during the initial planning phase of an auditduring the initial planning phase of an audit

During the initial planning phase of an audit, a CPA mcst lkely Accounting Cycle and Classifying Accounts, Adjusting Accounts for Financial Statements, Asset Demand and Supply under Uncertainty, Business Analytics & Technology Management Chapter 2, Business Analytics & Technology Management Chapter 3, Business Analytics & Technology Management Chapter 4, Business Analytics & Technology Management Chapter 5, Business Analytics & Technology Management Chapter 6, Capital Budgeting and Managerial Decisions, Derivative Instruments and Hedging Activities, External Financial Statements and Revenue Recognition, Financial Intermediaries and Financial Markets, Financial Markets and Securities Offerings, Financial Statements and Accounting Transactions, Integrated Marketing Communications and Direct Marketing, Interactive Marketing and Electronic Commerce, Interpersonal and Organizational Communication, Introduction to Human Resource Management, Introduction to Human Resources Assessment, Managerial Accounting Concepts and Principles, Market Segmentation Targeting and Positioning, Organization and Operation of Corporations, Organizational Markets and Buyer Behaviour, Profitability Analysis and Analytical Issues, Profitability Analysis and Decentralization, Reporting and Analyzing Long Lived Assets, Responsibility Accounting and Performance Measures, Understanding Interest Rates Determinants, One of the financial statement auditors major concerns is to ascertain whether internal The DM draft. planningsee AU-C 501. If youre looking for cheap essay writing service without compromising on quality, were here for you. Audit WebTo assist the auditor in planning the nature, timing, and extent of other auditing procedures As a substantive test to obtain evidential matter about particular assertions related to account balances or classes of transactions As an overall review of the financial information in the final review stage of the audit During the initial planning phase of an audit, a CPA most likely would conduct a preliminary assessment of the client's financial statements and internal controls to determine the scope of the audit and identify any potential risks or areas of concern that may require further examination. Why is it important for CPA firms to establish procedures for establishing materiality, Professional standards provide very little specific guidance on how to assess what is material to a reasonable user, Step 1: Determine overall materialityStep 2: Determine tolerable misstatementStep 3: Evaluate audit findings. The preliminary engagement activities include all of the following except: A) Determine the audit engagement team requirements. Evaluate the The audit team formally presents, in writing, the findings against the criteria used, the conclusion against the audit objective, and the recommendations through two key audit drafts provided for external comment: Before publishing a final report, the OAG provides entities with theopportunity to review and comment on draft audit reports tovalidate facts and provide responses to the recommendations for inclusion in the audit report. When likely misstatements are greater than overall materiality, the auditor should A) Request that the auditee adjust the financial statements. Objectivity:-Whether the IAF is free of any conflicting responsibilities (e.g., having managerial or operational duties or responsibilities that are outside of the IAF). of audit procedures will occur subsequent to the initial planning B) Generally involves less professional judgment for public companies. 10See, e.g., paragraph .06 of AS 1015,Due Professional Care in the Performance of Work,paragraph .16 of this standard, and paragraph D) Relates primarily to the quantity of audit procedures performed. Timingof the various audit procedures should be determined. A) The competence and objectivity of the internal audit function. The reporting objectives of the engagement and the nature of the communications required byPCAOBstandards. Opening meeting. Inherent risk is assessed at a sufficiently low level. 0.1234. Understanding as to the reasons for the change of auditors, d.Understanding as to the reasons for the change of auditors, A written understanding between the auditor and the entity concerning the auditors responsibility for fraud is usually set forth in a(n). D) The nature of the audit software documentation used by the internal auditors. After the facts in the PX draft are confirmed and validated, the OAG normally sends a complete copy of the DM draft to all entities covered bythe audit scope. C) Ensure that there is an independent audit committee. the auditor should perform the procedures in paragraphs .11-.13 of this standard to determine the locations or business units at which audit procedures should be performed. a. WebIntroduction Scope of This Section .01This section addresses the auditor's responsibility to plan an audit offinancial statements. Inquire of the entitys attorney if it is probable that any unrecorded claims will be asserted. a. inquiring of the client's legal counsel concerning pending litigation b. comparing the financial statements with anticipated results c. searching for unauthorized transactions that may aid in detecting unrecorded liabilities d. Examining computer generated exception reports to verify the effectiveness of internal activities. Additionally, some larger, complex companies may have less complex units or processes. Mizoram Rural Bank is a regional rural bank jointly owned by the Government of India, State Bank of India and Government of Mizoram. The first type of illegal acts includes violations of laws and regulations, such as tax laws, that are generally recognized as having a direct and material effect on the determination of financial statement amounts. The audit committee is responsible for the financial reporting and disclosure process. Violation of this ban is punishable under Section 188 of the Indian Penal Code. . Planning is not a discrete phase of an audit but, rather, a continual and iterative process that might begin shortly after (or in connection with) the completion of the previous audit and continues until the completion When a performance audit includes many departments and agencies, the OAG. are used to obtain an understanding of the entity and its environment, including internal control. A risk assessment is carried out to develop an audit plan. and that the audit may not detect all material errors and fraud. 