AUDTHEO 1

Segregation of Duties simply pertains to the functions of .

custody, authorization, recording, and execution that must be separated.

Monitoring of controls means you assess the quality of internal control performance .

over time.

Ongoing monitoring examples include .

periodic cash count, inventory count.

Separate evaluation is exemplified by .

internal audit.

Performance reviews pertain to the comparison between actual performance versus .

budgeted performance.

Performance reviews create a relationship between operating and .

financial data.

A classic example of performance review is .

variance analysis.

Information processing controls ensure accuracy and completeness of .

transactions.

Physical controls include authorization for .

access.

Inventory items should not be left lying around; they must be .

secured, under lock and key.

Monitoring is needed whenever there is .

change.

Two methods of monitoring control are .

ongoing and separate evaluation.

Bank confirmation tests the assertions of .

rights, existence, completeness, valuation, presentation and disclosure.

Bank reconciliation is prepared by .

the client.

PBC stands for .

prepared by client.

Cash cutoff is performed to detect .

kitting.

Working papers represent all work done, procedures applied, information obtained, and .

conclusions reached.

According to PSA 30, working papers should be documented .

during the performance of procedures.

Without audit documentation, it is difficult to prove that .

we really did the work.

Expected completion date of working papers is .

60 days after the auditor’s report.

Retention period of working papers is .

seven years.

Permanent file contains information of .

continuing interest and relevance.

Correspondence file contains .

confirmation replies received.

Current file includes .

financial statements, audit program, WPSPL, and schedules.

Tax file includes .

past, present, future income and business tax obligations.

Primary function of working papers is to support .

the auditor’s opinion, representation, and assist engagement.

Secondary functions of working papers include .

planning future audits, providing useful information, defense in litigation.

Working papers must allow an experienced auditor to understand the nature, timing, and extent of .

audit procedure.

Guidelines in preparing working papers include heading, indexing, cross-referencing, and .

tick marks.

Working papers are confidential and may be disclosed only when .

there is a subpoena or professional obligation.

Substantive procedures detect .

material misstatements.

Nature of substantive testing pertains to .

procedures to detect material misstatements.

Substantive testing addresses .

detection risk.

Timing of substantive testing may be .

interim and year-end.

Extent of substantive testing depends on .

testing threshold and acceptable detection risk.

Common substantive testing procedures include .

cash, receivables, inventories, PPE, payables, long-term debt, equity, revenues, expenses.

In bank confirmation, assertions tested include .

rights, existence, completeness, valuation, presentation and disclosure.

In bank reconciliation, auditors test the validity of .

reconciling items.

Cash cutoff detects kitting caused by .

different bank cutoff times.

Related party transactions are governed by .

IAS 24.

Related parties are identified because of .

SoDAM (Source of evidence, Disclosures, Affect FS, Motivated by fraud).

Sources to identify related parties include .

management, predecessor auditor, stockholders.

With reliance approach means control risk is set at .

less than high.

Under reliance approach, TOC is performed to verify .

preliminary control risk assessment.

Under no reliance approach, control risk is assessed as .

high.

Under no reliance approach, TOC is .

not performed.

Audit plan contains .

Coordination, Other matters, Risk and materiality, Nature/timing/extent, Internal control, Knowledge.

Audit program is more detailed and shows procedures per .

account or transaction cycle.

Analytical procedures establish plausible relationships among .

financial and nonfinancial data.

Analytical procedures are performed during .

planning, evidence gathering, and opinion phase.

Analytics are during evidence gathering.

optional

Analytics may be omitted when .

internal control is ineffective.

Internal control must always be studied but not always .

evaluated.

TOC procedures include inquiry, inspection, observation, and .

reperformance.

Walkthrough involves tracing .

source documents through the system.

Substantive tests consist of inquiry, inspection, observation, analytics, recalculation, and .

confirmation.

Weakest audit procedure is .

inquiry.

Second weakest procedure is .

analytics.

Strongest procedure is .

confirmation.

Second strongest procedure is .

observation.

Recalculation is used for .

mathematical estimates like depreciation or warranties.

Audit evidence supports the auditor’s .

opinion.

Two types of audit evidence are .

accounting records and other information.

Accounting records include .

general ledger, subsidiary ledger, trial balance.

Other information includes .

confirmation replies, controls manual.

Risk assessment procedures obtain understanding of .

entity and its environment.

Tests of controls determine .

operating effectiveness of controls.

Substantive tests detect .

material misstatements.

TOC evaluates the .

likelihood of misstatement.

Substantive testing looks for .

actual misstatement.

PAJE stands for .

Proposed Adjusting Journal Entries.

If PAJE is accepted, the opinion is .

unqualified.

If PAJE is refused and the misstatement is material, the opinion is .

qualified.

If misstatement is very material or pervasive, the opinion is .

adverse.

If scope limitation is material, the opinion is .

qualified.

If scope limitation is pervasive, the opinion is .

disclaimer.

Completing the audit includes consideration of .

subsequent events.

Subsequent events provide evidence of conditions that existed .

at the date of the financial statements.

Types of opinions include .

unqualified, qualified, adverse, and disclaimer.

Unmodified opinion states FS present fairly .

in all material respects.

Report title must indicate the auditor is .

independent.

Auditor’s report is addressed to .

shareholders or those charged with governance.

Signature of auditor includes .

name of auditor, name of firm, qualifications.

The auditor’s report date must be no earlier than when .

sufficient appropriate evidence has been obtained.

Pervasive effects are those that are .

not confined or fundamental to FS understanding.

Basis for modification paragraph is placed .

before the opinion paragraph.

Positive confirmation requires .

a reply whether or not the respondent agrees.

Negative confirmation requires reply only if .

respondent disagrees.

Negative confirmation is more appropriate when .

internal controls are effective.

If client refuses confirmation, auditor first determines .

if there is a valid reason and performs alternative procedures.

First step in analytics is to develop .

an expectation about the financial statements.

Analytics are best used in .

stable environments, income accounts, not subject to management discretion.

Types of analytics include .

trend analysis and ratio analysis.

List-to-floor observation tests .

existence.

Floor-to-list observation tests .

completeness.

Materiality and risk have an .

inverse relationship.

Higher risk requires .

more substantive procedures.

Fraud refers to .

intentional acts.

Error refers to .

mistakes.

Management fraud is more severe because .

there is no guarantee the auditor will detect it.