The Nature of Auditing
The application of relevant training, knowledge and experience, in making informed decisions about the courses of action that are appropriate in the circumstances of the audit engagement.
What is professional judgment?
The equation for the risk model.
What is AR = IR x CR x DR?
This is a pre-engagement procedure that involves reviewing the auditee's working trial balance for any unusual changes in the accounts from prior year.
What is preliminary financial statement analysis?
The process designed, implemented and maintained by those charged with governance, management and other personnel to provide reasonable assurance about the achievement of an entity's objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations.
What is internal control?
An attitude that includes a questioning mind, being alert to conditions which may indicate possible misstatement due to error or fraud, and a critical assessment of evidence.
What is professional skepticism?
The auditor from a different audit firm, who audited the financial statements of an entity in the prior period and who has been replaced by the current auditor.
What is the predecessor auditor?
Information used by the auditor in arriving at the conclusions on which the auditor's opinion is based.
What is audit evidence?
The entire set of data from which a sample is selected and about which the auditor wishes to draw conclusions.
What is the population?
A high, but not absolute, level of assurance.
What is reasonable assurance?
Audit procedures that are performed prior to the auditee's fiscal year end.
What is interim audit work?
An auditor watching the client's staff physically count inventory to verify if the inventory count procedures are being followed is an example of this audit procedure.
What is observation?
An audit procedure designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level.
What is a test of controls?
An independent, objective assurance and consulting activity designed to add value and improve an organization’s operations
What is internal auditing?
This assertion claims: "All transactions that took place in the year have been included in the financial statements".
What is the completeness assertion?
The measure of the quantity of audit evidence.
What is sufficiency of audit evidence?
An approach to sampling that has the following characteristics:
(a) Random selection of the sample items; and
(b) The use of probability theory to evaluate sample results, including measurement of sampling risk.
What is statistical sampling?
A concept that refers to the relationship among the auditor of the financial information, the management preparing the financial information, and the users of the financial information.
What is three-party accountability?
The 5 balance sheet assertions.
What are:
Existence
Rights & obligations
Completeness
Accuracy, valuation, & allocation
Classification & presentation
5 Audit Procedures.
What is:
Observation
Inquiry
Analysis
Recalculation/Reperformance
Inspection
Confirmation
These are the two possible conclusions the auditor can reach upon completing control testing.
What is:
1 - Control risk is low, rely on controls and decrease substantive testing
2 - Control risk is high, cannot rely on controls and increase substantive testing