SCM 3301: Chapter 6
28 Cards in this Set
| Front | Back |
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Timeline
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1. Plan the Audit
2. Understand the Client
3. Assessing the Risks and designing further procedures
4. Perform further procedures
5. Complete the audit
6. Form the opinion
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Risk Assessment Procedures
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performed to understand client's internal control. The procedures include; 1) inquiries of management and others within the entity 2) Analytical Procedures 3) observation and other procedures like external inquiries
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Substantive Procedures
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Test of account balances and transactions designed to detect any material misstatements of F.S. assertions
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Test of Controls
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tests directed toward the design of control to assess its effectiveness in detecting material misstatement of financial statement assertions
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Audit Committees
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public companies must establish a committee within the board of directors to take an active role in overseeing the company's accounting and financial reporting practices.
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Engagement Risks
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Risks associated with auditing a client
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predecessor
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client's previous auditor
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Shopping for Accounting Principles
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Management changes to a CPA firm that is more likely to sanction a disputed accounting principle.
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Successor Auditor
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client's new auditor
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Engagement Letter
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a contract between the executor and the client.
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Overall Audit Strategy
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Determine the scope, such as industry reporting requirements, client locations and basis of reporting by the client.
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Audit Plan
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More detailed than the audit strategy. Includes the nature, timing and the extent of audit procedures to be performed by the auditor.
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Audit Program
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A detailed list of the audit procedures to be performed in the course of the audit.
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Time Budget
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Estimating the time required for each step in the audit program for each of the various levels of auditors and totaling those estimates.
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Opening Balances
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account balances that exist in the beginning of the period
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materiality
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if not told otherwise assume it to be 10% of Net Income
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Analytical Procedures
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comparisons of F.S. balances, ratios with auditor expectations developed from prior year F.S., prior year published statistics, and budgets.
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As materiality increases
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auditor will need less evidence because the audit is based on a less precise amount
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Performance Materiality
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Tolerable misstatement
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Significant Risks
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require more audit consideration. Are usually related to non-routine and estimation risks.
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Fraudulent Financial Reporting
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material misstatement on F.S. by management in order to mislead F.S. users
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Misappropriation Assets
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putting assets to wrong use
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Fraud Risk Factors
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1. Incentive
2. Opportunity
3. Rationalization Attitude
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Transaction Cycle
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the sequence of procedures applied by the client in processing a particular type of recurring transaction.
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Dual Purpose Procedures
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Serves as both a test of controls and a substantive test of the details, or the transactions
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Test of Controls
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test that controls are in use and operating effectively
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Substantive Procedures
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detect material misstatements if they exist in the F.S.
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Interim Period
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Period before the balance sheet date
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SCM 3301: Exam 2