Auditing Exam 1

Performance

planning the work, and properly supervise any assistance, determine and apply appropriate materiality levels, identify and assess risk of material misstatement, and obtain sufficient and appropriate audit evidence.

Auditing Standards

quality guides to the audit that apply to all audits. the conduct of an audit examination.

current file

related to anything thats with the current year audit.

fraud

the act of knowingly making material misrepresentations of fact with the intent of inducing someone to believe the falsehood and act on it and, thus, suffer a loss or damage

Manangement Fraud

the deliberate fraud committed by managers that injures investors and creditors through materially misstated information. usually referred to fraudulent financial reporting.

internal evidence

the information given to the auditor directly from the client. the more internal controls in place, the more reliable the information.

risk controls,

the need to obtain a thorough understanding of the clients business to plan and perform audit work in order for us to determine our ___ , what substantive procedures, and using preliminary analytical procedures in the audit.

Unmodified Opinion

the opinion expressed by auditors when there is no material misstatements. its considered a clean audit opinion.

Auditing Procedures

the particular and specialized actions that auditors take to obtain evidence in a specific audit engagement.

inherent risk

the probability that in the absence of internal controls, material errors or frauds could enter the accounting system.

Engagement Letter

the probability that the firm can issue a clean unmodified audit opinion when in fact there is a material misstatement. we reduce this risk with procedures regarding our acceptance or continuance. determine our compliance with independence and ethical requirements, and reach the contractual understanding by obtaining the ______.

information risk

the probability that the information circulated by a company will be false or misleading. part of the conflict of interest. independent auditors of the financial statements perform audits to reduce this..

reasonable assurance

the purpose of generally accepted auditing standards is to meet the objectives of an audit engagement - which is to obtain ____ and issue a report

Business risk

the risk that an entity will fail to meet its objectives

understanding

the______ is going to include the objectives of the engagement, which are both management and auditors responsibilities, and if there is any limitation of the engagement.

Engagement Planning

to obtain or retain engagement. when a new client seeks your auditing firm, determine if you should or shouldn't hire them. Has a lot of risk.

Complexity

transactions are numerous and complex

Preliminary Analytical Procedures

use ___ in the audit while planning the audit, it is required during planning and the final review by standards. can use it as a substantive test during the audit. performed during the planning stage to identify those potential problem areas, to design our audit work to reduce the risk of missing info.

internal auditors

use the ___ for test of controls, because it reduces some of our work. before we can do that, we must consider whether they are objective and competent. cannot be independent, because they are employed by the client. should be reporting directly to the board of directors/audit committee. They Test Controls, but not anything that lets them form any type of conclusion/decision on the actual audit opinion.

Remoteness

users are separated from accounting records by distance and time

Revenues and assets, expenses and liabilities

usually misstatements on the financials are overstating __ and ___, understating __ and __. and disclosing information that is misstated or omitting important information

Completeness & Cutoff

All transactions have been recorded and are recorded in the appropriate period, check for completeness.

All fraud

Audit teams are not responsible to detect __ but are responsible to detect cases where fraudulent activity materially misstated the financial statements.

Information Assurance Providers

Auditors are ____ because they provide assurance to a client that all of financial statements are correct.

decisions

Auditors provide business's with useful, understandable info that can help them make ___ in a timely manner

Materiality

Considering the likelihood that the account balance contains a material misstatement. focusing on matters that are important to users.

Managerial Relationships

Decision making capacity. If auditor is at anypoint making any managerial decisions, it is no longer a valid audit.

Audit Evidence, Reasonable Assurance, Materiality

Designing audit procedures to identify misstatements that would have a significant effect on financial statement users' decisions.

Competence and Capabilities

Education and Experience to do the job.

contractual understanding

It is a ______ of services to be provided by the CPA, and its also a means of avoiding the legal liability of claims that auditors didn't perform the work that was promised.

Reasonable Assurance

Not providing absolute assurance, or garunting that there are no misstatements. recognizes that a GAAS audit may fail to detect ALL material misstatements.

Planning and Supervision

Preparing a written audit plan, and obtaining info on the client's business

Due Care

Prudent Auditor. Prepare audit work papers and documents so that way someone can follow what you did in accordance to the standards and get the same results. Same thing for a peer review.

