AC312 Test #1

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slittle4
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107387
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AC312 Test #1
Updated:
2011-10-30 22:57:29
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auditing
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Chapters 1, 2, 3, 4, 22
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  1. to identify and record a transaction
    recognition
  2. to receive funds from a transaction
    realization
  3. the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria
    auditing
  4. Types of Audits (3)
    • Financial statemnent audits
    • Compliance audits
    • Operational audits
  5. an audit conducted to determine whether the overall financial statements of an entity are stated in accordance with specified criteria (usually GAAP)
    financial statement audit
  6. a review of an organization's financial records performed to determine whether the organization is following specific procedures
    compliance audit (1)
  7. an audit perfomed to determine whether an entitiy that receives financial assistance from federal or provincial governments has complied with regulations
    • compliance audit (2)
    • eg) CRA
  8. a review of any part of an organization's operating procedures and methods for the purpose of evaluating economy, efficiency, and effectiveness
    • operational audit
    • eg) payroll
  9. Types of reports (services) (3)
    • Audit
    • Review service or engagement
    • Compilation
  10. a service where a written communication is provided expressing an opinion about the reliability of an assertion made by another party; also called "assurance service"
    Assurance engagement
  11. a special form of assurance engagemnt, such as financial statement audit, in which the auditor issues a report about the reliability of any information provided by one party to another
    Attestation service
  12. High assurance
    audit
  13. moderate assurance
    review engagement
  14. no assurance
    compilation
  15. the risk that information upon which a business decision is made inaccurate
    information risk
  16. Parts of an auditor's report (8)
    • addressee
    • introductory statement
    • mnagement responsibility
    • auditor responsibility
    • opinion paragraph
    • auditor's signature
    • date of the auditor's report
    • auditor's address
  17. eight auditing standards, developed by the CICA, consisting of the general standard, examination standards, and reporting standards
    Generally Accepted Auding Standards (GAAS)
  18. Ways the Public Accounting profession can remain professional (8)
    • GAAS and CICA handbooks
    • Continuing education
    • Legal liability
    • Practice inspections
    • Code of professional conduct
    • Provincial securities commissions
    • Quality control
    • Professinal examinations
  19. GAAS general standard
    adequate technical training and proficiency in auditing, due care, and objective state of mind
  20. GAAS examination standards (3)
    • adequate planning and execution to reduce risk to an acceptable level, and proper supervision
    • sufficient understanding of business and environment and of internal control; tests of controls required if control risk assesment below maximum
    • sufficient appropriate audit evidence
  21. GAAS reporting standards (4)
    • identify the financial statements and responsibilities of management and the auditor
    • refer to scope of examination
    • expression of opinion or assertion opinion cannot be expressed
    • indicate whether financial statements present fairly in accordance with disclosed basis of accounting (GAAP)
  22. auditor's opinions (5)
    • unqualified
    • qualified - scope & GAAP
    • qualified - GAAP
    • adverse
    • denial
  23. methods used by a public accounting firm to make sure that the firm meets its professional responsibilities
    quality control
  24. Elements of quality control at the firm level (3)
    • independence
    • client acceptance or continuance
    • documentation
  25. Levels of materiality
    • immaterial
    • material, but not pervasive
    • material and pervasive
  26. Describe introductory paragraph (2)
    • states that auditor has done an audit
    • lists the financial statements that were audited
  27. Describe management responsibility paragraph
    mgmt is responsible for preparation and fair presentation of statements in accordance with GAAP
  28. Describe auditor responsibility paragraph (3)
    • states purpose of the audit is to express an opinion on the financial statements
    • conducted audit in accordance with GAAP
    • describes audit procedure and scope
  29. a misstatement in the financial statements, knowledge of which would affect a decision of a reasonable user of the statements
    material misstatement
  30. Specific conditions for an unqualifiied opinion (5)
    • an audit engagement has been undertaken to express an opinion on financial statements
    • GAAS have been followed by the auditor
    • suffiicient, appropriate audit evidence has been accumulated; all examination standards have been met
    • the financial statements are presented fairly in accordance with GAAP
    • there are no circumstances that would require modifying the wording or adding an additional explanatory paragraph
  31. rules to prevent and/or detect intentional and/or unintentional error
    internal controls
  32. General Purpose Financial Statements (5)
    • Balance sheet
    • Income statement
    • Statement of Retained Earnings
    • Cash flow statement
    • notes
  33. Ethical Principles (6)
    • Trustworhiness
    • Respect
    • Responsibility
    • Fairness
    • Caring
    • Citizenship
  34. impartiality in performing professional services
    independence
  35. the auditor's ability to take an unbiased viewpoint in the performance of professional services
    independent in fact
  36. the auditor's ability to maintain an unbiased viewpoint in the eyes of others
    independence in appearance
  37. Threats to independence (5)
