Engagement Planning.csv

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Engagement Planning.csv
2014-03-08 10:07:25
Engagement planning1
engagement planning 2
Engagement planning 3
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  1. Engagement Planning,What is the primary duty of an auditor?,To provide users of financial information with REASONABLE ASSURANCE that the financial statements are not materially misstated.
    Engagement Planning,What is the auditor's responsibility for detecting theft or fraud?,"Auditors are *not* responsible for detecting theft or fraud.
  2. Instead- they are responsible for providing REASONABLE ASSURANCE that the financial statements are not materially misstated."
    • Engagement Planning,When should an auditor be hired in relation to the balance sheet date for optimum audit planning and efficiency?,The earlier the auditor is hired- the better for audit planning and efficiency.
    • Engagement Planning,When can audit procedures be performed at interim dates?,"If Control Risk for the accounts and/or transactions is low- audit procedures can be performed at interim dates.
  3. The auditor then reviews changes in the balances at year-end.
    • "
    • Engagement Planning,When can an auditor accept an engagement offered after the year is already closed?,The auditor can take the engagement if they are able to overcome the limitations of the engagement.
    • Engagement Planning,For what does an auditor use professional skepticism?,"To plan the scope of the audit
  4. To plan the objectives of the audit"
    • Engagement Planning,How can analytical procedures be performed in audit planning?,The auditor can compare actual versus forecasted numbers.
    • Engagement Planning,What must an auditor have in order to discuss issues relating to a predecessor auditor's work?,If issues relating to predecessor auditor's work on previous Financial Statements come up during the current audit- Auditor must have client's permission to discuss the issue.
    • Engagement Planning,What questions must an auditor ask with respect to procedures carried out by assistants?,"Were they adequately performed? (Review the working papers)
  5. Are the results consistent with the audit report?"
    Engagement Planning,How is audit strategy mapped out?,"Auditor determines what the reporting objectives are.
  6. Auditor determines the scope of the audit."
    Engagement Planning,Describe the key components of maintaining auditor independence.,"Auditor must be independent in fact and appearance
  7. Honesty
  8. No direct financial interest
  9. No indirect material financial interest"
    • Engagement Planning,Describe Due Professional Care,"Technical abilities mirror those held by peers in the profession
    • Follow GAAS Standards
    • Obtain a Reasonable Level of Assurance
    • Maintain Reasonable Level of Skepticism
    • Supervise Audit Staff
    • Review judgment at every level"
    • Engagement Planning,What should an auditor do prior to accepting an audit engagement?,"Review the previous financial statements
  10. Speak to third parties
  11. Contact predecessor auditor to evaluate whether engagement should be accepted (must have client permission)"
    Engagement Planning,What questions should be asked by an auditor prior to taking an engagement?,"Note: must have permission of client to contact predecessor auditor (no permission = no engagement)
  12. Why the Auditor Change?
    • Any Serious Discussions with Audit Committee?
    • How is Management Integrity? Disagreements?
    • How was Internal Control?
    • Understand Industry or Be Willing to Learn
    • Consider Scope Limitation - Limited evidence available = no engagement"
    • Engagement Planning,What should be included in an audit engagement agreement?,"Note: must be written
  13. Objectives of Engagement
    • Limitations of Engagement
    • Responsibilities of Management - Provide written assertions
    • Responsibilities of Auditor - Limited error/fraud responsibility
    • Expectations of Access to Records
    • Financial Statements (and Disclosures) are Management's Responsibility
    • Compliance with Laws
    • Internal Control"
    • Engagement Planning,What is management's responsibility with respect to the financial statements?,"Management is responsible for financial statements and adequacy of disclosures.
