Audit A1-A4

Audit strategy

high level, including preliminary assessment of M, scope, and reporting objectives

bank confirmation contains:

info about accounts and also contingent liab stuff (like loans and collateral)

Audit plan

detailed nature, extent, and timing of audit

Max number of days in which a NONISSUER / ISSUER should complete the final audit file after the report release date

60d for non, 14d for issuer

Audit firms should retain audit docs for X years for issuers, Y years for nonissuers

X=7, Y=5

An audit firm should get written confirmation from its employees of their compliance with policies and procedures on independence at least once every:

year

T or F: The audit report should NOT be issued until the quality review has been finished

true

T or F: contact with PY auditor BEFORE accepting the engagement is MANDATORY, and client permission is REQUIRED

true

If group auditor does NOT want to take responsibility for the component auditor, which section is modified?

opinion

When auditing financials under a special purpose framework, the auditor MUST:

ID the framework in the report; incl. an EoM referencing the FS note that describes the framework; ensure the FS incl. adequate disclosures about the framework

Other Info

info outside FS, BUT incl. in docs containing audited financials (i.e. MD&A)

Supplementary Info

Info outside basic FS BUT req’d by a standard to accompany the FS (i.e. pension disclosures)

Name of CEO & CFO

Other info

Events occurring between YE and the end of fieldwork:

subsequent events

Events occurring between the end of fieldwork and the report release date:

subsequently discovered facts known BEFORE the release date

Events occurring after the report release date:

subsequently discovered facts known AFTER the release date

EoM paragraph heading:

Can use “Emphasis of a Matter” or any other appropriate heading

fraud triangle

incentives / pressure, opportunities, attitudes / rationalizations

risk equation

AR=IR*CR*DR

Internal Auditor work can impact:

Understanding and testing of IC, Risk assessment procedures, substantive procedures

You can rely on the work of internal auditors IF IT IS:

low subjectivity, low risk, and not super material

REAL MICE (for quality management)

R - resources

E - engagement performance

A - firm’s risk Assessment process

L - Leadership & governance
M - Monitoring & remediation process

I - Info & comms

C - acceptance & Continuance of client relationships

E - Ethical reqs

extra columns included on a working trial balance contain:

adjustments & reclassifications

“audit was performed in accordance with GAAS” is in WHICH paragraph?

Auditor’s responsibility

T or F: EoM for a special purpose framework describes the framework

F; it references the FS note that describes the framework

tentatively complete (contingencies)

still technically a pending lawsuit that must be disclosed and maybe accrued

if last word from the lawyers was BEFORE the report release date:

get an updated legal response

if last word from the lawyers was AFTER the report release date:

update the report date (if needed, might not be required)

likelihood of an unfavorable outcome is unable to be determined at the moment:

treated as ‘reasonably possible’ so it is disclosed

T or F: if insurance is paying for the settlement in a lawsuit, you don’t have to accrue the amount

F, you still must record that amount

Nonissuer has an adequately disclosed going concern issue that has NOT been alleviated:

report includes a paragraph called “Substantial doubt about the entity’s ability to continue as a going concern”, NOT EOM

T or F: the adequacy of going concern disclosures should NOT be commed to the audit committee

F, it should be commed

auditor wants to issue a qualified opinion but mgmt thinks the matter is immaterial and doesnt want you to issue it, what do you do?

withdraw and notify TCWG in writing

T or F: if a RPT is made at FMV, it still increases the risk of MM if it is complex / outside of the normal scope of business

T

lagging indicators

prime rate charged by banks, bank loans outstanding, avg length of time of unemployment

how to ID related party transactions:

review mgmt process & controls, review minutes, inquiry

type 1 subsequent event

condition existed AT balance sheet date, adjustment required

type 2 subsequent event

condition existed after BS date, disclosure required

PCAOB standards include

Existence / occurrence (incl. cutoff)

Completeness (incl. cutoff)

