Term
| List 4 main components of an Audit (overview) |
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Definition
1) Pre-engagement Planning & Planning
2) Study and Evaluation of Internal Control
3) Substantive testing procedures
4) Issue Audit Report |
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Term
| The more time spent on ____ (during an audit), the less time spent on ____. |
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Definition
| study and eval. of Internal Control; substantive testing procedures |
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Term
| Should only accept an engagement when... (new or continuing client) |
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Definition
1)Client uses an acceptable reporting framework (commonly GAAP)
2)Understanding the premise (reason) for the audit
3)Understanding of the terms of the audit |
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Term
| decisions must also be made for ____ clients, but the auditor already has a lot of ____ |
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Definition
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Term
| Communication w/predecessor Auditor |
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Definition
| successor auditor is required to INITIATE talks with the predecessor; to comply w/confidentiality, the successor asks the client to authorize UNRESTRICTED communication b/t the successor and predecessor (ask about integrity of client, what was the deal breaker?) |
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Term
| What if client refuses to authorize communications? |
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Definition
| ask why and consider implications on decision to accept |
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Term
| Is the client's authorization for communication w/ their previous auditor required to be written? |
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Definition
| No, but it preferable; General rule: anytime you contact a party outside the client you need permission from the client |
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Term
| Does communication w/predecessor auditor need to be in writing? |
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Definition
| communication may be written OR oral |
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Term
| what are the 5 REQUIRED communications that need to be asked by the successor auditor (to the previous auditor)? |
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Definition
1)Integrty of mgmt
2)Disagreements w/mgmt. about accounting & auditing procedures
3)Communications to those charged w/governance (audit comm.) regarding fraud
4)Communications to mgmt. (& those charged w/govern.) regarding significant deficiencies and material weakness in control
5)Reasons for change of auditors (why breakup?) |
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Term
| everyone from the ____ is on the BOD, but not everyone on the BOD is on the ____. (same answer for both blanks) |
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Definition
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Term
| Does the predecessor auditor have to respond to the 5 req. communications? |
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Definition
| Yes, but to no more than the 5 req. comm; predecessor should respond fully unless there is an unusual circumstance (e.g., pending litigation) |
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Term
| Why should you request working papers of the previous auditor? |
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Definition
| makes it easier to navigate through audited F/S's |
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Term
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Definition
| that predecessor's working papers do not constitute evidence for the current period's F/S's |
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Term
| Where does successor auditor get evidence for opening balances? |
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Definition
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Term
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Definition
| (a contract); documents agreed upon terms of the audit terms can be in another acceptable form of written agreement) |
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Term
| what should the engagement letter include? |
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Definition
1)objective & scope of audit (GAAS)
2)responsibility of auditor (opinion)
3)responsibility of mgmt. (internal control, F/S's, records)
4)Inherent limitations of an audit, internal controls, and risk material misstatements may not be detected (no abs. assurance)
5)Applicable financial reporting framework (GAAP)
6)Expected form and content of any reports and circumstances that may cause a different report |
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Term
| Other items considered in engagement relevant to all auditors |
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Definition
-scope of audit, regulations, GAAS
-comm. method for audit results
-planning & performance (i.e., composition of audit team)
-written representations by mgmt.
-client cooperation (drafted F/S's by timeline to complete)
-mgmt. inform about subsequent events
-how fees are computed/billing
-request mgmt. to sign eng. letter |
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Term
| SOMETIMES relevant in engagement letter |
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Definition
-involvement of other auditors/specialists
-involv. of internal auditors
-arrangements w/previous auditor
-restriction of auditor's liability when not prohibited
-obligations of auditor to provide documentation to other parties
-additional services to be provided
-further agreements b/t auditor & entity |
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Term
| Is the engagement letter required? |
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Definition
| Official letter not required by GAAS; the understanding is required to be documented in the working papers |
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