2. Review of audit documentationfrom previous audits performed by the accounting firm or a predecessor auditor (if the latter makes these audit documentation available) will assist in developing an outline of the audit program. This section is written in the context of recurring C) Laws and regulations that have a direct and material effect on the financial statements. Some sections of the draft are highlighted, marking text to be reproduced or repurposed in the OAGs report communications products. If changes are needed, the parties are expected to discuss how best to adjust deadlines to ensure the quality of reports within the OAGs report production schedule. An auditor has no responsibility to detect illegal acts by clients that have an indirect effect on the financial statements. Analytical Procedures 2. during the initial planning phase of an audit, a cpa most At the end of the planning phase, the entity is also required to review the Audit Plan Summary and acknowledge its responsibilities for the subject being audited and the terms of the engagement, including the suitability of the criteria as a basis for assessing whether the audit objective has been met. Identify specific internal control activities that are likely to prevent fraud. Evaluation of all matters of continuing accounting significance.c. Auditing Standard A) The internal audit department's objectivity in reporting a material misstatement of a financial statement assertion it detects to the audit committee, B) The risk the internal control system will not detect a material misstatement of a financial statement assertion, C) The risk that the audit procedures implemented will not detect a material misstatement of a financial statement assertion, D) The susceptibility of a financial statement assertion to a material misstatement assuming there are no related controls. During the initial planning phase of an audit, a CPA most likely would gather information about the client's business and industry, assess risks, and develop an audit a. The Assam type house, owned by Pu V.Liannawla, was built in 1966 and comprises of four floors, housing, AIFF Men's Player of The Year 2023 : Lallianzuala Chhangte. 8. Audit committees have been identified as a major factor in promoting the independence of both internal and external auditors. Copyright 2003-2023 Public Company Accounting Oversight Board. Ask about recent developmentsin the company such as mergers and new product lines which will cause the audit to differ from earlier years. Who is responsible for initiating the communication between the predecessor and successor auditors? B) A procedure that serves as both a test of control and a substantive test of transactions. B) An assessment of internal control. 1Terms defined in Appendix A,Definitions, are set inboldface typethe first time they appear. WebThe audit planning process can be divided into the following three phases: 1) starting the project, 2) preliminary survey (planning the audit and conducting risk assessment), and 3) Supporting accounting records and files that should be readily available are not produced promptly when requested c. related party transactions take place and are audited by an other CPA firm d. senior mgmnt has excessive interest in upgrading the entity's IT capabilities, b. c.Discuss the timing of the audit procedures with the entitys management. 6If no audit committee exists, all references to the audit committee in this standard apply to the entire board of directors of the company. determine the extent to which audit procedures should be performed at selected locations or business units to obtain sufficient appropriate evidence to obtain reasonable assurance about whether the consolidated financial statements are free of material D) The agreed upon limits on auditor liability for an improper audit. C) The audit committee. B) The successor auditor should obtain permission from the entity before contacting the predecessor auditor. For example, internal control testing needs to be performed early in the engagement, inventory counts need to be performed at or near the balance sheet date and the client representation letter cannot be obtained until the end of the audit fieldwork. Determine overall materiality for audit purposes. Communicate the objectives of that person's work; Determine whether that person's procedures meet the auditor's objectives; and. When establishing an understanding with the entity regarding the terms of the engagement, all of the following should be discussed, except: A) The engagement letter. C) The audit risk associated with the accounts examined by the internal auditors. WebIntroduction The whole process of audit engagement usually follows three stages, including audit plan, evidence gathering, and completion stage. d. Inquire of the clients attorney as to whether any unrecorded claims are probably of assertion. An audit in accordance with generally accepted auditing standards normally includes audit procedures specifically designed to detect illegal acts that have an indirect but material effect on the financial statements.c. WebDuring the initial planning phase of an audit, a CPA most likely would - Identify specific internal control activities that are likely to prevent fraud. specify areas of and reasons for disagreement. .09In establishing the overall audit strategy, the auditor should take into account: .10The auditor should develop and document an audit plan that includes a description of: .11In an audit of the financial statements of a company with operations in multiple locations or business units,13the auditor should Officials are expected to participate in briefings to. WebDuring the initial planning phase of an audit, a CPA most likely would: A. Which of the following is a definition of control risk? The audit team offers briefings to senior entity officials to seek their views on the validity and completeness of audit evidence, audit findings, conclusions, and recommendations, including corrective actions to be taken. While validating facts, entity management (including senior entity officials) is expected to examine all statements of fact and provide corrections with appropriate supporting evidence if it identifies. 