Term
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Definition
F/S are the responsibility of an entity's management, so they contain management's estimates about transactions and events that occured during the period being audited
- assertions about account balances at end of period
- assertions about financial statement presentation and disclosure
- PERCV |
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Term
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Definition
Presentation and Disclosure
Existence and Occurence
Rights and Obligations
Completeness
Valuation and Allocation |
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Term
| What assertion is known as validity? |
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Definition
Occurence and Existence
- want to test if the transaction (asset) actually occured (exist)
- done by vouching (e/o) - under/over
- done by tracing (C) - opposite |
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Term
| Why do public accountants investigate potential clients? |
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Definition
| to assess the client's risks and probablitiy of a lawsuit if the audit opinion is unfavorable |
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Term
| How should an investigation of a potential client be done? |
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Definition
Acceptance and retention procedures:
- obtain and review financial info
- inquiry of third parties
- inquiry of preceding auditor
- need for special attention or unusual risks
- evaluating independence |
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Term
| Why should public accountants periodically evaluate whether to retain their current clients? How should this be done? |
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Definition
public accountants should reduce their own business risks by carefully managing their business engagements
- firms need to make sure their current clients have not become too risky
- client continuace occur annually or after a major event |
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Term
| What is an engagement letter? |
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Definition
a written contract designed to reach a mutual understanding with clients concerning engagement requirements and expectations and to document this
- accepting a new client
- engagement continues from year to year
informs client of:
- objectives of the engagement
- management's responsibilities
- auditor's responsibilties
- any limitations of the engagement |
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Term
| Why is an engagement letter important? |
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Definition
- reduces the risk of misunderstandings with client
- avoiding legal liability for breach of contract
- required by SAS 83 |
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Term
| What must an external auditor know about an internal auditor before requesting their assistance on an audit? |
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Definition
| must obtain an understanding of a clients internal audit department and their work to understand the IC of a company |
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Term
| What types of assistance can internal auditors provide? |
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Definition
evaluate their work based on objectivity and competence
- enable external auditors to look favorably or unfavorably on work performed by internal auditors |
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Term
| What is the importance of identifying related parties? |
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Definition
- individuals/organizations that are closely tied to the auditee
- make sure they are "arms length" and recorded fairly |
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Term
| What are analytical procedures? |
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Definition
| - reasonableness tests; audit team is comparing its estimates of account balances with those recorded by management |
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Term
| What three stages of the audit may an auditor use analytical procedures? |
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Definition
| planning, substantive testing, and final review |
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Term
| What are analytical procedures used for? |
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Definition
| identify potential problem areas so subsequent audit work can be designed to reduce the risk of missing something important |
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Term
| What two stages are analytical procedures required? |
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Definition
| planning and final review |
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Term
| In using analytical procedures, where to the auditor's expectations come from? |
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Definition
- comparison of current-year account balances to balances of one or more comparable years
- comparison of current year account balances to anticipated results found in budgets/forecasts
- ratios
- similar information for the industry
- relevant non financial info. |
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Term
| What is tolerable difference? |
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Definition
| what percentage (or dollar) difference from your expectation can still be considered reasonable |
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Term
| What is the function of audit working papers? |
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Definition
- contain support for decisions regarding planning and performing the audit
- document procedures performed, evidence obtained and conclusion reached |
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Term
| What is an audit program? |
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Definition
| a list of audit procedures that auditors need to perform to gather sufficient appropriate evidence to base their opinion on the fs |
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Term
| What is an audit program? |
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Definition
| a list of audit procedures that auditors need to perform to gather sufficient appropriate evidence to base their opinion on the fs |
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Term
| What is the function of an audit program? |
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Definition
| provides guidelines and keeps audit on track |
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Term
| What is the assurance bucket? How much evidence does it take to be a drop in the bucket? |
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Definition
the amount of assurance desired in an audit
- to fill --> risk assessment procedures and choice to do a test of controls. then substantive analytical procedures and detail testing if needed.
all depends on individual audit and desired amount of assurance |
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Term
| What matters must be considered for audits of clients who use computers? |
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Definition
- extent to which computers are used
- complexity of computerized operations
- organizational structure of computerized processing
- availability of data
- using CAATS to increase efficiency of audit
- need for specialized skills |
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Term
| How can computers be used as an audit tool? |
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Definition
- Automating the audit process
- basic auditing functions
- advanced auditing functions |
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Term
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Definition
computer assisted audit tools or techniques.
- developed from standard spreadsheet and database applications but are modified so auditors can perform common audit tasks |
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