Term
| What are the main reasons for audit planning? |
|
Definition
-to enable the auditor to obtain sufficient appropriate evidence
-to help keep audit costs reasonable
-to avoid misunderstandings with the client |
|
|
Term
|
Definition
1. preplan
2. obtain background information
3. obtain information about client's legal obligations
4. perform preliminary analytical procedures
5. set materiality, and assess acceptable audit risk and inherent risk |
|
|
Term
| steps in audit planning; preplan |
|
Definition
early brainstorming about the audit
1. client acceptance issues.
-clients lacking integrity, financially unstable
2. AU 315 requires the successor auditor
to communicate with the predecessor
- to facilitate the successor auditor's client acceptance decision
3. identify client’s reasons for an audit
-The client’s motivation for the audit is one of the major factors affecting audit risk.
-large companys SEC regulations require annual audits.
- need more evidence for clients changing ownership, extensive debt, and publicly held.
4. obtain an engagement letter
-specific terms of audit, both parties must sign,the more specific the better, prepared and signed befor the audit
5. select audit team
-training, industry and client experience, supervision, need for specialist
|
|
|
Term
| steps in audit planning; obtain background information |
|
Definition
-to identify the need for outside specialists (AU336)
-to identify related parties (AU 334)
- GAAP requires disclosure related parties
-Understanding of the Client’s Business & Industry
-udestand risk associated and any unique accounting requirements
-auditor should understand major sources of rev, key customers, related parties
-source of industry info
-prior auditors, firm industry experts, review policies & procedures, discus w/ management
-asseess clients buisness risk
-client buisness risk- risk that the client will fail to achieve its objectives
- SOX requires management to disclose control about material info about buisness risk and deficiencies in internal control. |
|
|
Term
| Enterprise Risk Management |
|
Definition
-ERM has emerged as a new paradigm for managing risk
-ERM integrates and coordinates risk manement across the entire enterprise. |
|
|
Term
| steps in audit planning; obtain information about client's legal obligations |
|
Definition
-study corporate charter and bylaws
-study minutes of board and stock holder meetings
-study existing contracts
-throughout the engagement auditors will be observing evidence that may relate to these items and their disclosure |
|
|
Term
steps in audit planning; perform preliminary analytical procedures |
|
Definition
-analytical procedures use comparisons and relationships to asses whether account balances or other dta appear resonable.
-required during the the planning and completion phase, but also beneficial at other times
Purpose
-facilitate understanding of client’s business and industry
-may indicate financial difficulty and the client’s ability to continue as a going concern
-may indicate misstatements in the financial statements
-may result in a reduction of detailed audit test
Types
- industry comparisons (clients financial ratios compare to those of industry)
- comparisons with prior years
- comparisons with client-determined expected results (ex) budgets
- comparisons with auditor-determined expected results (ex) sales commission calculated from sales, depreciation exp from fixed assets.
- comparisons with expected results,using nonfinancial data (ex) equipment maintenance exp calculated from production. |
|
|
Term
steps in audit planning;
set materiality, and assess acceptable audit risk and inherent risk |
|
Definition
chapter 9 topic
-the scope paragraph specifically notes reasonable assurance and material misstatements
|
|
|
Term
Common Financial Ratio;
Short-term
Debt-paying Ability |
|
Definition
Cash ratio
(Cash + Marketable securities) ÷ Current liabilities
Current ratio
Current assets ÷ Current liabilities |
|
|
Term
Common Financial Ratio;
Liquidity Activity Ratio |
|
Definition
Accounts receivable turnover
Net sales ÷ Average gross receivables
inventory turnover
Cost of goods sold ÷ Average inventory |
|
|
Term
Summary of Analytical
Procedure |
|
Definition
-they involve the computation of ratios and other comparisons of recordded amounts to auditor expectations
-they are used in planning to uderstand the client's business and industy
-they are used throughout the audit to identify possible misstatements, reduce detailed test, and to assess going- concern issues.
-often facilitated by audit software
-auditor should investigate if there are fluctuations or variances. however consider if they are material and reasonably justifiable |
|
|
