Think Like an Auditor
This type of documentation is an auditor's biggest red flag?
What is inadequate documentation?
or missing or incomplete documentation
Auditors perform this audit procedure of examining documents and records.
What is inspection?
You identified a $1,000 discrepancy in a $60 million PP&E account. What would an auditor consider this?
What is an immaterial misstatement?
An auditor would refer to the materiality threshold and given the $60 million value of the PP&E account, a $1,000 discrepancy represents an extremely small percentage (0.002%) of the total.
This type of mindset approaches information with a desire to understand it fully, rather than taking it at face value, and always asking "why?"
What is questioning mindset?
This is the primary goal of an auditor and provides reasonable assurance about whether the financial statements as a whole are free from material misstatement, and in accordance with an applicable financial reporting framework.
What is an auditor's opinion?
You reviewed a reconciliation that matches the general ledger balance (accuracy), has document evidence that validates the transactions (supporting evidence) and correct report dates that ensures that all transactions are recorded (completeness & proper cutoff).
What is proper documentation?
or complete or well-prepared or adequate documentation
This key skill is the foundation of a strong relationship between auditors and clients. Auditors also use this skill to explain complex financial concepts to those without a background in accounting.
What is communication?
What term describes the quantitative benchmark set by auditors for misstatements?
What is materiality threshold?
You received a lot of document evidence such as email chains, reports, contracts, invoices, and bank statements from the client (or your supervisor) to support a large one-time transaction (or prepare in Blackline) however you are having trouble piecing the supporting evidence together to make sense. What would an auditor next step be?
What is communication or clarification?
In this scenario, there was a lot of documentation evidence for this transaction with no explanation. As such, requesting clarification to understand the full picture and how the evidence support the conclusions reached is important for transparency and maintaining detailed documentation.
This type of mindset uses an auditor's professional skepticism by evaluating information critically, assessing its reliability, relevance, and accuracy.
What is evidence mindset?
This type of audit risk involves the chance that the auditor's procedures won't find a significant error and the only risk that auditors have direct control over through their audit procedures.
What is detection risk?
You identified a large $1 million invoice that was posted and approved by the same individual. What would an auditor suspect?
What is lack of segregation of duties?
or fraudulent activity or collusion or error?
In this situation, the next step for the auditor would be to investigate further, seeking corroborating evidence and conducting procedures to confirm the reliability of the transaction and determine if any fraudulent activity or material misstatement has occurred.
Auditors use this key trait/skill "_ _" that involves:
•Cultivate a habit of reviewing your work.
•Double-check calculations, cross-reference findings, and ensure thorough documentation.
•Don't rely solely on one piece of information. Look for multiple sources and perspectives to support or refute the claim.
What is detail-oriented?
A primary responsibility of auditors is to detect these "_ _" in financial statements, whether caused by error or fraud, that are significant enough to influence the decisions of users of those statements.
What are material misstatements?
Prior to your meeting with the client, you noticed a discrepancy in the client's financial statements that is not taking into consideration a one-time transaction they disclosed to the audit team months ago. You assessed the impact on how the incorrect amount would affect the financial statements and documented a corrective action plan. Additionally, you consulted with your colleagues for further feedback and review.
What key skill/trait is the auditor doing?
What is professional judgement?