AC 312 - Test #2

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AC 312 - Test #2
2011-11-23 13:57:32

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  1. Management Responsibilities (5)
    • Adopt sound accounting policies
    • Maintain adequate internal control
    • Make fair representations
    • Acknowledge its responsibilities to the auditor
    • Provide documentation and information for the audit process
  2. Auditor Responsibilities (6)
    • Use professional skepticism
    • Conduct the audit using a risk-based approach
    • Conduct the audit to provide reasonable assurance about material misstatements
    • Consider fraud and error
    • Issue a management letter if weaknesses are encountered that could result in a material error
    • Issue an appropriate opinion
  3. List the phases of an audit (8)
    • Preplanning
    • Client risk profile
    • Plan the audit
    • Design further audit procedures
    • Tests of control
    • Substantive tests
    • Ongoing evaluation, quality control, and final evidence gathering
    • Complete quality control and issue auditor's report
  4. Phase 1: preplanning the audit (5)
    • Client acceptance or continuance
    • Identify client reasons for audit
    • Conduct independence threat analysis
    • Obtain an engagement letter
    • Identify staff available for the engagement
  5. an agreement between the public accounting firm and the client as to the terms of the engagement for the conduct of the audit and related services
    engagement letter
  6. the auditor identifies what could go wrong with the financial statements and the approaches for dealing with the risks
    risk assessment
  7. specific audit programs and processes are designed and tests conducted to obtain reasonable assurance with respect to the financial statements in the context of assessed risks
    risk response
  8. Phase 2: Client Risk Profile (7)
    • Obtain knowledge of the industry and business environment
    • Obtain knowledge of the client's business
    • Document corporate governance processes and control environment
    • Assess entity-level controls
    • Assess risks of fraud
    • Document internal controls and evaluate design effectiveness of internal controls
    • Identify significant risks or transactions/accounts that require more than substantive tests
  9. Phase 3: Plan the audit (5)
    • Determine audit risk
    • Determine inherent risk
    • Set preliminary materiality levels
    • Document internal controls
    • Assess risks of material misstatements
  10. Phase 4: Design further audit procedures
    develop audit programs
  11. audit procedures to test the effectiveness of control policies and procedures in support of a reduced assessed control risk
    tests of controls
  12. use of comparisons and relationships to determine whether account balances or other data appear reasonable
    analytical procedures
  13. an auditor's tests for monetary errors or fraud and other irregularities in the details of balance sheet and income statement accounts
    Tests of details of balances
  14. Phase 5: Tests of Control (2)
    • perform tests of control
    • assess impact of results of tests upon risks of material misstatement and upon audit programs
  15. Phase 6: Substantive Tests (3)
    • analytical procedures
    • tests of details of balances
    • test of key items
  16. audit tests that focus on specific transactions that could be at risk of material error
    tests of key items
  17. Phase 7: Ongoing evaluation, quality control, and final evidence gathering (5)
    • evaluate results of tests as completed
    • reassess risks as required
    • modify risk response/audit plans as required
    • complete final evidence gathering
    • conduct review of working papers and supervision as audit progresses
  18. Phase 8: Complete quality control, and isssue auditor's report (5)
    • determine opinion to be issued
    • communicate with audit committee and management as required
    • conduct final quality control review
    • issue audit report
    • initiate file freeze procedures
  19. Risk Assessment Phases
    • Phase 1
    • Phase 2
    • Phase 3
  20. Risk Response Phases
    • Phase 4
    • Phase 5
    • Phase 6
    • Phase 7
  21. Reporting Phase
    Phase 8
  22. Financial Statement Cycles (5)
    • sales and collection cycle
    • payroll and personnel cycle
    • acquisition and payment cycle
    • inventory and warehousing cycle
    • capital acquisition and repayment cycle
  23. General Transaction-Related Audit Objectives (6)
    • Occurence - recorded transactions occured
    • Completeness - existing transactions are recorded
    • Accuracy - recorded transactions are stated at the correct amounts
    • Classification - transactions included in the client's records are properly classisfied
    • Posting and summarization - recorded transactions are updated to the master files and are correctly summarized
    • Timing - transactions are recorded on the correct dates
  24. Balance-Related Audit Objectives (8)
    • Existence - amounts included exist
    • Rights and obligations - ownership
    • Completeness - existing amounts are included
    • Accuracy - amounts included are correct
    • Valuation - assets are included at the amounts estimated to be realized
    • Classifications - amounts included in the client's listing are propely classified