  14. Presentation & Disclosure
    • Existence (Tests Overstatements)
    • Rights & Obligations
    • Completeness (Tests Understatements)
    • Valuation & Allocation"
    • Engagement Planning,What is the purpose of the Audit Committee?,"Responsible for Hiring Auditor
  15. Oversees Internal Control
  16. Must Agree with Auditor on: Responsibility of the Parties- Audit Fee- Timing of the Audit- Audit Plan
  17. Acts as Liaison Between Auditor and the Board
  18. Auditor Communicates Concerns about: Internal Control Deficiencies- Errors- Fraud- Illegal Activities"
    Engagement Planning,How is Audit Risk calculated?,"Inherent Risk x Control Risk x Detection Risk
  19. Risk that material mistakes- errors- omissions- or fraud will result in an inaccurate audit report
  20. Based on Auditor Judgment
  21. Measured in both Qualitative and Quantitative"
    Engagement Planning,Describe Control Risk,"Risk that internal control will not detect error or fraud
  22. Auditor cannot control this."
    Engagement Planning,Describe Inherent Risk.,"Which transactions have a higher level of risk?
  23. Auditor cannot control"
    Engagement Planning,Describe Detection Risk.,"Will the auditor fail to detect a material misstatement?
  24. Auditor CAN control
  25. Do testing at year-end
    • Increase substantive testing
    • Run more effective tests"
    • Engagement Planning,What responses should an auditor take based on different levels of acceptable detection risk (DR)? What type of tests should be performed?,"Less Acceptable DR = Run More Substantive Tests
  26. More Acceptable DR = Run Less Substantive Tests
  27. More Substantive Tests (DR down) = Less Audit Risk; (AR = IR x CR x DR)
  28. Less Substantive Tests (DR up) = More Audit Risk; (AR = IR x CR x DR)"
    Engagement Planning,What are quantitative measurements versus non-quantitative measurements with respect to risk?,"Quantitative Measurements - Inherent- Control- and Detection Risk can all be measured in terms of percentages
  29. Non-Quantitative Measurements - Inherent- Control- and Detection Risk can all be measured in terms of acceptable ranges"
    • Engagement Planning,Whose responsibility is it to FIND and PREVENT fraud?,It is Management's responsibility.
    • Engagement Planning,What is the auditor's responsibility with respect to fraud and illegal acts?,"Assess the RISK that such things will lead to material misstatements
  30. Design the audit to provide reasonable assurance against fraud- illegal acts that directly and materially affect the financial statements
  31. Report ALL management fraud to the audit committee (minor fraud by low-level employees not reported to committee)
  32. Perform required inquiries and procedures (management inquiries- analytical procedures- discussions with audit personnel about fraud)
  33. "
    Engagement Planning,What are the three factors that affect/influence fraud?,"Fraud is born out of:
  34. Rationalization
    • Incentive
    • Opportunity
  35. (RIO)"
    • Engagement Planning,What is the difference between fraud and errors?,Errors are unintentional- fraud is intentional.
    • Engagement Planning,What red flags may indicate higher risk in an audit?,"Management compensation tied to stock
    • Aggressive financial forecasting
    • Former auditor disagreed with Management
    • Records not available for audit
  36. Current audit procedures may need to be reconsidered if red flags exist."
    Engagement Planning,Describe the characteristics of a Fraud Risk Factor.,"Has been observed in similar situations
  37. Does NOT necessarily mean that there is a material weakness in internal control
  38. Leads to an auditor taking action"
    • Engagement Planning,What does an examination of internal control accomplish with respect to illegal acts?,Internal control analysis can result in the conclusion that IC is weak- but probably won't identify illegal acts
    • Engagement Planning,What is the purpose of adjusting audit procedures in light of fraud risk factors identified during an audit?,"Strives to make audit engagement procedures less patterned and predictable
  39. Re-evaluates management's application of accounting procedures
  40. Finds and assigns audit personnel with relevant skills in this area"
    Engagement Planning,What should be documented with respect to fraud risk factors in an audit?,"Any fraud risks identified that could lead to material misstatement
