Ch 4: Audit Midterm Review

0.0(0)
studied byStudied by 0 people
0.0(0)
full-widthCall with Kai
GameKnowt Play
New
learnLearn
examPractice Test
spaced repetitionSpaced Repetition
heart puzzleMatch
flashcardsFlashcards
Card Sorting

1/27

flashcard set

Earn XP

Description and Tags

Chapter 4: Responsibilities in the FS Audit

Study Analytics
Name
Mastery
Learn
Test
Matching
Spaced

No study sessions yet.

28 Terms

1
New cards

Financial Reporting Ecosystem

  • Ecosystem includes management, board members, auditors, regulators, professional accounting bodies, standard setters, and FS

  • Purpose: to serve public interest with complete, accurate, and transparent corporate financial disclosures 

2
New cards

Professional Judgement

  • Professional Judgement: application of relevant knowledge and experience, within the context provided by auditing and accounting standards, to make informed decisions about action in circumstances

3
New cards

Framework for Auditor’s Professional Judgement

  • identify and define issues 

  • gather facts and info

  • perform analysis and evaluate alternatives

  • conclusions 

  • review and complete documentation

4
New cards

Professional Skepticism 

  • Auditor’s ability to obtain and critically analyze information from client and 3rd parties

  • Qualities of Professional Skepticism

    • question mind: inquire w doubt

    • suspension of judgement: don’t jump to conclusions

    • search for knowledge: investigate beyond obvious

    • interpersonal understanding: aware of bias

    • autonomy: not influenced

    • self-esteem: confidence to resist persuasion

5
New cards

Bias and Judgement Traps 

  • confirmation bias

  • overconfidence bias 

  • availability 

  • anchoring

  • automation

  • groupthink

confirm our availability and ask group 

6
New cards

Confirmation Bias

  • Auditor puts more weight on information that is consistent with their initial beliefs of preferences

  • auditor won’t adequately consider contradictory evidence

7
New cards

Overconfidence bias

  • auditor overestimates ability to perform tasks or make accurate risk assessments 

  • does not challenge opinions, experts, and underlying assumptions

8
New cards

Availability

  • Auditors estimate / fcst likelihood of event based on how easily they can recall an instance of that event

9
New cards

Anchoring

  • Auditor is anchored by initial number (esp when management provides them with preliminary figures and supporting docs) - does not adjust when forming a final judgement

10
New cards

Automation

  • favours output generated from automated systems even when human reasoning or contradictory info raises questions of reliability 

11
New cards

Groupthink

  • bias to think or make decisions as a group

  • discourages creativity or individual responsibility 

12
New cards

FS Cycles

divide FS into segments to make audit more manageable

  • revenue w receivables cycle

  • acquisition and pmt cycle

  • HR and payroll cycle

  • inventory and distribution cycle

  • capital acquisition and repayment cycle

13
New cards

Assertions

  • claims that management make about accuracy and fairness of FS

    • ex. company reports 100K in AR - management is asserting that customers acc owe that money (existence), amount is accurate, company has the right to receive it

  • implied or expressed representations by mngmt about recognition, measurement, presentation, and disclosure of items included in FS and notes

14
New cards

Categories and types of audit assertions

  • assertions about classes of transaction and events - for period under audit

    • occurrence, completeness, accuracy, cutoff, classification, presentation

  • assertions about account balances - at period end

    • existence, completeness, accuracy, valuation and allocation, classification, right and obligations, presentation

15
New cards

Categories of Assertions

Assertions about classes of transactions and events 

  • Occurrence

  • Completeness

  • Accuracy

  • Cutoff

  • Classification

  • Presentation

Assertions about account balances and related disclosures

  • Existence

  • Completeness

  • Accuracy, valuation, and allocation 

  • Classification

  • Rights and obligations

  • Presentation

16
New cards

Occurrence

  • Do the recorded transactions exist?

    • refers to the transaction itself - did it actually happen

    • non-fictitious customers

17
New cards

Completeness

  • Have all transaction been included and recorded?

  • nothing is left out

18
New cards

Accuracy

  • Were transaction recorded correctly?

  • no calculation errors

19
New cards

Cut-off

  • Were the transactions and amounts recorded on the correct dates?

20
New cards

Classification

  • Are the transactions included in the client’s journal properly classified

21
New cards

Presentation 

  • Are classes of transactions and related disclosure requirements clearly presented in the FS

  • revenue recognition principle

22
New cards

Existence

  • Do all amounts included exist?

    • refers to if inventory items physically exist

23
New cards

Rights (ownership) and obligations

  • Are the assets owned?

  • do the liabilities belong to the entity?

24
New cards

Completeness

  • Are all inventory amounts recorded?

    • nothing missing?

    • everything in transit, stored + in outside location 

25
New cards

Accuracy, Valuation, and allocation

  • are account balances recorded correctly?

  • are assets recorded at the amounts estimates to be realized?

  • are all amounts appropriate?

  • was inventory written down where necessary

  • is it recorded at cost 

26
New cards

Classification

  • management asserts that assets liabilities and and equity are appropriately classified in FS

  • inventory is properly classified as current asset

27
New cards

Presentation 

  • assertion to address whether everything is appropriately aggregated and clearly described and understandable

    • is inventory held for sale

    • is it disclosed as collateral

28
New cards

The Audit Process

  • Client Acceptance and Continuance: engagement acceptance risk, independence threat analysis, competence, engagement letter

  • Audit Planning: understanding entity and its environment, materiality

  • Assess Risk of Material Misstatement: identify and assess RMM at FSS level and at the account and assertion level

  • Develop Risk Response: determine audit strat for each cycle, finalize plan and develop audit programs 

  • Perform Risk Responses: gather audit evidence, sampling decisions, perform tests of control

  • Conclusion: Complete final evidence gathering 

  • Reporting: determine type of audit option , issue audit report

Client accept, plan audit, assess RMM, risk mitigation plan, perform risk mitigation plan, conclude, report