CPA Exam - Audit

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  1. 10 GAAS Standards - 3 sections, 10 standards
    • General
    •         Technical Skill - when performing the job
    •         Independence - appearance (no direct financial interest, no indirect material financial interest)  and fact
    •         due Professional Care - critical review of the work done at every level
    • Fieldwork
    •         Planning and supervision
    •         Internal Control - reliance
    •        Corroborative Audit Evidence - substantive testing
    • Reporting 
    •        Accordance with GAAP
    •        No new accounting principles
    •        Omitted disclosures - none
    •        Expression of an opinion
  2. 3 Types of Auditing
    • Compliance
    • Operational - (Internal)
    • Financial Statement - (External)
  3. Definition of a Financial Statement Audit
    An examination of financial statements for the purpose of giving an objective opinion as to the fairness of financial statement presentation
  4. What is best describe as Generally Accepted Auditing Standards?
    Measure of the quality of the auditors work and the audit performed
  5. Define RMM
    Risk of Material Misstatement - IR * CR (Inherent risk * Control risk)
  6. Describe the relationship between Internal Control reliance and substantive testing
    When reliance on Internal control is high, control risk is low and we will accept a higher detection risk, which means less substantive testing is needed.
  7. How does an auditor increase substantive testing?
    By lowering their materiality to increase the scope of the audit
  8. Why do auditors have to look at internal control for all audit engagements?
    Private: Auditors must determine reliance on internal control in order to gauge the level of substantive testing needed OR in order to express an opinion on internal control if engaged to do so

    Public: Auditors are required to express an opinion on internal controls AND on the financial statements as a whole
  9. The audits of financial statements are performed in accordance with what standards of accounting?
    Public: PCAOB - Public Company Accounting Oversight Board

    Private: GAAP - Generally Accepted Accounting Principles
  10. Name the four main assurance (attestastion) services:

    Hint ERAS
    • Examinations
    • Reviews
    • Agreed Upon Procedures
    • Special Reports
  11. What are the two keys components to determining whether to accept a new client?
    • 1) The audit-ability of the financial statements
    • 2) Mangement's integrity 
  12. If the client has been audited by a prior auditor, what inquiries are the successor auditor required to make?

    Hint: RID-C 

    • Reasons for the change
    • Integrity of Management
    • Disagreements with Management
    • Communications with regulatory agencies or audit committee 
  13. What does an auditor need to communicate to those charged with governance?

    • Disagreements w/ mgmt 
    • Illegal acts
    • Significant accounting policies changed by Mgmt
    • Adjustments proposed by the auditor
    • Prior discussions w/ mgmt
    • Problems that arose
    • Responsibilities under GAAP
    • Other information
    • Views of any other accountants
    • Estimates
  14. What written communication needs to be addressed in an auditor's engagement letter to a client?

    • Fees
    • Auditors responsibility with respect to ILE
    • Confirm the engagement
    • Scope and Intro paragraph
    • Internal control improvements - LOR (SAS 115)
    • Mgmt's responsibility with respect to ILE
    • Irregularities
    • not Legal
    • Errors
  15. Define Materiality
    The magnitude of an ommission or misstatement of accounting information that in the light surrounding circumstances makes it probable that the judgement of a reasonsable person relying on the information would have changed or been influenced by the ommission or misstatement.
  16. Define:
    Inherent Risk
    Control Risk
    Detection Risk 
    • IR - The natural risk of a material error in an audit area assuming that there are no related internal controls
    • CR - The risk that a material error would not be detected by the client's internal control
    • DR - The risk that an audit area is materially misstated and is not detected by the auditor 
  17. List the common planning procedures in an audit

    • Basic discussions w/ client - nature, timing, and extent
    • Review of documentation
    • Ask about recent developments
    • Interim information
    • Non-audit personnel - contacts
    • Staffing (budget)
    • Timing of your audit
    • Outside assistants - (specialists)
    • Pronouncements
    • Scheduling w/ client
  18. During the initial planning phase of an audit, a CPA most likely would:

    A) evaluate the reasonableness of accounting estimates
    B) discuss the timing of audit procedures with the client's management
    C) identify specific internal control activities that are likely to prevent fraud
    D) inquire with the clients attorney as to whether any unrecorded claims are probable
    B) discuss the timing of audit procedures with the client's management
    (this multiple choice question has been scrambled)
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CPA Exam - Audit
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