Acct 4200--Wilson Exam #1 Short Answers

Terms in this set (15)

General:

Adequate technical training & Proficiency-- formal education, continuing education programs.

Independence- maintain an attitude of independence. An auditor must not only be independent but also avoid relationships/actions that may appear to affect independence.

Due professional care- means that the auditor plans and performs their duties with the skill and care that is commonly expected of accounting professionals.

Standards of Field Work:

Adequate Planning & Supervised Assistants-- Proper planning leads to a more effective audit that is more likely to detect material misstatements. Standard also requires that assistants on engagements be properly supervised.

Obtain Sufficient Understanding of Internal Controls-- required understanding of internal controls to effectively plan the nature, timing, and extent of future audit procedures.

Obtain Sufficient Appropriate Evidential Matter-- enough credible evidence must be collected to afford a reasonable basis for an opinion regarding the financial statement under audit.

Standards of Reporting:

GAAP--report shall state whether financials are reported according to GAAP.

Consistency-- report shall identify those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period.

Disclosures-- disclosures on financials regarded as reasonably accurate unless otherwise stated in the report.
Opinion-- report shall contain an expression of opinion. If opinion is not possible, the report should state the reasons why. Also needs to say the degree of responsibility the auditor is taking and the character of the auditor's work.
1.Assess business risks: understand the entity's business and transactions and identify financial statement accounts likely to contain errors. By doing this, the auditor can allocate more resources to investigate more risky accounts. ex: bar. understand the industry to know what accounts to test more. maybe test cash mainly because of possible theft.

2.Establish materiality: establish tolerable misstatement for accounts AND disclosures. ex: the bar could have higher risk for cash account and therefore lower materiality and higher sampling size.

3.Consider multilocations: The auditor correlates the amount of audit attention devoted to the location or business unit with the level of risk present. ex: chain of bars, the bar that is the highest risk will have a higher level of audit attention than a lower risk bar.


4.**Assess the need for specialists: *sometimes an audit might require the need for a specialist to make sure that the auditor obtains reasonable assurance in an audit. Ex: the use of an IT specialist in the case of the presence of complex information technology. Another ex: client is a jeweler and need a professional to value the diamonds correctly.

5.***Consider violations of laws and regulations: Direct and Material: consider laws and regulations as part of the audit. Material and Indirect: be aware of what may have occurred, investigate if brought to attention. ex: tax laws and regulations that may affect the amount of revenue recognized under a government contract in a material way.

6.***Identify related parties: all transactions must occur an "arm's length" or be disclosed if a related party transaction occurred. Auditor needs to inquire of management about the names of related parties, nature of the relationships, and the types of transactions and reasons for them. How to identify: review board minutes, review conflict of interest statements, contracts, review significant unusual transactions, etc. Ex: transactions with immediate families of the principal owners and management need to be identified and investigated.

7.***Consider additional value-added services: Auditors who audit public companies are limited in the types of consulting services that they can offer their auditees. But, as part of the planning process, the auditor should look for opportunities to recommend additional value-added services. Ex: tax planning, system design and integration, risk assessment, benchmarking, etc.

8. ***Document the overall audit strategy, audit plan, and prepare audit programs: this involves documenting the decisions about nature, timing, and extent of the audit tests. At this stage, auditor compiles their knowledge about the entity's business objectives, strategies, and related business and audit risks and records how the entity is managing these risks and documents the effect these risks and internal controls have on the planned audit procedures. The auditor's preliminary decision concerning control risk determines the level of control testing, which in turn affects the auditor's substantive tests of the account balances and transactions. EX; documentation of all risks and overall effect on the audit plan.
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