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