ACCT 4083- Auditing Exam 1 (Ch 1-5) Review
ACCT 4083- Auditing Exam 1 (Ch 1-5) Review ACCT4083- Auditing
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This 54 page Study Guide was uploaded by Doris.Shaw on Sunday October 2, 2016. The Study Guide belongs to ACCT4083- Auditing at University of Cincinnati taught by Professor Goodson in Fall 2016. Since its upload, it has received 28 views. For similar materials see Auditing in Accounting at University of Cincinnati.
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Date Created: 10/02/16
Focus on the key point → summary Chapter 1 1. AUDITING, ATTESTATION, AND ASSURANCE SERVICES → Table1 2. Management Assertions → Table 2 Table1 → k ey point: Difference and Relationship between three concepts Definition Difference Relationship The lending of credibility to information Enhance the quality of information 1. Assurance services includes an even broader set of information, including Assurance services: Independent Examples nonfinancial information. Assurance professional services that improve the •XBRL Reporting quality of information or its context for •Information risk assessment 2. All audit and attestation are decision makers •Customer satisfaction surveys. assurance; but not all type of assurance •Internal audit outsourcing are attestation and audit. When the assurance is provided for specific Test the 3nd party’s information 3. Attestation and Auditing services are assertions made by management special types of assurance services. -Having financial and non-financial Attestation Attestation engagement The provision of attestation engagements an opinion on subject matter or an assertion about the subject matter that is the responsibility of another party When the assertions are embodied in a Supply an opinion as to whether company’s financial statements, we refer to the financial statements and related Auditing the attestation as auditing footnotes are presented fairly in all material respects Table2 → M anagement Assertions Public Company Accounting of Board Auditing Standards Board -- ASB Assertions Auditor’s Duty PCAOB Events and Assertions about Presentation and Auditor must think Assertions Definition Transactions Account Balances Footnote Disclosures Key Questions about key questions… existence: All assets, liabilities, and Occurrence Existence Occurrence Do the assets listed really must test whether the balance Existence equity interests do actually exist -Be valid and have - Balances include -items presented have exist? sheet amounts reported as occurrence: All of the transactions and taken place only assets and occurred assets, liabilities, and equities / events that have been recorded are liabilities that exist Did the recorded sales actually exist. Occurrence valid, pertain to the entity, and have transactions really occur? actually taken place Rights and Rights and obligations Does the company really Auditor is to obtain evidence rights and obligations: The entity is obligations - items are either owned own the assets? that the assets are really -Entity has legal claim by or represent the owned by and the liabilities entitled to all rights of the assets, the on all assets and responsibility of the Are related legal are really owed by the Rights and liabilities are the legal responsibility of revenues reported and entity responsibilities identified? company being audited. obligations the entity, and all of the disclosed has a legal events and transactions pertain to the entity responsibility for all liabilities and expenses completeness: All of the transactions, Completeness Completeness Completeness Are the financial statements Auditors’ specific objectives --All transactions - Balances include all -the proper disclosures (including footnotes) include obtaining evidence to events, assets, liabilities, equity have been recorded items that should be have all been made by complete? determine whether, all interests, and other disclosures that should have been recorded in the included in the entity inventory is included, all Completeness financial statements have been recorded Cutoff accordance with Were all transactions accounts payable are (cutoff) cutoff: Refers to accounting for - are recorded in the GAAP recorded? included, all notes payable are appropriate period included, all expenses are revenue, expense and other transactions Are transactions at the recorded in the proper period. The cutoff date beginning or end of a period generally refers to the audit client’s included in the proper year-end balance sheet date. period? Accuracy Valuation and Accuracy Are the accounts valued transactions and events have valuation or allocation: All assets, -are recorded at the allocation correctly? been recorded accurately and liabilities, and equity interests of the correct amount - Balances are Valuation and that the assets, liabilities, and reported at the proper Allocation Are expenses allocated to equities listed on the balance Valuation entity have been valued in accordance amount in accordance -the amounts in