Chapter 5
Management makes assertions for financial statements regarding all of the following except: A) fairness of the audit opinion B) properly recorded transactions C) properly presented disclosures D) proper amounts in various accounts
fairness of the audit opinion
What are working papers assigned to allow information to be tied together through a system of cross referencing?
index number
Control risk is a function of:
operating effectiveness of internal control and design effectiveness of internal control
Throughout the audit, auditors accumulate non-trivial misstatements identified and propose appropriate _________ journal entries
Adjusting JE
Work Papers
Audit documentation. Record of the audit procedures performed, relevant audit evidence obtained, and the conclusions the auditors reach
Making accounting estimates is the responsibility of: A) External Auditors B) Management C) Internal Auditors
B) Management
While performing audit procedures, auditors must make sure the procedures cover:
all material and relevant assertions
What is substantive procedures?
analytical procedures and tests of account balances, transactions, and disclosures
Audit standards require that audit documentation provide evidence:
audit was planned and performed in accordance with GAAS and the auditor's basis for concluding on the achievement of the audit's overall objectives
Some factors that affect inherent risk:
client, client environment, and account
Data Analytics
examination of big data to uncover hidden patterns, unknown correlations, market trends, and other useful business application
Significant audit findings or issues that need to be document include:
issues related to accounting estimates, selection of appropriate accounting principles, and accounting for complex and unusual transactions
Working Trial Balance
key schedule that controls and summarizes all supporting papers
Data Analytics
may involve testing entire populations instead of samples, results in more detailed understanding of client, may assist in the assessment of risk of material misstatement
Factors that affect the level of audit documentation detail include:
nature of audit procedures, extent of judgement involved, and risk of misstatement
appropriateness
quality of audit evidence needed
Sufficiency
quantity of audit evidence needed
Purpose of the permanent file is to:
refresh auditor's memories on items applicable to a period of years for the client and to provide new staff members with a quick summary of policies and organization of the client
Control Risk
risk that a material misstatement could occur in a relevant assertion and not be detected on a timely basis by the client's internal control
Lead Schedules or Separate Summary are
set up to combine similar GL accounts
Detection risk is restricted through the performance of:
substantive procedures
What are the types of audit procedures performed by auditors to obtain audit evidence?
substantive procedures, test controls, risk assessment procedures
What is the objective of analytical procedures during the risk assessment stage?
to help auditors identify items that indicate heightened risk of material misstatement of the financial statements.
What is the backbone of the working papers?
working trial balance
