Term
| Auditors should properly plan engagements for following reasons: |
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Definition
1. help keep audit costs reasonable
2. avoid misunderstandings w/ clients
3. enable the auditor to obtain sufficient competent/appropriate evidence |
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Term
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Definition
| a measure of how willing the auditor is to accept that the fin statements may be materially misstated after the audit is completed and a clean opinon has been issued |
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Term
| First 4 steps in audit planning |
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Definition
1. Understand client's business and industry
2. understand clients business risk
3. assess risk of material misstatements
4. perform prelim analytical procedures |
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Term
| SAS 84 requires communication btwn predecessor and successor auidtors |
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Definition
| initiating comm is responsibility of successor auditor |
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Term
| Related party transactions |
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Definition
1. loans or credit to principle owner or client
2. sales of merchandise between affiliated companies
3. exchanges of equipment between companies owned by same individual |
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Term
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Definition
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Term
| audit committee of public company must agree to perf of non-audit services by auditing firm |
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Definition
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Term
| performance measurement system should include measures that aid company in |
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Definition
| assessing progress towards its objectives |
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Term
| engagement letter does not affect _______ to external users of audited fin statements but it can affect ____ to client |
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Definition
CPA firm's responsibility; legal responsibilities to client
- helps minimize misunderstandings |
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Term
| _____ is a concern when using nonfinancial data in analytcal procedures |
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Definition
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Term
| When considering new client, consider (3) |
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Definition
1. Client's financial stability
2. standing in community
3. relationship w/ previous cpa firm |
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Term
| understanding exernal environemnt of client includes (3) |
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Definition
1. reviewing regulatory requirements
2. general economic conditions
3. competition within industry |
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Term
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Definition
| measure of auditors assesment of likelihood that there are material missatetments in a segment before considering effectiveness of intl control |
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Term
| Opinion par of report contains 2 phrases that relate to materiality and risk |
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Definition
1. in our opinion
2. in all material respects |
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Term
| FASB2 materiality definition |
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Definition
| judgment of reasonable person would be chnaged or influenced by the omission or misstatement of info |
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Term
| preliminary judgment about materiality is max amount by which auditor belives statements could be _____ and not ______ |
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Definition
| misstated; affect the decisions of reasonable ppl |
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Term
| prelim judgment about matry is gen allocated to _____ as this is most efficient method |
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Definition
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Term
| SAS 39 tolerable misstatement |
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Definition
| the materiality allocated to any given acct balance |
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Term
| 5 steps to apply materiality |
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Definition
1. set prelim judgment
2. allocate prelim
3. estimate total misstatement in segment
4. estimate combined misstatement
5. compare combined estimate w/ prelim judgment bout materiality |
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Term
| mgmt may lack integrity if (3) |
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Definition
1. frequent disagreements with previous auditors
2. large turnover of key internal audit personnel
3. large turnover of financial personnel |
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Term
| Auditors deal with a combination of risks (2) |
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Definition
1. risk taht an error will happen
2. risk that it will not be discovered |
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Term
| other than unqual opinion, materiality will be primary factor in choice between except for and disclaimer of opinion |
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Definition
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Term
| study of clients internal control is required by_ |
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Definition
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Term
| flowcharts, narrative, questionnaires are all used by auditors to gain understanding of company's accounting system and documenting ___ |
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Definition
| study of internal controls |
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Term
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Definition
| all public cos must issue internal control report, annually |
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Term
| control envir reflects attitudes of top mgmt through their ___ __ and ___ |
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Definition
| actions, policies, procedures |
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Term
| internal controls can never be absolutely _____. they rely on____ _____ of company personnel |
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Definition
| effective; competency and dependability |
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Term
| control deficiencies exist where |
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Definition
| controls neither prevent or detect misstatements on a timely basis |
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Term
| To have strong internal audit function, the following must be in place: (3) |
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Definition
1. independent of the accounting department
2. independent other operating departments
3. and report to a high level of authority within comp |
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Term
| owner-manager close relationship with personnel can be a MAJOR control in small comp |
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Definition
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Term
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Definition
| tracing a few transactions through accounting system to gain understanding of operation of acc system. observation is used to test control that leaves no paper trail (segregation of durties) |
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Term
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Definition
| risk that internal control will neither prevent material misstatement nor detect them |
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Term
| auditor is concerned with _______ of financial reporting |
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Definition
| reliability (mgmt internal controls helps prepare reliable statements) |
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Term
| auditor reviews intl controls to |
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Definition
| Provive basis for relying on controls and determine scope of procedures that must be done |
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Term
| significant deficiencies in internal controls should be |
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Definition
| reported to audit committee |
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Term
| Activities that strengthen a co's intl control (3) |
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Definition
1. fix responsibility for employee duties
2. separating accounting from other financial operations
3. carefully selecting and training employees |
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Term
| Most companies follow _______ to establish internal controls |
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Definition
| COSO (Committee on Sponsoring Organizations) - Integrated Framework |
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Term
| 5 internal control components |
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Definition
1. Control Environment - actions, policies, procedures that reflect attitude of top mgmt, directors, owners towards internal controls
2. Risk assessment - mgmt's identification and analysis of risk relevant to prep of fin statements in conformity w GAAp
3. Control Activities - policies and procedures that help ensure actions are taken to address risk to reaching comp objectives (Sep of duties, proper authorization of transacs, adequate docs and records, physical control over assets and records, independent checks on perf)
4. Information and Communication system - system that initiates, records, processes, and reports entity's transactions (for each class must satisfy transac-related audit objectives)
5. Monitoring - ongoing or periodic assesment of internal controls by mgmt to determine if controls are operating as intended or that they are modified as appropriate for changes in conditions |
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Term
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Definition
| prepared by auditors to id opportunities for client to improve intl control |
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Term
| proper segregation of functional responsibilities: |
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Definition
1. recording
2. custody
3. authorization |
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