Rights and Obligations

The entity is entitled to all rights of the assets, the liabilities are the legal responsibility of the entity, and all of the disclosed events and transactions pertain to the entity. They Own the Assets, and the Owe the Liabilities.

Auditor's direct knowledge

The most reliable information is the ___.

independent external auditor

The primary role of an ______ is to express an opinion on the fairness of the companies financial statements and footnotes.

control risk

The probability that the client's internal control activities will fail to prevent or detect material misstatements provided that they enter or would have entered the accounting system

detection risk

The risk that audit procedures will fail to detect material misstatements due to error or fraud. we reduce this risk by completing more and stronger substantive procedures.

Inspection of records and documents

Vouching Tracing Scanning

GAAS

We perform audits with ____

detection risk

We use that assessed risk of material misstatement to determine that acceptable level of ____. Based on the allowable risk, we modify the nature, timing, and extent of our audit procedures.

Management

Who is responsible for financial statements? When providing the financials to the auditor, they are providing those assertions to the auditors.

risk of material misstatement

___ is the combination of inherent risk and control risk. each of these risks relate to the company and its overall environment. this exists in the financial statement before the auditors even apply their own procedures. (no control over this, can only assess it)

nature, timing, extent

___ is the type of procedure, ___ is when the procedures will be completed, and ___ extent is the number of tests that are performed.

Materiality

_____ is used in three ways: audit engagement, guide to planning testing procedures, guide to determining performance materiality(which is a guide to the evaluation of evidence) and is a guide for making decisions on an audit report.

Adverse Opinion

a report issued when the auditor believes the financial statements are not recorded in conformity with GAAP. in a disclaimer, you are issuing no opinion.

Existence/Occurrence

account balances exist and transactions that have been recorded and disclosed have occurred and pertain to the entity

Valuation and Allocation

assets, liabilities, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded

deficient

audits that do not follow GAAS are considered to have been _____ audits

evaluate the integrity of management

before accepting a new client, a public accounting firm should: attempt to contact the predecessor auditor, __________ , assess the firms resources to ensure they are sufficient to permit the firm to accept the engagement.

Reporting

communicating the results in the form of a written report, an opinion in accordance of the auditors findings, or states that an opinion cannot be expressed.

preliminary procedures

concentrate on accounts and relationships that have specific potential problems and risks in the financial statements. use five steps: develop an expectation, define the significant difference, compare expectation with the recorded amount, investigate significant differences, and document each of those steps.

qualify/modify opinion

concludes that except for relatively isolated departure, the entity's financial statements are reported in accordance with GAAP.

Time-sensitive

decisions are ___

external evidence

evidence recieved directly from a third party is more reliable, than if it is evidence received from the client.

consequences

financial decisions are important to investors and users.

Attestation engagements-

giving credibility to the users on their financial statements. when providing specific assertion made by management its called ___. when its specifically expressing an opinion on financial statements, its auditing.

Risk Assessment

identify concerns and risks. We do an assessment of risks, which determines our timing. Includes internal controls - policies and procedures to prevent or detect frauds or errors. Auditors have to TEST the controls to make sure the company is ACTUALLY following it.

Ethical Requirements

include independence in fact, independence in appearance, and due care.

permanent file

information that is relevant to the ongoing client relationship, anything over one year.

audit risk model =

inherent risk * control risk * detection risk

Presentation and Disclosure

management assertion that all transactions and events have been presented correctly in accordance to GAAP and that all relevant information has been disclosed to financial statement users, usually in the footnotes to the financial statements

Professional Skepticism

must have a critical mind when auditing. does this make sense? what do i know? is the evidence supporting everything?

Responsibilities

objectivity and identifies the important role in an audit. must comply with independence and due care in ethical policies. Includes skepticism.

audit plan

once a client is accepted, an _____ is to be created. it is required to be written, and its a comprehensive list of audit procedures that the audit team needs to perform in order to gather the efficient and appropriate audit evidence.

Engagement Letter

once an audit firm determines they are going to accept a client, we have to get a contractual agreement with them called an ____. these are used to reach a mutual understanding with the client concerning engagement requirements and expectations, and to document the understanding

Attestation Engagements

one in which we are engaged to report an issue on a subject matter that is the responsibility of another party.