audit final

what is the equation for AR turnoversales/avg arDoes the level of RRM influence materialitynoDoes materiality influence the amount of evidence neededyesDetection risk consists of whatsampling and non sampling riskAudit evidence needs to be what two thingssufficient and appropriateto test a control, the auditor must believe it iswell designed, implemented well, and operating wellThe difference between using a substantive or reliant strategy influences effectiveness or efficiencyeffiencyIf controls are found to be ineffective, then what happens to detection riskdetection risk will be lowered because control risk will increasean auditor will use specific language to do whatlimit responsibilitywhat causes no sampling risk to existthe auditor might pick the wrong procedure, apply it wrong, or make an incorrect conclusionwho does materiality depend onthe end userare contingent liabilities a major audit issuesyesis evidence ever disclosednowhat is business riskthe factors that could prevent or hinder the achievement of the corporations goalswhat is control riskthe risk that a misstatement due to error or fraud that could occur in an assertion and that could be material, individually or in combination with other misstatements, will not be prevented or detected on a timely basis by the company's internal control.what is detection riskthe risk that the procedures performed by the auditor will not detect a misstatement that exists and that could be material, individually or in combination with other misstatements.how does the auditor assess inherent riskThe auditor assesses inherent risk using information obtained from performing risk assessment procedures and considering the characteristics of the accounts and disclosures in the financial statementswhat is control risk a function ofthe effectiveness of the design and operation of internal control.what is detection risk a function of(1) the effectiveness of the substantive procedures and (2) their application by the auditor, i.e., whether the procedures were performed with due professional care.are inventory counts an audit procedure or internal controlinternal control - observation of the inventory count would be an audit procedurewhat accounts raise concerns about rights and obligationsconsignment goods leasescompleteness is related to which testtracingexistence is related to which testvouchingwhat procedures are used to test controlsInquiry, inspection, observation, walk through, reperformanceCan confirmations test internal controlsno, they are externalDoes the timing on an audit appointment affect the quality of the auditnoMonetary unit sampling is more likely to detect an overstatement or understatementoverstatementwhat does 0% audit risk meanthat there is no risk which is providing absolute assuranceauditors responsibility for direct illegal activityThe auditor's responsibility to detect and report misstatements resulting from illegal acts having a direct and material effect on the determination of financial statement amounts is the same as that for misstatements caused by error or fraudauditors responsibility for indirect illegal activityAn auditor ordinarily does not have sufficient basis for recognizing possible violations of such laws and regulations (indirect). Even when violations of such laws and regulations can have consequences material to the financial statements, the auditor may not become aware of the existence of the illegal act unless he is informed by the client, or there is evidence of a governmental agency investigation or enforcement proceeding in the records, documents, or other information normally inspected in an audit of financial statements.what is indirect illegal activitywhen a client breaks the laws and regulations that relate more to an entity's operating aspects than to its financial and accounting aspects, and their financial statementsCOSO frame workCRIME control environment risk assessment information and communication monitoring activities existing control activitiesat what level of control risk would you not test controlswhen it is set at maximumoverreliance on controls is a lack ofeffectivenessunderreliance on controls is a lack ofefficiencyan auditor can conclude that a control is operating effectively ifif the application and execution of the control is well done whether the control is operating as designed and whether the person performing the control possesses the necessary authority and competence to perform the control effectivelywhat is the auditors primary responsibilitythe opinionif the auditor is issuing an adverse opinion what must they do in the audit reportadd paragraph talking about why they did not issue an unmodified opinionwhat audit matters are professional judgementsufficient and appropriate evidence RRM DR NET of procedureswhat are the required substantive procedures- confirmations -what are the procedures done to determine if a control is operating effectivelya mix of inquiry of appropriate personnel, observation of the company's operations, inspection of relevant documentation, and re-performance of the control.an auditor can conclude that a control is designed effectively ifif they are operated as prescribed by persons possessing the necessary authority and competence to perform the control effectively, satisfy the company's control objectives and can effectively prevent or detect error or fraud that could result in material misstatements in the financial statements.what are the procedures done to determine if a control is designed effectivelya mix of inquiry of appropriate personnel, observation of the company's operations, and inspection of relevant documentation. Walkthroughs that include these procedures ordinarily are sufficient to evaluate design effectivenesswhat does detection risk not determinenature extent and timing of procedurestype I subsequent eventan event that existed at YE but now has more claritytype II subsequent eventCondition that did not exist at the b/s datewhat do you do for a type I subsequent eventdisclose and adjustwhat do you do for a type II subsequent eventrequires disclosurewho provides corroborating evidence about litigationexternal legal councilwhat part of a scope limitation determines whether the auditor will issue a qualified opinion or disclaimthe pervasivenesswhat is the primary procedure for testing segregation of dutiesobservationwhen is the earliest an auditors report can be datedwhen they have sufficient and appropriate evidencewhat document would prove that a sale existedshipping documentswhat documents would prove that A/P existedvendor invoice receiving reportrelated parties are what kind of issuedisclosurewhen can inherent risk and control risk be assessedafter the auditor has identified what assertions are going to be testedhow can an auditor verify the completeness of A/Pconfirming with the vendors that the auditor has previously done business withcan you quantify risk with non-statistical samplingnoIf expected deviation rate is greater than the tolerable deviation rate then what risk occursunderrelianceif expected deviation rate is less than the tolerable deviation rate then what risk occursoverrelianceIf computed upper deviation rate > tolerable deviation ratecannot relywhat is irrelevant