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31 Cards in this Set
- Front
- Back
SAS 1 (AU 110) Understand objectives oand responsibilities of Audits
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Objective fo the ordinary audit of FS by indi auditor is the expression of an opinion on the fairness with which they present, fairly, in all material respects, financial position, results of operations and cash flows in conformity with GAAP
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Steps to Develop Audit Objectives (5)
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1. understand objectives and responsibilities of audit
2. divide FS into cycles 3. know mgmt assertions about FS 4. know general audit objectives for classes of transactions, accounts and disclosures 5. know specific audit objectives for classes of transactions, accounts and disclosures |
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Management's Responsibilities
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responsible for adopting sound acctg principles, maintaining adequate internal controls and making fair representation in the FS.
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SAS 1 (AU 110) Auditor's Resonsibility
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auditor has responsibility to plan and perform the audit to obtain reasonable assurance about whether the FS are free of MMS caused by error or fraud.
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Reasonable Assurance
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-High, not absolute level.
-auditor is not a guarantor of FS -auditor uses sampling -acctg has complex estimates -fraud is hard to detect |
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Error vs Fraud
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Error = unintentional
Fraud = intentional |
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FS Cycles - Cycle Approach
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Divide audit into closely related types of transactions and acct balances.
-sales, sales returns, cash receipts and charge-offs to uncollectible [ sales and collection cycle. |
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Major cycles (5)
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1. Sales and collection
2. Aquisition and payment 3. Payroll and personnel 4. Inventory and warehousing 5. Capital aquistion and repayment |
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Transaction related audit objectives
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six audit objectives that must be met before auditor can conclude that the total for any given class of transactions is fairly stated.
-the general transaction related audit objectives are: 1. occurrence 2. completeness 3. accuracy 4. classification 5. timing 6. posting and summarization |
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Balance related audit objectives
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eight audit objectives that must be met before auditor can conclude that any given acct balance is fairly stated;
the general balance related audit objectives are: 1. existence 2. completeness 3. accuracy 4. classification 5. cutoff 6. detail 7. tie-in 8. realizable value 9. rights and obligations |
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Management assertions
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implied or expressed reps by mgmt about classes of transctions and related accts and disclosures in the FS
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Occurence
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Mgmt assertion that trnasactions have been recorded
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Completeness
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mgmt assertion all trnsx and events have been recorded
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accuracy
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mgmt assertion amts and other data relating to recorded transx have been recorded properly
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classification
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mgmt assertion that transx and events are in proper accts
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Cutoff
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mgmt assertion transx and events have been recorded in correct period
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Existence
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mgmt assertion that assets, liabs, and equity interest exist
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Completeness
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mgmt assertion that all assets, liabs and equity that should be recorded have been
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Valuation and allocation
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mgmt assertion that all assets, liabs, equity are included in fs at right amounts and have been adjusted correctly
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Occurence and rights obligations disclosures
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mgmt assertion that disclosed events and transx have occured and pertain to entity
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Completeness disclosures
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mgmt assertion that all disclosures that should have been included in the fs have been
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Classification and understandability disclosure
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FS and other info is approp presented and described clearly
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Rights and obligations
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mgmt assertion that entity hold or controls the rights to assets, liabs are obligation of entity
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Four phases of a FS audit
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1. plan and design audit approach
2. perform tests of controls and substantive test of transactions 3. perform analytical procedures and tests of details of balances 4. complete the audit and issue audit report |
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Phase 1 of FS audit
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1. obtain understanding of entity and environment
2. understand IC and assess control risk 3. assess risk of MMS |
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Phase 2 of FS audit
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1. perform tests of controls and substantive tests of transactions -
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Substantive tests of transactions
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verify monetary amoutns of transactions
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Phase 3 of FS audit
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perform analytical procedures and tests of details of balances
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Analytical procedures
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use comparisons and relationships to assess whether acct balances or other data appear reasonable
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Tests of details of balances
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specific procedures intended to test for monteary misstatements in the balances in the FS
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Phase 4 of FS audit
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Complete audit and issue audit report
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