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Cards In This Set
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What are the three main reasons to plan for an audit?
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To obtain sufficient appropriate evidence, to keep costs down, and to avoid always bugging the client and asking them about things.
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What is acceptable audit risk?
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How much you are willing to miss that the financial statements might have a misstatement. If you want the risk to be lower, then you have to do more work. (have to take samples)
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What is inherant risk?
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The likelihood that there are misstatements before assessing internal controls. The higher the risk is, the more work you will have to do.
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Client acceptance and continuation facts (1)
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It is required to talk to a previous auditor (after client's permission)Relationships can be continued or ended after the year depending on auditors and clients. There are annual evaluations discussing issues, fees, and client integrity.
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Reason for Audit- Questions for Acceptable Risk (2)
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Who is using the financial statements?Who is the intended user of the statements?
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What kinds of companies are we going to get more evidence for?
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Public companies, companies in debt, and companies who are going to be sold
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What is in an engagement letter and how often must a letter be sent? (3)
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The letter tells objectives, responsibilities of audit team and managers, and schedules and fees. It also states that not all types of fraud and errors will be detected. It is done every year regardless.
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What is done in the prelimenary audit planning development?
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Client locations, business industry and resources, misstatement risk areas, and previous effectiveness of controls. This helps the audit team determine where to staff people.
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What is the client's business /business risk and why is it important?
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It is the risk that a client will not meet its objectives. It's important to know how economic conditions, IT, globalization, etc might effect the client.
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Understanding business: Industry and Environment
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Know risks associated with the industries and specific accounting practices for that industry.
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Understanding business: Operations and Processes
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- key source of revenue- key customers and suppliers-financing sources- information about related paties (not arms length)
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Understanding business: tour the office
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Get an idea of safeguards and physical assetts.
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Understanding business: identify related parties
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Anyone who can influence management and client policies. Owners, affliated companies, etc. Be aware of biases
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Understanding business: corporate governance and management
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What are the ethics? What kind of rules and processes does management make? Corporate character.
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Understanding business: code and ethics
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Must have one. If you don't have one, why don't you?Need to disclose any amendments and waivers.
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