to independencematerialitywhat must an auditor do if their independence is compromiseddisclaimwhat are the prohibited non audit servicesBookkeeping Financial information systems design and implementation Appraisal or valuation services, fairness opinions, or contribution-in-kind reports Actuarial services Internal audit outsourcing services Management functions or human resources Broker-dealer, investment adviser, or investment banking services Legal services and expert services unrelated to the auditcan audits be done based on contingent feesnoblind trusts and mutual funds from independence perspectiveblind trusts do not allow you to see where you are investing your money so independence is not violatedwhen can you have a bank account with your clientAs a covered member, you may have a bank account with a client bank or similar depository institution (for example, checking, savings, money market accounts and certificates of deposit) if your deposits are fully insured by state or federal deposit insurance agencies or if uninsured amounts are not material to your net worth.who are covered audit membersan individual on an attest engagement team, an individual in a position to influence an engagement team, a partner or manager who provides 10 or more hours of nonattest services to an attest client per year, a partner in the office in which the lead attest engagement partner practices in connection with an attest engagement, and the audit firm.what are the 7 threats to independence1. self-interest - financial interest in client 2. self-review - auditing financial statement you prepared 3. advocacy threat - auditor is involved in promoting the client 4. familiarity threat - auditor personally to close to members of the client 5. Intimidation threat - auditor is intimidated by management or directors 6. ex - staff or partner threat - employee leaves the company and becomes and auditor and takes that company as a client 7. advising threat - auditing a client and also providing financial advise to themlappingThis is done by diverting a payment from one customer, and then hiding the theft by diverting cash from another customer to offset the receivable from the first customer (look at A/R)kitingoccurs when funds are stolen from the company and, to cover this theft, the employee transfers money from one bank account to another account right before year-end (look at bank statements)if a misstatement or scope limitation is material but not pervasive then what opinion do you issuequalifedif a misstatement or scope limitation is material and pervasive what opinion do you issueadverse - material misstatement disclaimer - scope limitationwhat would an increase or decrease in the aging categories of A/R aging indicateIncrease: evidence of lapping scheme Decrease: not necessarily problema decrease of inventory indicatesexistence of obsolete merchandisewhat are the elements of the fraud triangleOpportunity Incentive (pressure) rationalizationrelevanceThe relevance of audit evidence refers to its relationship to the assertion or to the objective of the control being testedreliabilityrequires that the accounts be free from material misstatement and bias, and that they can be depended upon by users to represent faithfully that which they claim to represent or could reasonably be expected to represent.sufficencythe measure of the quantity of audit evidenceappropriatenessthe measure of the quality of audit evidence, i.e., its relevance and reliability. To be appropriate, audit evidence must be both relevant and reliable in providing support for the conclusions on which the auditor's opinion is based.how does the audit risk model affect NETThe audit risk model allows the auditor to identify areas that may need more or less testing based on their risk.how does the increase of sampling or non-sampling risk affect DRAn increase in either sampling risk or nonsampling risk will likely increase detection risk since there is a larger probability of the auditor not catching all material misstatementshow do you evaluate audit evidence qualityprofessional judgementmateriality affects whatrisk evidenceWhat are the major components of Principles Underlying an Audit Conducted in Accordance with GAAS ?responsibility performance reportingresponsibilities principalAuditors are responsible for having the appropriate competence and capabilities to perform the audit, should comply with ethical requirements, and maintain professional skepticism throughout the audit.performance principal4. The auditor needs to obtain reasonable assurance as to whether the financial statements are free from material misstatement. 5. Obtaining reasonable assurance requires the auditor to plan and supervise the work, determine materiality levels, identify risks of material misstatement, and design and implement appropriate audit responses to the assessed risks. 6. An audit has inherent limitations such that the auditor is not able to obtain absolute assurance about whether the financial statements are free from misstatement.reporting principal.The auditor expresses an opinion as to whether the financial statements are free ofmaterial misstatement or states that an opinion cannot be expressedpurpose of an auditThe purpose of an audit is to enhance the degree of confidence that users can place in the financial statement. This purpose is achieved when an auditor expresses an opinion on the financial statementspremise on which an audit is conductedAn audit is based on the premise that management has responsibility to prepare the financial statements, maintain internal control over financial reporting, and provide the auditor with relevant information and access to personnel.when should payment for litigation be recognized in the financial statementsThe lawsuit began during or before the year being audited (Type 1 subsequent event) The amount of the lawsuit is reasonably estimable There is reasonable belief the client will lose the casewhen should litigation payments be disclosed in the financial statementsLawsuit began during the subsequent events period, and there was no evidence of the case existing before the balance sheet date (Type 2 subsequent event) There is reasonable belief the client will lose the case The amount cannot be reasonably estimablehow does the auditor get coverage of litigationInquiry letter to client's legal counseldoes CAM come before or after emphasis of matterbeforewhere does the auditors report mention GAAPmanagement responsibilitieswhere does the auditors report mention GAASauditors responsibilityHow would an auditor verify the completeness of rent payable/loan payable/ap?look at past vendors with balance of 0 and confirm that the balance is 0 look at vendor invoicesWhat is the auditor's responsibility for internal controls for a public company? How is this different than a private/non-public/non-issuer?In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. in private you should have some understanding of the internal controlsHow do costs influence the auditors decision to perform or not perform a procedure?it cannot soley influenceWhat is the auditor's responsibility for omitted procedures?make sure that another procedure was performed that was sufficientWhat fees must be disclosed?none