14Paragraph .66 of AS 2401,Consideration of Fraud in a Financial Statement Audit. misstatement. 1. stockholders). All audited entities receive the full PX draft if they all agree to this approach. Chapter 3 Flashcards | Quizlet jQuery.get( "https://accounting.uworld.com/wp-content/assets/web-footer.html", function( data ) { document.getElementById('univ-footer-wrap').innerHTML=data;}); Identify specific internal control activities that are likely to prevent fraud. Only entities mentioned directly in recommendations are required to respond to them. Which of the following factors most likely would cause a CPA to decide not to accept a new audit engagement? a. C) Is determined, in part, based on how financial statement users may be influenced in making decisions. B) The internal audit function. Responsibility of the Engagement Partner for Planning 3. b. Which of the following is not one of the auditors. Engagement letter. For example, client-prepared schedules need to be ready when the auditor is expected to examine them, and the client needs to be informed of dates when they will be prohibited from accessing bank safe deposit boxes to ensure the integrity of counts of securities held at banks. The entity is expected to make every effort to ensure that the appropriate entity officials attend this meeting. c. Discuss the timing of the audit procedures with the clients management. Establish an understanding of the terms of the audit engagement with the audit committee in accordance with AS 1301. High risk of misstatement within the account balance, class of transaction, or disclosure; Increased number of accounting issues that require significant judgment and/or more estimates with high estimation uncertainty; A history of material weaknesses, significant deficiencies, and/or a high number of deficiencies in internal control; High turnover of senior management or key financial reporting personnel. Make preliminary judgments about materiality levels for audit purposes. They usually involve the comparison of assertions developed by management to ratios calculated by an auditor. The concept of materiality as it applies to a financial statement audit A) Relates primarily to the audit fees involved. d. The entity is expected to review the PX draft and provide its position on any disputed facts, accompanied by all supporting evidence theaudited entity has. during the audit. c. Conclude whether changes in compliance with prescribed internal controls justify relonsider whether the extent of substantive procedures may be reduced based on the results of tests of controls.b. The amount of misstatement that management is willing to tolerate in the financial statements.b. chapter 3 Flashcards | Chegg.com B) To determine a materiality level for the overall financial statements. Once the APS is sent to the audited entity, the OAG asks the deputy head to provide, within the established time frame, written acknowledgement of. Which of the following statements is correct concerning analytical procedures used in planning an audit engagement? B) Issue an unqualified opinion. Identify specific internal control activities that are likely to prevent fraud. Note:When performing an audit of internal control over financial reporting, refer to Appendix B, Special Topics, of AS 220117for considerations when a Phases of the Audit Process Entity notification. 13The term "business units" includes subsidiaries, divisions, branches, components, or investments. However, for an initial audit, the auditor should determine the additional planning activities need to be confirmed on an initial audit. Audit programs should be designed so that. - Evaluate the reasonableness of Providing the auditor with access to key persons within the entity who have been authorized to be involved in the audit (limiting) c. design, implementation, and maintenance of internal control relevant to the preperation and fair presentation of the financial statement d. providing the auditor with access to all information that is relevant to the preperation and fair presentation of the financial statement, b. U.S.C. Conditions that require extension of audit tests. unrecorded claims are probable of assertion. D) A procedure that serves as both a substantive test of transactions and a substantive test of balances. Supporting accounting records and files that should be readily available are not produced promptly when requested, Which of the following procedures would an auditor most likely perform during the overall review state of an audit of an entity's financial statements a. obtain assurances from the entity's attorney that all material litigation has been disclosed in the financial statements b. verify the clerical accuracy of the entity's proof of cash and its bank cutoff statement c. determine whether inadequate provisions for the safeguarding of assets have been corrected d. consider whether the results of audit procedures affect the assessment of the risk of material misstatement due to fraud, d. consider whether the results of audit procedures affect the assessment of the risk of material misstatment due to fraud, Which of the following characteristics most likely would heighten an auditor's concern about the risk of material misstatement arising from fraudulent financial reporting a. there is a lack of interest by management in maintaining earnings trend b. computer hardware is usually sold at a loss before being fully depreciated c. management had frequent disputes with the auditor on accounting matters d. monthly bank reconciliations usually include several large checks outstanding, c. management had frequent disputes with the auditor on accounting matters, Which of the following situations represents a risk factor that relates to misstatements arising from misappropriation of assets a. a high turnover of senior management b. a lack of independent checks c. a strained relationship between management and the predecessor auditor d. an inability to generate cash flow from operations, if not already performed during the overall review stage of the audit, the auditor should perform analytical procedures relating to which of the following transaction cycles a. payroll