  41. Audit procedures performed to assess risks
  42. Nature of communication made to audit committee and company management
  43. Disclosure to third parties regarding fraud not normally the auditor's responsibility
  44. Fraud by management should normally be reported to the audit committee- NOT the SEC."
    Engagement Planning,What was the effect of the SOX Act of 2002?,"Created PCAOB
  45. Designates Officer responsibility for internal control
  46. Must disclose significant internal control weaknesses to auditor and audit committee
  47. Must disclose any level of fraud discovered by employees with internal control responsibilities"
    Engagement Planning,What is the Hierarchy of Authoritative Literature?,"1. Statements on Auditing Standards (SAS)
  48. 2. Auditing Interpretations- AICPA Guides & SOPs
  49. 3. Industry Articles (no authority)"
    Engagement Planning,What quality control activities are undertaken by CPA firms with audit practices?,"Firm Leadership exhibits quality and leads by example and sets the tone for the organization
  50. Firm should Monitor and document that its policies and procedures are being followed
  51. Firm should have Relevant Ethical Requirements
  52. Acceptance and continuance of client engagements should continue to be evaluated for client integrity- auditor competency- and legality
  53. Firm should have competent and ethical personnel
  54. Firm engagements are performed- supervised- and reviewed in accordance with professional standards and regulations."
    Engagement Planning,Which literature governs Compilation services?,"SSARS - Statements on Standards for Accounting and Review Services
  55. These govern reporting for non-public entities only"
    Engagement Planning,What is the independence requirement for Compilations?,"Independence NOT required for Compilations
  56. No Internal Control work allowed
  57. No assurance given"
    • Engagement Planning,What type of assurance is provided by a Compilation?,Compilations are not an assurance service. No assurance is provided.
    • Engagement Planning,What type of assurance is provided by Review services?,Reviews provide NEGATIVE assurance.
    • Engagement Planning,What is the independence requirement for a Review?,"Reviews require independence.
  58. No Internal Control work allowed
    • Performs analytical procedures
    • No material indirect financial interest allowed
    • No immaterial direct financial interest allowed"
    • Engagement Planning,For compilations and reviews- what knowledge must a service provider have?,Must have an understanding of the client industry.
    • Engagement Planning,What are attestation services?,"CPA expresses a conclusion about an assertion - Compliance with laws
  59. NOT considered a Consulting engagement
  60. Independence Required"
    • Engagement Planning,What is the independence requirement for consulting services?,Independence is not required for consulting services.
    • Engagement Planning,Describe the limitations on Prospective Financial Statements?,"Report is restricted to specified users.
  61. Agreed-upon procedures are implemented."
    • Engagement Planning,What is the role of the Group Engagement Team?,Develop Audit Strategy; Communicate with Component Auditors; Perform work on the Consolidation Process; Evaluate Audit Conclusions; Understand work of Component Auditors;
    • Engagement Planning,Who is on the Group Engagement Team?,Firm Partners; Group Engagement Partner; Audit Staff
    • Engagement Planning,Who establishes the Materiality threshold for the Component Auditor?,The Group Engagement Team; The Materiality threshold must be lower than the Group Materiality threshold
    • Engagement Planning,What is the Group Engagement Partner responsible for?,Group Audit Engagement Direction - Supervision - Performance and the Audit Report
    • Engagement Planning,What is the role of a Component Auditor,Audit a component of the entity
    • Engagement Planning,What should the Group Engagement Team do if a Component Auditor audits a Significant Component due to Financial Materiality?,Audit the Financial Information
    • Engagement Planning,What should the Group Engagement Team do if a Component Auditor audits a Significant Component due to Risk of Material Misstatement?,Perform Audit Procedures
    • Engagement Planning,What should the Group Engagement Team do if a Component Auditor audits a Non-Significant Component?,Analytical Procedures performed at Group Level
    • Engagement Planning,Why does an Auditor do if they suspect legal proceedings could contribute to a Material Misstagement?,Contact Client external counsel through a Letter of Inquiry