Audit Quiz

Audit engagement

sufficient appropirate evidence to express a conlcusion design ed to enahnce a high degree of confidence for the intended users

review engagements

limited assurance: discuss with management, inquire from management and employees, and perform analytical procedures

compilation/notice to readers

compliance engagements, no assurance.

special reports

also limited assurance

7 possible users

1. investors

2. suppliers

3. customers

4. lenders (bank)

5. employees

6. governments

7. general public

8. owners

income statement assertions

1. occurence

2. completeness

3. cut-off

4. accuracy

5. classification

6. presentation and disclosure

occurence

transactions an events that have been recorded or disclosed have occured and pertain to the entity

completeness (IS)

all transactions and events that should have been recorded have been recorded, and all related disclosures that should have been included are included

cut-off

transactions and events have been recorded in the correct accounting period

accuracy (IS)

transactions and events have been recorded appropriately and related disclosed have been appropriately measured and described

classification (IS)

transactions and events that have been recorded in the propert accounts

presentation and disclosure (IS)

transactions and events are appropriately aggreagted ot disaggregated and clearly described; related disclosures are relevant and understandable

Inspection

examining records, documents, or physical assets, to verify existence, accuracy, and validity

Observation

watching processes or controls in action, to assess how procedures are performed

External confirmation

obtaining direct evidence from third parties, to verify balances or transactions

Recalculation

checking mathematical accuracy of records, to ensure computations are correct

Reperformance

independently executing procedures to verify results and trends, to test control effectiveness

Analytical procedures

evaluating financial data relationships and trends, to identify inconsistencies or risks

Inquiry

asking management or staff about financial matters, to gather explanations and corroborate evidence

vouching

• aking a balance or transaction from the underlying accounting records and verifying it by agreeing the details to supporting evidence outside of the accounting records of the company

• Tests existence/occurence 

• Good for risk of overstatement 

tracing

• tracking a source document to the accounting records

• Primarily tests completeness assertion 

• Good for risk of understatement

Existence

assets, liabilities, and equity interests exist

Rights and obligations

the entity holds or controls the rights to assets, and liabilities are obligations of the entity

Completeness (BS)

all assets, liabilities, and equity interests that should have been recorded have been recorded and all related disclosures that should have been included have been included

Valuation

assets, liabilities, and equity interests are included in the financial statements at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded, and related disclosures are appropriately measured and described.

Classification (BS)

assets, liabilities, and equity interests have been recorded in the proper accounts

Presentation and disclosure (BS)

assets, liabilities, and equity interests are appropriately aggregated or disaggregated and clearly described; related disclosed are relevant and understandable

Balance sheet assertions

1. existence

2. rights and obligations

3. completeness

4. valuation

5. classification

6. presentation