inspection

Inquiries of predecessor auditors are aimed at obtaining information on:

integrity of management reason for change in auditors disagreements with management

successor auditors seek info from predecessor auditors on communication with the client and those charged with governance regarding:

internal control deficiencies and material weaknesses fraud and noncompliance with laws and regulations

auditor selection of further audit procedures is based on:

materiality of account balances transactions disclosures being audited assessed risk of material misstatement

management fraud

misstatements arising from fraudulent financial reporting

Defalcation

misstatements arising from misappropriates of assets

when successor auditor is offered an auditing engagement, the successor auditor:

must obtain the client's consent before communicating with the predecessor auditor

What depends on the effectiveness of client's internal controls in preventing or detecting material misstatements?

nature and extent of audit work to be performed on a particular engagement

upon acceptance by the client, the engagement letter

presents an executor contract between the auditor and the client

What are 3 components to fraud trangle?

pressure, rationalization, opportunity

Verifying financial statement presentation of assets

reviewing related party transactions to confirm that they are properly recorded

Detection Risk

risk that auditors will not uncover a material misstatement

Significant Risk

risk that has been identified and assessed auditor's opinion states "requires special audit consideration"

During planing stages of the audit, auditors develop

schedule strategy audit plan

material misstatement to the financial statements

small misstatement, such as a misstatement that affects a client's loan covenants

substantive test portion of audit addresses:

substantive tests of account balances

Analytical Procedures

tests that involve comparisons of financial data of the current year to the prior years, budgets, and industry averages

Interim Period

time interval from the beginning of audit work to the balance sheet date

Why do auditors vouch cash receipt transactions occurring near period end?

to verify cutoff of transasctions

During audit, client staff may prepare

trial balance, aging of AR, analysis of accounts written off

Advantages of interim audit work:

uniform workload for CPA firm, timely release of audited financial statements, increased assessment of internal control

balanced scorecard

uses combination of financial and non financial information performance measures to assess the organization