Audit Exam 1

Chapters - 1,2,12,A,B

Business Risk

The risk that an entity will fail its objectives

Information risk

The risk that the information coming from a company will be false + Misleading

Complexity Demand

simplifys the information for users

Remoteness Demand

Helps users when they are seperated from the organization, and cannot do it themselves

Time sensitivity Demand

Users need information before making decisions

Consequences Demand

Decision based off unreliable information can create financial and social cost

Conflicts of Interest demand

Mangement prepares the information that could affect their personal compensation and prospective employment

F/S audit

A process of obtaining and evaluating statements and assertions from mangement compared to a stated criteria to identify reasonable assurance that the F/S are free from material misstatement.

Assurance

A professional service intended to improve the quality of information for decision makers

Attestation

To report on a subject matter that is the responsibility of another party

Existence + Occurance

Is the recorded item or event real and attributable to the entity?

Rights and obligations

Does the entity own the asset or owe the obligation?

Completness

Is anything that should be recorded or disclosed missing?

Valuation and allowance

Are amounts measured, calculated, and allocated appropriately ?

Cutoff

Was the transaction recorded in the proper period?

Classification and Presentation

Is the information placed, described, and presented appropriately?

Professional Skepticism

Having an attitude that “includes a questioning mind and a critical assessment of evidence”

Professional judgement process

1.) clarify the issue + objective 2.) consider plausible alternatives 3.) gather and evaluate relevant evidence 4.) reach and conclusion + document rationale

Nonissuer auditing standards authority

AICPA → Statements on Auditing Standards (SAS)(AU-C)

U.S Issuer auditing standards authority

PCAOB → Auditing standards (AS)

Authority for nonissuers attestation engagements

AICPA → Standards for Attestation Engagements(SSAE) (AT-C)

Nonissuer Accounting and review services authority

AICPA - Standards for Accounting and Review Services (SARS) (AR-C)

unconditional requirement

The auditor is required to comply (“Must”, “shall”)

presumptively mandatory requirements

The auditor should comply unless a documented alternative achieves the requirement’s objective in the circumstances (“Should’)

Explantory or apllication material

The auditor considers the guidance and applies professional judgement (“may, might, could, consider”)

Suffciency

Is body of evidence persuasive enough to support the conclusion?

relevance

Does the evidence adress the assertion and purpose of the procedure

Reliability

Can the auditor depend on the information?

Unmodified opinion

Financial statements are presented fairly, in all material respects, under the applicable framework( no material departure)

Qualified opinion

A material matter exists, but it is not pervasive, or scope limitation is material and not pervasive (presented fairly, except for this part)

Adverse

A material and pervasive misstatement exists ( they are not fairly presented)

Disclaimer

the auditor cannot obtain sufficient appropriate evidence and the possible effects could be material and pervasive, or independence is impaired ( does not express an opinion)

Nonissuers auditors report elements

title and adressee, opinion, basis for opinion, mngt + auditor responsibility, signature, location, date

Title and adressee

Signals independence and identified the intended recipients (“Independent auditors report”)

Opinion

Identifies the statements and expresses the conclusion - appears first so users see the conclusion immediately

Basis for opinion

Identified GAAS, independence, ethical duties, and evidence basis → connects opinion to sufficent appropriate evidence.

Mangement resposibilities

Explains resposibilities for preparation, fair presentation, relevant, internal controls, and going concer evaluation

Auditors Responsibilities

Explains reasonable assurance, risk, materality, and the nature of an audit - reasonable assurance is high, not absolute

Materiality

Could this misstatement influence a reasonable users mind

Pervasive

How fundamentally the matter affects the statements

Group financial statements ( divsion of respobsibility)

Include more than one componets where different sets of auditors peform for each componet

Assume responsibility for the other auditors work

Unmodified opinion → do not refer to the auditors in the report

Do not take responsibility for the other auditor

Make reference to the other auditor, unmodified opinion.

Key audit matters section

When an auditor is engage to describe signfigant matters in the audit. Includes signfigant risk and required aignfigant audit team and mangenment judgement.

Emphasis of matter paragraph

A matter appropriatetly presented or disclosed in the financial statements that is fundamental to users’ understanding

Other matter paragraph

a matter relevant to users understanding of the audit, auditors responsibilities or report

Going concern section

substantial doubt about the entitys ability to continue as a going concern

special purpose framework

When F/S are reported with a different criteria other than GAAP

what to do with special purpose framework

name the framework and statements appropriately; refer to the note describing the basis + emphasis of matter section

Elements, accounts, items

User request might ask to express an opinion on a single financial statement, account, or items of F/S

what to do with element, accounts, or items

tailor responsibilities and the opinion to the audited subject

Contratual or regulartory compliance

a report on compliance with contractual agreements/ regulatory requirements with the audit

what to do with Contratual or regulartory compliance

other matters paragraph, users may be restricted

summary F/S

refer to the audited complete statements and report whether summary is consistent with them

association with unaduited statements

issue a short disclaimer, do not describe audit prodcedures

lack of independence

issue a prescribed short disclaimer stating the auditor is not independent