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Studying for ACC 411 Exam
Terms in this set (36)
analytical procedures used in planning an audit should focus on identifying
areas that may represent specific risks relevant to the audit
Things included in the auditor's engagement letter:
- overview of the objectives of the audit
- statement that management is responsible for the financial statements
- description of the level of assurance obtained when conducting the audit
NOT: details about the preliminary audit strategy
a successor would most likely make specific inquiries of the predecessor regarding
disagreements with management as to auditing procedures, communication to management and those charged with governance regarding significant deficiencies in internal control
they do not help with specialized accounting principles of the client's industry, the competency of the client's internal audit staff, or the uncertainty inherent in a applying sampling procedures.
procedures that a CPA would likely perform during the planning stage
determine timing of testing, take tour of client's facilities, determine the effect of info technology on the audit, determine areas where there is higher risk of material misstatement
NOT: inquiries of outside legal counsel regarding pending litigation, evaluate the reasonableness of management's allowance for doubtful accounts, evaluate the significance of uncorrected misstatements, confirm a sample of accounts receivable
what is the statement that describes why a properly designed and executed audit may not detect a material misstatement in the financial statement from fraud
audit procedures that are effective for detecting unintentional misstatements may be ineffective for an intentional misstatement that is concealed through Fraud
the risk that an auditor will conclude based on substantive tests that a material error does not exist in an account balance, when, in fact, such error does exist is referred to as:
what is the auditor's responsibility for detecting fraud?
an auditor should design the audit to provide reasonable assurance of detecting errors and fraud that are material to the financial statements
when fraud risk factors are identified during an audit, the auditor's documentation should include:
the risk factors identified and their response to the risk factors
Things that may suggest that management has override internal controls
there are numerous delays in preparing timely internal financial statements, management does not correct internal weaknesses that they know about, there have been two new controllers this year
Not an indication: differences are always disclosed on a computer exception report
what is something that would most likely cause an auditor to suspect that there are material misstatements in an entity's financial statements?
the auditor identifies an inappropriate valuation method that is widely applied by the entity
NOT: monthly bank reconciliations ordinarily include several outstanding checks, or if management outsources the internal audit function to another CPA firm
what would be inherent limitations of the potential effectiveness of an entity's internal control structure?
mistakes in judgement, management override, collusion among employees
NOT: incompatible duties which means tasks that can't be done by one person
actions, policies, and procedures that reflect the overall attitude of management, directors, and owners of the entity about internal control relate to which of the following internal control components?
categories of IT general controls
controls that restrict system wide access to programs and data, controls that oversee the acquisition of application software, controls that oversee the day to day operations of IT applications
NOT: controls that determine whether a vendor number matches the preapproved vendors in the vendor master file
the company has an organizational chart that establishes the formal lines of reporting and authorization protocols
before a cash disbursement can be processed, all payee info must be verified by matching the payee to the company's approved vendor listing
the company's computer system track individual transactions and automatically accumulate transactions to create a trial balance
information and communication
on a monthy basis, department heads compare budget to actual performance report and investigate unusual differences
the company must receive university transcripts documenting all college degrees earned befor an individual can begin employment with the company
senior management obtains data about external events that might effect the entity and evaluates the impact of that information on its existing accounting processes
the system automatically reconciles the detailed accounts receivable subsidiary ledger to the accounts receivable general ledger account on a daily basis
info and communication
the company has developed detailed accounting policy and procedures manuals to provide detailed instructions to employees about how controls are to be performed
the compensation committee reviews compensations plans for seniors executives to determine whether those plans create unintended pressures that might lead to distordted financial statements
an internal control deficiency may be defined as a condition in which material misstatement would ordinarily. not be detected by___
employees in normal course of business
examples of operation deficiency in internal control
clerks who conduct monthly reconciliation of intracompany accounts do not understand the nature of misstatements that could occur in those accounts
a material weakness in internal control represents a control deficiency that
results in a reasonable possibility that internal control will not prevent or detect material financial statement misstatements
an auditor uses assessed control risk to
determine the acceptable level of detection risk for financial statement assertions
the ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of th
risk that material misstatement exists in the financial statements
an auditor will use the test data approach to obtain certain assurances with respect to the
procedures contained within the program
an auditor's decision either to apply analytical procedures as a substantive test or to perform substantive tests of transactions and accounts balances usually is determined by
relative effectiveness and efficiency of the tests
The auditor faces a risk that the audit will not detect material misstatements in the financial statements. In regard to minimizing this risk, the auditor primarily relies on:
A) Substantive procedures.
B) Tests of controls.
C) Internal control.
D) Statistical analysis.
A conceptually logical approach to the auditor's evaluation of internal control
consists of the following four steps:
One: Considering the types of errors and fraud that can occur.
Two: Determining the internal controls that should prevent or detect errors and fraud.
Three: Determining whether the necessary internal control procedures are prescribed and being followed satisfactory
Four: Identifying control deficiencies to determine their effect on the nature, timing, or extent of auditing procedures to be applied and suggestions to be made to the client
To support the auditor's initial assessment of control risk below maximum, the auditor performs procedures to determine that internal controls are operating effectively. Which of the following audit procedures is the auditor performing?
tests of controls
the primary objective of performing tests of controls is to obtain
a reasonable degree of assurance that the client's internal controls are operating effectively on a consistent basis throughout the year
tests of controls are most likely to be omitted when
the understanding of internal control indicates that evaluating the control policies and procedures is likely to be in-efficient
substantive analytical procedures are most likely to be used to test
what is the auditor likely to consider when developing the overall audit strategy?
complexity of the company's operations, preliminary judgement about materiality, the economic conditions affecting the industry in which the company operates
NOT: evaluation of accounts receivables confirmations
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