Audit 3 exam Cheat Sheet (DRAFT) by nova-cane98

Assurance Def:

are indepe­ndent profes­sional services

or its context

assurance services:

reliab­ility of computer systems

Definition

in which a practi­­tioner issues a report on subject matter or assertion that is the respon­­si­b­ility of another party

Examin­­ation =

high assurance

nonis­­suers

AICPA: SSAE / AT-C standards

financial attest­ation engage­ments

Pro forma financial inform­ation

non-fi­nancial attest­ation engage­ments

Effect­iveness of internal control systems

Steps

2.

Unders­tanding the client­-pl­anning

4.

Obtain substa­ntive evidence about account assertions

WHY?

conditions that increase user demand:

Comple­xity, Remote­ness, Time sensit­ivity, Conseq­uences

Auditing is a systematic process of object­ively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of corres­pon­dence between the assertions and establ­ished criteria and commun­icating the results to interested users.

establ­ished criteria 

GAAP

Creditors && Investors

provide users with an opinion by the auditor on whether the F/S are presented fairly, in all material respects in accordance with the AFRF

those charged with governance have respon­sib­ility for

IC over financial reporting

 The company’s organi­zat­ional structure and management personnel.

 The company’s signif­icant invest­ments

 The sources of the company’s earnings, including the relative profit­ability of key products and services, and key supplier and customer relati­ons­hips.

Where are the Risks of Material Missta­tement

beginning of an audit

compare to industry and previous years

1)Develop an expect­ation

3) Compare expect­ation with the recorded amount.

horizontal analysis // year to year

4) Invest­igate signif­icant differ­ences

"­att­ention direct­ing­"

1. Obtain Engagement

-must attempt contact w/ predec­essor auditor

Generally Include:

Obtaining and reviewing: annual reports, interim statem­ents, regist­ration statem­ents, Form 10-Ks, reports to regulatory agencies

Consid­ering the need for specia­lists

Requesting the client’s bankers, legal counsel, underw­riters, analysts to "­spill the tea"

(2) determine compliance with indepe­ndence and ethics requir­ements

engagement letter has:

-manag­ement’s respon­sib­ilities

-any limita­tions

2. Engagement Planning

develop and document a plan (NTE) to assess RMM

Why audit plan?

goals of audit planning

-determine materi­ality

3. Risk Assessment

-risk of material missta­tement

4. Audit Evidence

-minutes of meetings, confir­mations with indepe­ndent third parties, invoices, analyst reports, and all other inform­ation that permits auditors to reach valid, logical conclu­sions

5. Reporting (reporting principle)

Why?

"risk assessment proced­ure­s"

"­tests of contro­ls"

evidence for PERCV/ASB assertions

1) Inspection of Records and Documents

3) Observ­ation

"test of contro­ls"

4) Inquiry

"risk assessment proced­ure­s" / docume­ntation

“inquiry alone” is never enough

5) Confir­mation

existence, R/O, Valuation, Cut-off depends on the info requested

 seek inform­ation the recipient can supply

responses  the audit firm ||  client

recalc­ulation of comput­ations || "test of contro­ls" & potential evidence

8) Analytical Procedures

REQUIRED during planning && final evaluation

Risk Assessment process

in the workpapers

Procedures to identify and assess risk.

Specific risks identified and audit team responses.

Results of audit proced­ures, partic­ularly procedures regarding management override.

Commun­ica­tions to management and those charged with govern­ance, such as the audit committee.

PCAOB-AS 1215 "­audit docume­nta­tio­n":

The written record of the basis for the auditor’s conclu­sions that provides the support for the auditor’s repres­ent­ations, whether those repres­ent­ations are contained in the auditor’s report or otherwise

"­con­tinuing audit signif­ica­nce­"

 continuing contracts such as leases, bond indent­ures, and royalty agreements

minutes of meetings of stockh­olders and/or directors on matters of lasting interest.

prior-­years’ financial statements and audit reports

Current Files

planning memorandum = summary of current files

Indexing = docs get index number

Heading =name of the company, the balanc­e-sheet date, and a descri­ptive title

Dates of audit work = dates of perfor­mance and review are recorded

Lower the materi­ality level if

high complexity + low balance = higher risk

RMM and detection risk are inversely related

control risk goes up

detection risk goes down

Voucher packet

approvals, accounts, and amounts to be recorded

receiving report

PCAOB Public

Public Company Accounting Oversight Board

AICPA Private

American Institute of Certified Public Accoun­tants

SASs - Statements on Auditing Standards

The “Yellow Book” - Government Auditing Standards

IAASB - Intern­ational Auditing and Assurance Standards Board

 inspection of tangible assets

Occurrence

 transa­ctions

 income statement

Rights

 Balance sheet

 consig­­nment

 liabil­­ities and revenue

Receiving Reports  Purchase Journal

 ASC 606 accuracy

What is FRAUD

2) with the intent of inducing someone to believe the falsehood && and act on it

"­mis­app­rop­ria­tions of assets"

Larceny

theft of an employer’s property that is not entrusted to an employee

deliberate fraud committed by management that injures investors and creditors through materially misstated inform­ation.

(2) unders­tating expenses and liabil­ities

Egocentric

prove they can

Economic

need for $$

Incentive

Attitu­de/­Rat­ion­ali­zation

Liquidity.

Complexity of the transa­ctions

small number of accounts are involved

large number of errors are antici­pated

a large number of small balances are involved

the auditor has no reason to believe that the recipients of the requests are unlikely to give them consid­era­tion.

should be used if the recipient is likely to return a positive confir­mation without verifying the accuracy of the inform­ation.

Recipients of accounts receivable confir­mations might not report unders­tat­ements

lower than expected response rate = fictitious customer accounts

Only limited evidence

existence

>100 issuer audits

annual inspec­tions

AICPA National Peer Review Committee

Triennial peer reviews

audit plan

a compre­hensive list of the "­spe­cific audit proced­ure­s" that the audit team needs to perform to gather sufficientapprop­riate evidence

substa­ntive audit plan

a list of "­audit proced­ure­s" for gathering evidence

-more efficient

-more effective

quality control standards

QC

1. Leadership respon­sib­ilities

“tone at the top”

3. Acceptance and contin­uance of client relati­onships

adequately perform the engage­ment, integrity of the client, firm’s ability to comply with legal and ethical requir­ements

5. Engagement perfor­mance

engagement quality control reviews

-appro­pri­ateness of the firm’s guidance materials

- effect­iveness of continuing profes­sional education

“absence of controls”

inherent risk

“suffi­­cient approp­­riate evidence”

detection risk

“less effective controls”

increase procedures