the the period(s) benefited? sheet have been valued in / with the relevant financial reporting with GAAP disclosures have been accordance with GAAP (or Allocation standards (e.g., GAAP) and are listed in properly measured and IFRS). (Accuracy or the financial statements at the proper valuation) amount and any resulting valuation are valued in The audit objective related to accordance with GAAP valuation and allocation is to adjustments have been appropriately determine whether proper recorded in the financial statements values have been assigned to assets, liabilities, and equities. Classification Classification Were all transactions Auditors will test to make presentation and disclosure: -Transactions have - accounts in the recorded in the correct sure that all have the proper Presentation Management assertion that all been posted to the disclosures have been accounts? disclosures made in transactions and events have been proper account appropriately grouped accordance with GAAP (or and disclosure presented correctly and that all relevant Are the disclosures IFRS). (Classification, information has been disclosed to Understandability understandable Understandability) - users can comprehend to users? financial statement users, usually in the the disclosures footnotes to the financial statements ● Management Assertions Several tips: 【General Rules】 (When audit any) Assets, concern about: Existence & Valuation → might overstate Liabilities, concern about: Completeness → might understate Footnotes, concern about: Presentation and disclosure Existence: Balance Sheet actually exist Occurrence: events actually did occur Table 3: B|S I|S St. of Equity St. of C|F Notes Assets Revenue Changes in Equity Sources and uses of Cash ‘Disclosures’ information Liability Expense Contrast with “←Recognition” Equity Net Income Point in Time Information cover a period of Time ←Existence → ← Occurrence → Chapter 2 1. Engagement Overview and Principles 2. Independence ● Professor has emphasised that there will be exam question on this timeline. - Q: Where each of the 3 principles will show on this timeline? 1. The fundamental principle: Responsibilities ● Most of the issues related to responsibilities are addressed before a firm accepts a prospective client. ● However, professional skepticism and professional judgment must be considered and exercised by the auditor throughout the entire engagement. 2. The fundamental principle: Performance ● Sts forth general quality criteria for conducting an audit. ● The performance of the audit is also influenced by the need for auditors to exercise professional skepticism and professional judgment throughout the audit process. 3. The ultimate objective of the audit—the report on the audit—is guided by the fundamental principle: Reporting ● Reporting is the final stage of an audit and occurs following the gathering of audit evidence. Chapter 3 ● Types of Audit Procedures relate to the management assertions. Types -Audit Procedures Management Assertions 1.Inspection of records and documents –Vouching If all recorded significant transactions are adequately supported (Existence and Occurrence) but vouching does not prove which were actually recorded (No completeness assertion). If verifying amounts, valuation and allocation –Tracing If all that should have been recorded actually were recorded (Completeness). If evaluating dollar amounts, provide some evidence with respect to valuation and allocation. –Scanning Contribute some evidence related to the Existence of assets and the Completeness of accounting records, including the proper Cutoff f significant transactions. 2.Inspection of tangible assets Provides compelling evidence of Existence and may provide tentative evidence of Valuation. However, inspection does not necessarily provide evidence that the entity owns the assets ( No rights ). 3.Observation Very similar to Inspection 4.Inquiry Presentation and disclosure ->Understandability 5.Confirmation Produce evidence of Existence and Rights and Obligations and sometimes of Valuation and Cutoff. 6.Recalculation Serve the objectives of Existence and Valuation for financial statement amounts. Also used to provide evidence of valuation for all other financial data. 7.Reperformance More broader in approach; Valuation or allocation 8.Analytical Procedures Presentation and disclosure -> Classification Chapter 4 1. Audit Risk Model 2. Risk Model Relationship—A Summary Set→ Low Assess Calculate Risk of Material Misstatement (RMM) Audit Procedures Audit risk (AR) = X Detection risk (DR) Inherent risk (IR) X Control risk (CR) AR is evaluated for Higher IR Higher CR → Lower DR (√ ) Higher DR (×) financial statements as Dollar size ↑ Ineffective internal Nature More effective tests Less a whole and for each relevant assertion for control significant accounts and disclosures. Liquidity ↑ Less reliance on Timin Testing performed at interim internal control g year -end Volume of Extent More # sample tests fewer transactions ↑
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