Valuation & allocation

Rights & obligations

P&D

SS for variable sampling

n = ((z value for desired * estimated SD) / tolerable misstatement )²

mean per unit

estimated total = average unit value * population size

ratio estimation

estimated total = (audited sample total / rec’d sample total) * total recorded amount

difference estimation

estimated total = rec’d total - (diff per unit * N)

upper misstatement level

UML = sample misstatement + ASR

Interval for PPS

tolerable misstatement / reliability factor

PPS SS

total amount of pop / sampling interval

tainting

dif / rec’d amount

standard error

SD / sqrt(ss)

increase in the risk of inc. acceptance

this means that the auditor is willing to tolerate MORE risk, thus lower SS is allowed

calculating SS when stratifying

1) group up the big numbers, each one is one part of a sample

2) sum the small ones and divide by the interval to get the rest of the sample

attribute sampling

ToC

variable sampling

testing monetary amounts, like subst. tests

If data comes from a service org:

SOC 1 report

SOC 1 report

provides assurance on SO’s controls

flowcharts

inputs at the top, outputs at the bottom. inputs = sales invoices, remittance advices, etc), outputs = error reports, etc

credit authorization forms

NOT part of transaction file, they are used to approve credit before the transaction

voucher package

incl. PO, receiving report, vendor invoice, SOMETIMES purchase requisition

kiting

look for receipts rec’d per books BEFORE YE and disbursements rec’d AFTER YE

bill of lading

document prepared by whoever is the one doing the shipping of goods, has stuff like date shipped and amount, etc

voucher package

prepped by accounts payable, incl. PO, receiving report, vendor invoice, sometimes purchase req

flowchart of documents for purchasing

PO, RR, vendor invoice, pmt

For an investment to qualify for hedge treatment (per gaap), does the auditor need to examine the contracts for risk exposure?

YES. this is a req’d disclosure if something is going to be treated as a hedge, so the auditor has to inspect it

by when should the auditor comm sig defs and MWs to mgmt and TCWG?

FS audit: within 60d following the release of the report

Integrated audit: by the report release date

Perpetual inventory system

DR: AR/Cash + COGS

CR: Sales Rev + Inv

Purchases: Dr Inv, Cr AP/Cash

Periodic inventory system

DR: AR/Cash, CR Sales Rev

Purchases: Dr Purchases, Cr AP/Cash

YE Adj:

DR: Inv (ending bal) + COGS

CR: Purchases (total during period) + inventory (beg bal)

If the auditor doesnt detect any SDs or MWs, do they still comm that to tcwg?

YES for FS audit, NO for integrated audit

T or F: comms regarding IC deficiencies are NOT restricted use

F. They are only for mgmt + tcwg

T or F: AICPA reqs that auditors inform mgmt+tcwg that the auditors comms dont relieve mgmt+tcwg from their responsibilities

T

what is req’d in the planning stage with regard to IC?

understand design, determining implementation, and documenting understanding

pro forma

a hypothetical scenario / transaction

What controls do you test for a company with multiple business units?

only test controls over SPECIFIC RISKS for business units that are material to the consolidated FS

In the absence of MWs or SDs, do you communicate them?

Generally no

Report on ICFR incl.:

ID the framework (i.e. COSO)

Describe scope of audit

state opinion on effectiveness of ICFR

Comm reqs for audit of ICFR:

mgmt fraud

illegal acts that could have a M effect

Significant audit adjustments

disagreements with mgmt

T or F: Mgmt may choose to incl their own written report alongside the CPA’s in an attest engagement where the auditor is supposed to attest to mgmt’s improvements in IC

F, they MUST incl their own written report

title for the report of an integrated audit:

“Report of independent registered public accounting firm”

Attest engagements

Examination (pos assurance)

Review (limited assurance)

AUPs (no assurance, just facts)

Prospective FS (forecast / projection, can have assurance if it is something like a review of PFS or exam of PFS)

T or F: When reporting on an assertion about a subject matter, the report doesnt have to be restricted

T, but if the report is only on the subject matter itself, it’s restricted use

T or F: Financial forecast is always restricted use

F, it can be restricted or general

Are you req’d to compare prospective FS to historical results

NO

Reporting reqs for an examination of PFS

express opinion on if statements are in accordance with AICPA

incl. summary of sig assumptions and hypothetical assumptions (if applicable)

restrict use as appropriate

Title for AUPs report

“Independent Accountant’s report on applying AUPs”