Overview of audit
An audit is a systematic process of objectively obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between these assertions and established criteria and communicating the results to interested users.
Auditing
Information is ________ if its omission or misstatement could influence the economic decision of users taken on the basis of the financial statements.
Material
It is a process designed and effected by those charged with governance, management, and other personnel to provide reasonable assurance about the achievement of the entity’s objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations and compliance with applicable laws and regulations.
Internal control
These are audit procedures designed to substantiate account balances or detect material misstatements in financial statements.
Substantive tests
This type of opinion is issued when the auditor concludes, based on audit evidence obtained, that the financial statements are presented fairly, in all material respects, in accordance with applicable financial reporting framework.
(Clue: It is the most common type of auditor's report.)
Unmodified opinion
Auditing provides _______ assurance (not guarantee) that the financial statements taken as a whole are free from material misstatements.
Reasonable
It is a written contract between the auditor and client which sets forth the objective of the audit, management's responsibility for fair presentation of FS, scope of audit, forms and reports expected to be issued, risk that material misstatements may remain undiscovered, and responsibility ofc client to allow auditor to have unrestricted access to records and other information.
Engagement letter
This is the risk that a material misstatement that could occur will not be prevented/detected and corrected on a timely basis by internal control systems.
(Clue: This is included in the formula for audit risk.)
Control risk
Audit evidence
These are events or transactions that occur subsequent to the balance sheet date that may affect the financial statements and the auditor's report.
Subsequent events
It is an intentional act by one or more individuals among management, those charged with governance, employees or third parties involving the use of deception to obtain unjust or illegal advantage.
Fraud
Provide at least one consideration in the decision to accept or reject a client.
Competence, independence, ability to service client properly, integrity of management
Provide at least one of the four evidence gathering techniques when conducting tests of controls.
Inquiry, Observation, Inspection, Reperformance
Give at least one type of substantive tests.
Analytical procedures and test of details (of balances and of transactions)
This is issued when the auditor is unable to obtain sufficient audit evidence to form an opinion, due to scope limitation, and the potential impact of the missing information is pervasive.
Name at least three financial statement assertions.
Occurrence, Completeness, Accuracy, Cut-off, Classification, Existence, Rights & obligations, Valuation & allocation
This is the susceptibility of an account balance or class of transactions to a material misstatement assuming there were not related internal controls.
(Clue: This is included in the formula for audit risk.)
Inherent risk
Provide at least one component of internal control.
Control environment, Risk assessment, Information and communication systems, Control activities, Monitoring activities
This is the application of audit procedures to less than 100% of the items within an account balance or class of transactions such that all sampling units have a chance of selection.
Audit sampling
This document contains written representations from the management the complements the audit evidence the auditor accumulates and obtains evidence that the entity's management has acknowledged that it fulfilled its responsibility for the preparation and presentation of financial statements and has approved the financial statements.
Management representation letter
Assurance engagements include audit, review and other assurance engagements. Name at least one of the two related services.
Agreed-upon procedures and compilations
It is the analysis of significant ratios and trends, including the resulting investigation of fluctuations and relationships that are inconsistent with other relevant information or deviate from predicted amounts.
Analytical procedures
To determine whether control has been implemented, a __________ is performed, which involves tracing one or two transactions through the entire accounting systems.
Walkthrough test
Provide at least one factor to be considered when making a preliminary assessment of the work of an internal auditor.
Competence, Objectivity, Due professional care, Scope of function
These are matters that, in the auditor's judgment, were of most significance in the audit of financial statements of current period.
Key audit matters