    • Self-interest threat
    • Self-review threat
    • Advocacy threat
    • Familiarity threat
    • Intimidation threat
  38. a threat to independence where the member has a financial interest in the client or in the financial results of the client
    self-interest threat
  39. a threat to independence where the PA is placed in the position of having to audit his or her own work or systems during the audit
    self-review threat
  40. a threat to independence where the firm or member is perceived to promote (or actually does promote) the client's position, that is, the client's judgement is perceived to direct the actions of the PA
    advocacy threat
  41. a threat to independence that occurs when it is dificult to behave with professional skepticism during the engagement due to a belief that one knows the client well
    familiarity threat
  42. a threat to independence that occurs when the client pesonnel intimidate the firm or its staff with respect to the content of the financial statements or with respect to the conduct of the audit, preventing objective completion of field work
    intimidation threat
  43. selected members of a client's board of directors, who provide a forum for the auditors to remain independence of management
    audit committee
  44. assessment of independence threats for a particular engagement
    independence threat analysis
  45. Code of Ethics (6)
    • confidentiality
    • maintenance of tthe reputation of the profession
    • integrity and due care
    • commpetence
    • adherance to GAAP and GAAS
    • advertising and solicitation
  46. Ways to maintain independence (7)
    • legal liability
    • rules of professional conduct
    • GAAS
    • public accounting firm quality control processes
    • audit committee
    • shopping for accounting principles
    • approval of auditors by shareholders
  47. auditor believes that management is not lying, until lying is proven
    management good faith
  48. substantiate what management tells auditor
    professional skepticism
  49. the professional's obligation under the law to provide a reasonable level of care while performing work for those he or she serves
    legal liability
  50. laws developed through court decisions
    common law
  51. failure to exercise reasonable care in the performance of one's obligations to another
    negligence
  52. a party (such as an accountant) has an obligation to act for the benefit of another, and that obligation includes discretionary power
    fiduciary duty
  53. Sources of Auditor's Legal Liability (2)
    • client
    • third parties
  54. the situation when a business is unable to repay its lenders or meet the expectations of its investors because of economic or business conditions
    business failure
  55. a situation in which the auditor issues an erroneous audit opinion as the result of an underlying failure to comply with the requirements of GAAS
    audit failure
  56. the risk that the auditor will conclude that the financial statements are fairly stated and an unqualified opinion can therefore be issued when, in fact, they are materially misstated
    audit risk
  57. a false assertion that has been made knowingly, without belief in its truth, or recklessly without caring whether it is true or not
    fraud
  58. completing the audit with care, diligence, and skill
    due care
  59. theft of assets
    defalcation
  60. a legal defence under which the professional claims that the client failed to perform certain obligations and that it is the client's failure to perform those obligations that brought about the claimed damages
    contributory negligence
  61. a legal defence under which the professional claims that no contract existed with the plaintiff; therefore no duty existed to perform the disputed service
    lack of duty to perform
  62. the financial statements appropriately portray the financial situation of the organization
    absence of misstatement
  63. Auditors' defences to negligence (6)
    • lack of duty
    • absence of misstatement
    • no damages
    • absence of negligence
    • absence of causal connection
    • contributory negligence
  64. a legal defence under which the professional claims that the disputed service was properly performed; an auditor would claim that the audit was performed according to GAAS
    absence of negligence
  65. a legal defence under which the professional contends that the damages claimed by the client were not brought about by any act of the professional
    absence of causal connection
  66. liability to non-clients
    a PA firm may be liable to third parties if a loss was incurred by the claimant due to reliance on misleading financial statements
  67. liability to clients examples (3)
    • failure to complete an audit egagement on the agreed-upon date
    • failure to discover a defalcation
    • breach of the confidentiality requirements of public accountants
  68. Auditors' defences to third-party suits (6)
    • lack of duty to perform (duty of care)
    • absence of misstatement
    • no damages
    • absence of negligent performance
    • absence of causal connection
    • contributory negligence
  69. The Profession's Response to Legal Liability (8)
    • Conduct research in auditing
    • Set standards and rules
    • Set requirements to protect auditors
    • Establish practice inspection requirements
    • Defend unjustified lawsuits
    • Educate users
    • Sanction members for improper conduct and performance
    • Lobby for changes in laws
  70. Individual Professional Accountant's Response (11)
    • Deal only with clients possessing integrity
    • Hire qualified personnel and train and supervise them properly
    • Follow the standards of the profession
    • Maintain independence
    • Understand the client's business
    • Perform quality audits
    • Document the work properly
    • Obtain an engagement letter and a management representation letter
    • Maintain confidential relations
    • Carry adequate insurance
    • Seek legal counsel

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