AUD-Lesson 1

Question 1

What is the goal of a F/S Audit?

Answer 1

Objective
Opinion
On Fairness
Of F/S Presentation

Question 2

What framework most F/S conform to?

Answer 2

The Applicable Financial Reporting Framework (AFRF)

Question 3

What are the Steps in an Audit?

Answer 3

PUR-CSOI

Prepare the Audit

Obtain Understanding of Client, its environment, including Internal Control

Asses Risks of Material Misstatement and Determine nature, timing & extend of further procedures

Perform Tests of Controls

Perform substantive procedures

Formulated an opinion

Issue audit report

Question 4

Which entities are subject to the Clarity Standards?

Answer 4

The clarity standards are issued by the Auditing Standards Board (ASB), and apply to non-issuers (non-public companies)

Question 5

What is the Nmemonic for the 10 Genrally Accepted Auditing Standards?

Answer 5

TIPPICANOE
TIP-PIE-All Cpas Do Ok

Training and Profeciency
Independence
Professional Care
Planning and Supervision
Internal Controls
Corroborative Appropriate Audit Evidence
Accounting Principles in Accordance with GAAP
No New Principles - Consistency
Omitted Disclosures - None
Express Opinion

Question 6

What are the General Standards?

Answer 6

TIP

Training and Profeciency
Independence
Professional Care

Question 7

What are the Standards of Field Work?

Answer 7

PIC
PIE

Planning and Supervision
Internal Controls
Corroborative Appropriate Audit Evidence

Question 8

What are the Reporting Standards?

Answer 8

All Cpas Do Ok

Accounting Principles in Accordance with GAAP
No New Principles - Consistency
Omitted Disclosures - None
Express Opinion

Question 9

In the Risk of Material Misstatement formula, what two parts have an inverse relationship?

Answer 9

Inherent Risk and Control Risk are inversely related to Detection Risk.

Question 10

What is Substantive Testing?

Answer 10

Substantive Appropriate (Corroborative) Evidence is obtained from Substantive Testing. The better internal controls, the less substantive testing is needed.

Question 11

What is Reliance?

Answer 11

If Reliance on control is high, it means auditor thinks internal controls are being adhered to

Question 12

What is the PCAOB?

Answer 12

Public Company Accounting Oversight Board

Question 13

The auditor must maintain independence for attestation engagements if?

Answer 13

CARES

Involve any of the following:

Compliations (Unless lack of independence is indicated)
Agree-upon procedure engagements
Reviews
Examinations
Special Reports

Question 14

What is needed to maintain appearance of independence as an auditor?

Answer 14

No Direct Financial Interest in the client

No material indirect financial interest in the client

Question 15

What are the two preconditions that must be met before accepting an audit engagement?

Answer 15

The acceptabilty of the financial reporting framework being applied
Management’s agreement that it understands and accepts certain responsibilities

Question 16

What inquiries does a successor auditor need to make when accepting a new client?

Answer 16

RID-C

Reasons for change
Integrity of management
Disagreements during audit
Communication with management or those charged with governance

Question 17

What matters should be communicated to those charged with governance during the audit?

Answer 17

DISAPPROVE

Disagreements with management

Illegal Acts (Noncompliance with laws and regulations, including illegal acts)

Significant accounting policies; adopted or changed by management

Adjustments; proposed by auditor with a significant impact on financial records

Prior discussions with management; before acceptance of engagement

Problems ariding during the audit in obtaining evidience

Other information regarding responsibilities; regarding resposibilities

Views of other accountants; who were contacted by mangaement on significant matters

Estiamates; in the accounting records and the process used to obtain them.

Question 18

Is an engagement letter required before an audit is performed?

Answer 18

No, but it is recommended. However, there must be a written agreement between both parties

Question 19

What are the elements of the Engagement Letter?

Answer 19

FACSIMILE

Fees

Aduitor’s Responsibility

Confirmation of Engagement

Score & Objective of Engagement

Interal Control

Management’s Responsibility

Question 20

What are the audit planning procedures?

Answer 20

BRAINSTOPS

Basic discussions with client

Review of audit documentation

Ask about recent developments

Interim Financial statements

Non-audit personnel

Staffing

Timing

Outside assistance

Pronouncements

Scheduling with client

Question 21

What is audit risk?

Answer 21

The risk that financial statements are materially mistated and that auditors will fail to detect the risk.

Question 22

What is Risk of Material Mistatement?

Answer 22

The risk that assertions related to financial statements are materially mistated.

Question 23

What is the formula for Audit Risk?

Answer 23

Audit Risk = IRCRDR

Inherent Risk (IR)
Control Risk (CR)
Detection Risk (DR)

Question 24

What is the formula for Risk of Material Mistatement (RMM)?

Answer 24

IR*CR

Inherent Risk (IR)
Control Risk (CR)

Question 25

What two risks make up Detection Risk (DT)?

Answer 25

Test of Details Risk (TD) and Substantive Analystical Procedures Risk (AP)

Question 26

How is Detection Risk Calculated?

Answer 26

AR/(IR*CR)

Audit Risk (AR)
Inherent Risk (IR)
Control Risk (CR)

Question 27

What are the quality control requirements that firms must follow at the firm level?

Answer 27

HEAL-ME

Human Resources (Personnel Management)

Ethical Requirements (Independence)

Acceptance and continuance of client relationships and specific engagements

Leadership responsibilities for quality within the firm

Monitoring

Engagement Performance

Question 28

When is independence not required?

Answer 28

Compilations (When a lack of independenc is indicated)
Taxes
Consultations
Financial Statement Preparation Engagement
Other non-attest services