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ACCT 4631-Audit Final
Terms in this set (75)
to add value and improve an organization's operations
Internal Audit is:
an independent, objective assurance and consulting activity designed to add value and improve and organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to value and improve the effectiveness of risk management, control, and governance processes.
no impairments to objectivity
assess evidence and provide opinion
provide advice and other assistance
External-Private Company (Standards)
Generally Accepted Auditing Standards (GAAS)
External-Public Company (Standards)
Public Company Accounting Oversight Board Standards (PCAOB)
International Standards on Auditing (ISA)
International Professional Practices Framework (IA Standards)
Internal-Employer (Issuing Body)
Institute of Internal Auditors (IIA)
Generally Accepted Government Auditing Standards (GAGAS)
1100 Independence and Objectivity (Independence)
free threats to my objectivity, independent in fact and appearance
1200 Proficiency and Due Care
Training, Experience (CPA, CMA, CPE, CIA), Education / Internal Auditors NOT locked into 40 hrs of CPE for CPAs.
1000 Purpose, Authority and Responsibility
key business objectives, risk taking philosophy
BOD, Senior Management
BOD (Board of Directors)
establishing strategic objectives, oversees the results, focuses on key stakeholders.
Senior Management (overall responsiblity)
risk management, internal controls
Understanding boards expectations
Identify internal processes and activities
Evaluate risk tolerance to delegate
Ensure information is gathered to report to board
CEO/CFO (Sarbanes Oxley impact)
required to certify financial statement, attest to effectiveness of internal controls over financial reporting
Audit Committee (Sarbanes Oxley impact)
must be independent of management and must have at least 1 financial expert
External Auditors (Sarbanes Oxley impact)
no longer self regulated, established PCAOB to regulate external auditors, partner in charge of engagement must rotate ever 5 years, non-attestation services must be approved by board and fees disclosed.
Committee of Sponsoring Organizations of the Treadway Commission
Internal Environment (COSO)
basis for all other components, includes people, attitudes and environment
Objective Setting (COSO)
link risks to goals of organization
Event Identification (COSO)
includes both external and internal events
Risk Assessment (COSO)
considers both impact (size) and likelihood (probability)
Risk Response (COSO)
Avoid-get ride of complexity
Reduce- implementing internal controls
Share-outsourcing, hedging, take on insurance
Other components of COSO
Control Activities, Information and Communication
monitor results, assess effectiveness of ERM
Audit Risk Model
AR= IR x CR x DR
IR stands for:
CR stands for:
DR stands for:
Inherent Risk is:
risk naturally occurring: account, transactions
Audit Risk is:
risk that a material misstatement is undiscovered after audit is completed.
Detection Risk is:
risk that the auditor will NOT detect the risky event
Control Risk is:
probability that internal controls will fail to prevent or detect the risky event.
Evaluate Business Risks (identify risks)
Brainstorming Session, Generic Risks
generates high quality ideas, promotes thinking "outside the box", incorporates multiple perspectives
Evaluate Business Risks (components)
Identify risks, assess impact and likelihood and map risks
Assess impact and likelihood when:
after business risks have been identified
3 concepts of Internal Control
Responsibilities, Reasonable Assurance, and Inherent Limitations
look at the number of people within an organization, BOD and CEO, internal/external auditors, shareholders.
not absolute assurance, but risk have been reduced to remote likelihood.
cost/benefit limitations, user error and collusion of 2 or more people, incompatible duties
Potential Findings include:
Control deficiency, Significant Deficiency, and Material Weakness
deficiency in controls so that there is more than a remote chance that they do not prevent or deduct misstatements.
one or more control deficiencies that result in more than remote likelihood that a misstatement that is more than inconsequential will NOT be prevented or detected.
one or more control deficiencies that result in more than remote likelihood that a material misstatement will NOT be prevented or detected.
Management Assertions consists of:
Completeness, Existence/Occurence, Valuation, Rights and Obligations, Presentations/Disclosures, and Cutoff
all transactions, all B/S items and all disclosures reported
a transaction has occurred, B/S items exist
asset, liability, equity, revenue, and expense components have been included in the F.S. at appropriate amounts.
Rights and Obligations
company has the rights and obligations of items disclosed.
Presentations and Disclosures
components of the F.S. are properly classified, described and disclosed.
all transactions, all B/S items, and all disclosures are recorded
Nature of Evidence includes:
Sufficiency and Appropriateness
Quantity- relates to number of procedures and sample sizes
Quality- relates to degree of relevance and reliability
strength of the link between evidence and the management assertion, pertains to audit objectives of the evidence
source's independence and competence, as well as quality of internal control and closeness to events
Types of Audit Documents
Audit plan, Audit program, trial balance, adjusting entries, and supporting schedules
prepared during planning-outlines strategy for the audit, includes an understanding of the client, risks, and establish a budget
procedures to be performed, can also serve as checklist as procedures are performed.
Working trial balance
list of general ledger accounts with their amounts
account analysis, audit memos, outside documentation, etc.
Positive, Negative and Blank
request response whether info is correct or incorrect
request response only if information is incorrect
ask respondents to fill in the amount-MOST persuasive, best method.
seperation of duties
record keeping, custody, authorization
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