    • Detail tie-in - transaction details sum to the master files amounts, and subsidiary records agree with the total in the account balance in the general ledger
    • Cut-off - transactions near the balance sheet date are recorded in the proper period
  25. detailed instruction for the collection of a type of audit evidence
    audit procedure
  26. detailed instructions for the entire collection of evidence for an audit area or an entire audit; always includes audit procedures and many also include sample sizes, items to select, and timing of the tests
    audit program
  27. the degree to which the auditor is convinced that the evidence supports the audit opinion
    persuasiveness of evidence
  28. Three determinants of persuasiveness
    • sufficiency
    • appropriateness
    • timeliness
  29. the quantity of evidence; appropriate sample size
  30. the degree to which evidence can be considered relevant and reliable
  31. the pertinence of the evidence to the audit objective being tested
    relevant evidence
  32. Six characteristics of reliability
    • Auditor's direct knowledge
    • Independence of provider
    • Effectivenes of client's internal controls
    • Qualifications of individuals providing the information
    • Degree of objectivity
    • Consistency from multiple sources
  33. the timing audit evidence in relation to the period covered by the audit
  34. Types of audit evidence (7)
    • Inspection
    • Observation
    • Inquiry
    • Confirmation
    • Recalculation
    • Reperfomance
    • Analytical Procedures
  35. the auditor's physical examination or count of a tangible asset, or inspection of a document
  36. use of the senses to assess certain activities
  37. Inquiry of the client
    the obtaining of written or oral information from the client in response to questions during the audit
  38. the auditor's receipt of a written or oral response from an independent third party verifying the accuracy of information requested
  39. repeating or checking the mathematical accuracy of calculatios completed by the client
  40. the redoing of procedures and internal controls (other than mathematical calculations) of the client by the auditor
    reperformance or parallel simulation
  41. tests that the auditor conducts using computer sofware or using the data or systems of the client
    Computer-assisted audit tests (CAAT's)
  42. the use of fictitious transactions to determine whether client programs are functioning as described
    test data
  43. use of comparisons and relationships to determine whether account balances or other data appear reasonable
    analytical procedures
  44. a measure of how willing the auditor is too accept that the financial statements may be materially misstated after the audit is completed and an unqualified audit opinion has been issued
    audit risk
  45. a complement to audit risk; an audit risk of 2% is the same as audit assurance of 98%
    audit assurance
  46. a measure of the auditor's assessment of the liklihod that there ar material misstatements in a segment before considering the effectiveness of internal controls
    inherant risk
  47. a measure of the auditor's assessment of the likelihood that misstatements exceeding materiality in a segment will not be prevented or detected by the client's internal controls
    control risk
  48. a measure of the risk that audit evidence for a segment will fail to detect misstatements exceeding materiality, should such misstatement exist
    planned detection risk
  49. the risk that the client will fail to achieve its objectives
    client business risk
  50. the risk that the auditor or audit firm will suffer harm after the audit is finished
    engagement risk or auditor business risk
  51. Criteria to determine reliability (5)
    • independence of provider
    • effectiveness of client's internal control
    • auditor's direct knowledge
    • qualifications of provider
    • objectivity of evidence
  52. Levels of misstatements (5)
    • identified misstatements
    • likely or projected misstatements
    • likely aggregate misstatement
    • further possible misstatements
    • maximum possible misstatement
  53. the actual misstatements discovered in the sample tested; the misstatements have not been corrected by management
    identified misstatements
  54. the projection of the actual misstatements in the sample to the population; the misstatements have not been corrected by management or there is a disagreement with management
    likely or projected misstatements
  55. the sum of the identified misstatements and likely misstatements in the financial statements
    likely aggregate misstatement
  56. the misstatements over and above the likely aggregate misstatement that result from the imprecision in the sampling process
    further possible misstatements
  57. the sum of likely aggregate misstatement plus further possible misstatements
    maximum possible misstatement
  58. Factors indicating the degree to which users rely on the financial statements (3)
    • client size
    • distribution of ownership
    • nature and amount of liabilities
  59. Factors affecting the the likelihood that a client will have financial difficulties after the audit report is issued (6)
    • client's liquidity position
    • profits (or losses) in previous years
    • method of financing growth
    • nature of the client's operations
    • extent of reliance upon technology and quality of support strategies
    • competence of management