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Frequently Ask Question Audit Theory

frequently ask question audit theory

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asismaryjoyfundal
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21 views

Frequently Ask Question Audit Theory

frequently ask question audit theory

Uploaded by

asismaryjoyfundal
Copyright
© © All Rights Reserved
Available Formats
Download as PDF or read online on Scribd
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Fundamentals of Auditing *Agreed-upon procedures ~ report on factual frdings ‘Assertions management as to farness of FS ‘Assertions are farly stated ~ primary goal I attestation ‘Compilation ~ does not express opinion na assurance {Detection risk = corirolable by tre practioner ‘effectiveness and efficiency = rose ail criteria “Expasur period ‘Smarty cach per at {Governmental audit can be done evento vate ent ‘Governmental audit - extends to compliance Independence ~ improves ralasity of reports Uindependent audit ~lencs cedity to economic dota ‘independent director ~ retires exeauive (eter company) “internal auditing = encompasses inancal ana operational + Operational audit ~ waste reduction through control + professional fees ~not an element of assurance ‘Professional skeptilsm ~ nether honest or dishonest ‘program resutts audit ~establshed by leeletive bady + Scope ~ distnaulshes auditing, atestalon, and assurance {Subject matter = nature of assertion ("nana armen) 1 Subject matter information = outcome of evaliacan + Auditing standards - applied uniformly, procedures may vary ‘ Austor owes primary alg.ancs to SHG, crelars, nvestors ‘Compliance and indepencent avait are most sir types, 1 See mateiatyceationships 1 See reasonable vs med assurance Introduction to Auditing / Preliminary Engagement ‘Auate plan ~ leas aly corsidarad in pra-engagamen® “Auaitablity ~ adequacy of documentation * Classiticaion = not in account balances ssseton + Gutort = not n account balances assertion ‘Engagement letter ~responsiives of audt and clent ‘Existence = olin presentlion an ssesure assertion {Gross sales required tobe austed by CPas,exceces 26 "Short ter and Tong term cont may exist between autor and the management throughout te engagement + Soe relirements for an aut by @ CPA 1 See cases of assertions ‘Audit Planning / Risk Assessment Annualized interim ~ best for preliminary materiiy ‘Audie planning memorandum = summarze overal dt Stategles [aocumentatlon of srateles] + Gor. governance = not encompessed by understanding ‘Expenses ~ benchmark of materay fr start-up en ‘Forecast of yearend FS or praimivary ataralty "Fraud required to be explctty assed ‘inventory = tow level of telention (herent risk) ‘gen of eversight ~ rsk at & lval (Sorvasive) ‘ Matertality at planning level ~ may ve csazaregated into 1 Three-way matching ~ not considered n risk assessment Auge plan may be modvied ToC # inl assessment {Glen should Rot have understanding ot the nature of work to be performed by an expert (work of oters) * chenes excunsive use of NRand NP, not a red lag fr nik ‘Management domination of operating and francing decisions snot considered ss ava sk actor ‘management dregara of responsi ~ CPA not accept ‘ Reducton of retared earnings caused by large aizend avout ent an traf rail are (goed in) "Seo outputs of auc planning 1 See risk, mately, NTE rolatlonship tables Internal Control AIS consists of people, Inastrucure and software {Control environment ~ most important, foundation {Design deffetency = contr is missing / pt ormleed * Operating deficiency ~ not operating as intendes + Detection rlsk = not a control environment factor "Every third audit = operating effectiveness of contols {Flowchart ~ sisi depiction, diagrammatic representation ‘key control absence ~ no: 3 concer I there alternative “Matoring are sasrateevahton (ot evry) 1 Safeguarding ~ protecton trom loss tra unauthorzea use * Segregation of duties ~ tssted thr uty & observation 1Significont risk ~ requires special aud consderation ‘ Top-to-Down Approach ~ cone in understanding the 1C ‘Budgets, forecast, entiving variances om expect could improve managements ably to supervise Substantive tasting [Evidence] ‘Appropriateness ~ bath valid and relevant {Blank postive confirmation = i Cis at maximum ‘Glaser to year-end ~ evidence s mora persuasive “Competent evidence ~ relevant, objective frae-trom-blas {Confirming major segments ~ no» procssure ‘Disaggregation ~ increases relablty of expectations {Ending balances - audted thy TeBtAnalyeeal Procedures ‘ Facsimiles ~ more reliable than photocopies ‘income statement accounts ~ mos: preictable for AP “inguiy atone” doe et pode aero 8 sue evince ‘Letter of aude Ingury ~ 3 caroberating evidence “Prior year data "lsat ateciven vertvog completeness “Procedures at year-end ~ decreases misstatements * Recafeulation ~ most effecive an rele, least coaly {Sample size ~ n/a to substantve analytics, only te ToD {SEC reporting "no effec in te mount of avaence {Small volume, small amounts ~ best Use negative form 1 Substantive analytics ~ not requlre, Bat sll ralable ‘Test of balance ~ most cost, bacause ST's costly ‘Testing authorization ~ use (st of balances * Unreturned negative request ~ arly provides evidence ‘Comanses [1] towards assertons, [2] coreborating (other) “rtesm agaist observation ~ autor isnot auaied “Evidence is more persuasive stained: ‘Evidence is obtained throughout the au ‘inter basis for income statement accounts Near or at year-ene for balance sheet secounts 1 See difference oftestof balances vs transactions {See evence concepts 1 See vouching ana cing ustration Substantive Testing [Audit Sampling) 100% examination ~ Used = CATs (compute automates) ‘Anomatous error nota ropresontabve ‘Aterbute sampling ~ EDR of 354 < TOR of 3% “Attribute sampling ~ employee ime cards for approval {Block selection ~ leas desrable * Dual purpase ~ larger sze designe fortwo purposes “Incorrect acceptance ~ elses to effeiveness Uneorrect rejection = aficency {Mody CR = SOR exceeds tolerable rate (6% 4296) vs 7% {population size = ile or na eect on sample sa TippS ~ auctor controls sk of incorrect acceptance + Projecting an error rate - not an snalytica procedvre ‘ Quaneieaeive evatvation ~ advantage of stbszcal to nonst “Ratio anata Yor NON PUBLIC ens reasons ‘Regression Analysis: most common salsa technique {Sequential sampling ~ does not usa faze samele 525 1 Syatematie sampling ~ bos: Terms are not pronumoered 1 Systematic sampling ~cestoys samale randomness {Value-weighted ~ completeness fr small amounts 1 Value-welghted ~ existence/occurence for frge amounts { Vartable sampling ~ numeral measurement, peso value “notsmaing mamodarequved

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