LIFO the Party
Name the two characteristics of appropriate audit evidence
1) Relevant
2) Reliable
Why do auditors use a sampling approach when conducting an audit?
To balance precision and cost (effectiveness and efficiency)
Who is responsible for hiring and retaining the independent auditor?
The audit committee
What are the four types of audit opinions?
1) Unqualified(Unmodified)
2) Qualified
3) Adverse
4) Disclaimer
The primary risk related to the financial statements is for management to _____ assets/revenue and _____ liabilities/expenses
1) Overstate
2) Understate
Name the Big 4 accounting firms
1) Ernst and Young
2) PwC
3) Deloitte
4) KPMG
Describe the concept of audit risk
The risk that an auditor will issue an unqualified opinion on financial statements that contain a material misstatement
Name 4 external users/stakeholders of a companies financial statements
1) Customers
2) Suppliers
3) Creditors
4) Investors
5) Government/Taxing Authorities
You as an auditor are wanting to gain comfort over finished goods inventory. What direction test would you perform and what assertion would you be looking to satisfy?
Vouching/Existence
This quasi-governmental organization is responsible for overseeing all audits of public companies in the United States. It was formed as a result of the financial scandals of the early 21st Century.
Public Company Accounting Oversight Board (PCAOB)
Name the three types of audit tests
1) Risk Assessment Procedures
2) Test of Controls
3) Substantive Procedures
What are the three components of the Fraud Triangle
1) Opportunity
2) Pressure
3) Rationalization
Name the three components of audit risk.
1) Detection Risk
2) Control Risk
3) Inherent Risk
The bankruptcy of ____ in 2001 lead to the passage of the ______ Act of 2002 which lead to a radical changes in the audits of public companies.
1) Enron
2) Sarbanes-Oxley Act of 2002
What are the assertions related to account balances (Balance Sheet)?
1) Completeness
2) Cut-Off
3) Valuation/Allocation
4) Existence
5) Rights and Obligations
6) Understandability
You as an auditor are wanting to gain comfort over the prepaid expense account. What direction test would you perform and what assertion would you be looking to satisfy?
Trace/Completeness
What is inherent risk and control risk? What is the difference?
Inherent Risk: The susceptibility of an assertion about a class of transaction, account balance, or disclosure to a misstatement that could be material, either individually or when aggregated with other misstatements, before consideration of any related controls. Control Risk: The risk that a misstatement that could occur in an assertion about a class of transaction, account balance, or disclosure and that could be material, either individually or when aggregated with other misstatements, will not be prevented, or detected and corrected, on a timely basis by the entity’s internal control.
An auditor performs a _____ test on accounts receivable by looking through the general ledger, identifying sample accounts, and finding original supporting documentation for those balances. This test deals with which of the following management assertions?
Vouching/Existence
Fill in the blanks from the Auditors Responsibility section of an Unqualified Opinion:
Our responsibility is to express an _____ on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain ______ about whether the financial statements are free of _______
1) Opinion
2) Reasonable Assurance
3) Material Misstatement