Auditing 6

for risk assessment auditors should document...

1) discussion of the audit team concerning risks 2) key elements of the understanding of entity's environment 3) assessment of the risk of material misstatement at both the fs level and relevant assertion level 4) risks identified

substantiation of account balances goes through assertion order... list them

1) existence of assets 2) rights to the assets 3) establishing completeness 4) verifying the cutoff 5) valuation of assets 6) FS presentation and disclosure

______ ___ reporting changes in independent auditors and the reasons therefore

Form 8-K

during the audit the client's staff may prepare _____ ____ ______

analysis of accounts written off, aging of A/R, and a trial balance

arrangement for the audit should be made through contact with the company's ____ _____

audit committee

auditors should document several elements of risk assessment including ____

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

when evaluating the overall attractiveness of the industry a client operates in, auditor's consider ____ _____ _____

barriers to entry, strength of competitors, bargaining power of suppliers and customers

they serve as both a test of controls and a substantive test of details of the transactions that occurred during the year

dual purpose procedures

acts as a contract between auditor and client

engagement letter

the overall risk of association with the particular business is called ___ ______

engagement risk

if the auditor's objective is to test _____, they follow the stream of evidence back to its source

existence

following amounts recorded in fs to ledgers, to journals, and finally vouching them to the original source documents tests what assertions?

existence or occurrence

the period before the balance sheet date is termed the _____ ______

interim period

Examples of risks at the FS level include:

lack of sufficient capital to continue operations, a declining industry, ineffective control environment

the systems portion is organized around the

major transaction cycles

to determine if the ending FS balance is correct, auditors _______

may test controls over transactions or test the ending balance directly

usually organized around the BS accounts, the ____ ______ portion of the audit program is aimed at confirming FS accounts

substantive procedures

further audit procedures include: 2

substantive procedures and test of controls

the two major systems of these procedures are ____ and ____

systems (IC) portion and substantive (FS) portion

tolerable misstatement

the application of performance materiality to a particular audit procedure

potential significant business risks include:

changes in government regulations, competition, interest rate increase, and material price volatility

auditor review of subsequent period invoices to verify all receivables are recorded is verification of ______ of assets

completeness

tracing documents from the source documents to their inclusion in the financial statements is for what assertion?

completeness

the overall audit strategy involves determining overall characteristics of the engagement that ______ _____ _____

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

in the first audit of the client, the auditors should obtain sufficient appropriate evidence about whether the ______ _______ for the various accounts contain misstatements that materially affect the current period's FS

opening balances

materiality considers both _______ and _______ factors

quantitative and qualitative

auditors perform analytical procedures as a part of the _____ ______ process for every audit

risk assessment

identified risks that require special audit considerations

significant risks

audit plan includes:

the audit's risk assessment procedures and planned further audit procedures

Performance Materiality

used to reduce to an appropriately low level the probability that the aggregate of uncorrected an undetected immaterial misstatements in the financial statements would exceed overall financial statement materiality; usually 50 to 75 percent of overall FS materiality

physical examination of PPE establishes existence but not ______

ownership

a description of the nature, timing, and extent of the audit procedures to be performed is found in the audit _____

plan

auditors consider materiality to determine their scope of the audit during the _____ stage of an audit

planning