b. revenue c. purchasing d. inventory. The results of tests of controls.d. .06The auditor should perform the following activities at the beginning of the audit: Determine compliance with independence3A and ethics requirements, and. c. We don't need to consider inflation rate when we measure economic growth. c. The entity's financial statements of the prior year. During the initial planning phase of an audit, a CPA most likely would a. B) Ensure that the audit team is independent. Joint Meeting between various student unions plan to stage mass protest in front of the Mizoram Legislative Assembly Secretariat if their plea remains ignored. consider necessary to complete the engagement. A) The successor auditor has no responsibility to contact the predecessor auditor. arranges timely meetings between the entitys senior management and other staff and the, provides the audit team with the information needed to understand the areas subject to audit, as well as information on lines of responsibility, sources of criteria, risks, management concerns, and any related internal audits, evaluations, or studies that were published previously; and. 4. Whether audit committee oversees employment decisions related to the IAFCompetence:-Whether the IAF is adequately and appropriately resourced relative to the size of the entity and the nature of its operations. They often replace the tests of controls that are performed to assess control risk. 12AS 2301 andAS 2201,An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements. A) Failing to write down inventory to market value just before year-end. US GAAS provides a list of matters that may be subject to the auditors inquiry of the previous auditor, Part of an auditors process of establishing whether the preconditions for an audit are present involves mgmnts acknowledgement of responsibility for all except a. c. Discuss the timing of the audit procedures with the entitys management. Which of the following statements describes why a properly designed and executed audit may not detect a material misstatement due to fraud? Evaluate the results of that person's procedures as they relate to the nature, timing, and extent of other planned audit procedures and the effects on the auditor's report. Early in this phase, the team indicates any plans to rely on work conducted by, or onbehalf of, the entitys internal audit unit. D) Laws and regulations that have a direct and material effect on the financial statements as well as laws and regulations that have material but indirect effect on the determination of financial statement amounts. d. Real GDP growth rate and economic growth rate are always inversely related. The primary objective of procedures performed to obtain an understanding of the entity and its environment, including its internal control, is to provide an auditor with a. knowledge necessary to assess the risk of material misstatement and design further audit procedures b. an evaluation of the consistency of application of management's policies c. a basis for modifying tests of controls d. audit evidence to use in assessing inherent risk, a. knowledge necessary to assess the risk of material misstatement and design further audit procedures, b. Analytical procedures performed during planning often use data aggregated at a high level, The user auditor should apply the same procedures with respect to the services provided by a sub-service organization as a service organization when the user auditor plans to use type 1 or type 2 report that a. was for an engagement for a subservice organization that did not require complementary controls b. was prepared using the carve out method c. contains a system description that is of a date or for a period that precedes the beginning of the audit of the user entity d. was prepared by a service auditor who was not independent of the user entity, b. was prepared using the carve out method, In considering whether to use the service auditor's report, the user auditor should make inquiries concerning the service auditor's professional competence. Detection Risk Personnel Policies and Practices. C) A procedure that provides evidence about two different accounting periods at the same time. In some non-sensitive cases, a letter is sent to the internal organizations auditing committee to let the group know that an audit is forthcoming. The team also discusses how the OAG will brief the entitys senior management (and if requested, the departmental audit committee) on theresults of the audit. C) Review the work of other engagement team members. .02The objective of the auditor is to plan the auditso that the audit is conducted effectively. Such meetings are scheduled with due consideration for the report production schedule. Total assets or total revenues may be better bases for entities in certain industries. Which of the following would an auditor most likely use in determining overall materiality when planning the audit? Thesteps in planningan audit include (Planning Procedures): 1. The contents of the engagement letter. As generally conceived, the audit committee of a publicly held company should be made up of. which of the following statements is true regarding an auditors communications with a predecessor auditor prior to engagement? to formalize the arrangement reached between the auditor and client. .16The auditor should determine whether specialized skill or knowledge is needed to perform appropriate risk assessments, plan or perform audit procedures, or evaluate audit results. What factors should an external auditor use to assess the objectivity and competence of internal auditors? We focus on the decision of the auditing firm. a. Prior to commencing fieldwork, an auditor usually discusses the general audit strategy with the client's management. Compu b. An auditor should design the written audit plan(or program) so that, c. The audit procedures selected will achieve specific audit objectives. An auditor's engagement letter should include, a. Most of the required procedures can be performed as interim work. A dual-purpose test is A) A procedure that provides evidence about two different account balances at the same time. 16There is a reasonable possibility of an event, as used in this standard, when the likelihood of the event is either "reasonably possible" or "probable," as those