AUD 2.04 - Planning

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Complete the following from the PCAOB: The nature and extent of necessary planning activities depend on the (1)_____ and (2)_____ of the company, and the auditor's (3)______ _______ with the company.
- (1) size
- (2) complexity
- (3) previous experience
What are the 4 key activities the auditor is required to perform during the planning of an audit?
- (1) obtain knowledge of the client's business and industry
- (2) develop the audit strategy
- (3) develop the audit plan
- (4) perform risk assessment procedures, including on internal control
Proper supervision of assistants includes...
- Communicating with the entire team the susceptibility of the FS to material misstatement due to error or fraud
- Directing the team's efforts
- Explaining the objectives of the procedures each is to perform
- Coordinating the (NET) nature, extent, and timing of the procedures they are to perform
- Explaining any matters thay may affect their performance
- Staying informed of progress, issues, developments
- Ensuring their performance adheres to GAAS
- Ensuring work is properly documented
The audit nears its end and an assistant disagrees with a certain accounting issue that remains unresolved. What is the assistant's recourse?

The assistant may disassociate him/herself from the resolution (or lack thereof) by documenting his/her disagreement and its basis.
What are the 4 more common sources of industry information
- AICPA accounting and audit guides
- Trade publications and associations
- Government publications
- AICPA Accounting Trends and Techniques (the annual survey of accting practices)
Knowledge of the client's industry help the auditor understand general (1)_______________, while knowledge of the client's business help the auditor understand specific (2)_________ and (3)_________ that may affect the FS.
- (1) business practices
- (2) events
- (3) transactions
What activities can the auditor perform to become better acquainted with the client's business?
- Tour client facilities
- Review the financial history
- Learn the client's accounting methodology
- ** methods used to gather and process accting info
- ** identify related party transactions
- ** understand applicable accting & auditing pronouncements
- Review the client's policy & procedures manual
- Inquire of client personnel regarding current business developments
What are the primary contents of the audit strategy?
- The scope of the audit engagement
- The reporting objectives
- Timing of the audit
- Required communications
- Factors that determine the focus of the audit
- Preliminary assessment of materiality and tolerable misstatement
Define audit focus

The areas during an audit that the auditor will spend the most time exploring due to the risk of material misstatement
Define audit scope
- Establishes how deeply an audit is performed;
- the NET of documents which must be reviewed or are involved in an audit
What factors influence the focus or scope of the audit?
- Basis of accounting
- Materiality
- Audit risk
- Account balances
- Reporting currency
- Significant accounting changes
- Significant changes of the business, industry, or related laws and regulations
- Physical locations of the entity
- The effectiveness of internal controls
- The entity's use of service organizations
What is the primary content of the audit plan?
- Outlines the (NET) nature, extent, and timing of the procedures to be performed during the audit.
- Each procedure should reference the assertion under consideration
True / False: A written audit plan is required.

True
Define risk assessment procedures

Used to assess the risk of material misstatement in order to determine the NET of further audit procedures
True / False: Risk assessment procedures provide sufficient support for an audit opinion
- False
- Risk assessment procedures determine the NET of further audit procedures needed to form an opinion
Define further audit procedures

The actual tests of internal controls or substantive procedures that investigate the details that could determine existence of material misstatement
What is the purpose of testing internal controls?
- To (1) understand the controls and
- (2) determine if they can be relied on
- in order to reduce the need for substantive tests
What are the 3 levels of assertion for which further audit procedures are performed?
- Account balance
- Transaction class
- Disclosure item
True / False: Financial statements are statements of facts
- False
- They are claims and assertions about the recognition, measurement, presentation, and disclosure of information
List the 6 main financial statement assertions?
- C-O-V-E-R-U
- (1) Completeness
- (2) CutOff
- (3) Valuation, Allocation, Accuracy
- (4) Existence or Occurrence
- (5) Rights and Obligations
- (6) Understandability and Classification
Define Completeness. Which accounts (I/S & B/S) pose the highest risk related to completeness?
- Ensure nothing is missing from the transactions or disclosures.
- Highest Risk Account: Expenses (I/S), Liabilities (B/S)
Define Cutoff.

Ensure transactions are recorded in the proper period.
Define Existence / Occurrence. Which accounts (I/S & B/S) pose the highest risk related to occurrence?
- Did the individual transactions, events, or disclosures actually take place?
- Highest Risk Accounts: Revenues (I/S), Assets (B/S).
Define Valuation and Allocation
- Ensure the assets and liabilities are valued correctly.
- Ensure the amounts are allocated to their proper accounts, especially expenses.
Provide examples of the natureof a procedure (how it's done).
- Count
- Vouch
- Trace
- Compare
- Calculate
- Confirm
- Examine
When referring to the extent of a procedure, provide a few examples to which this relates
- A specified number of records
- The entire population
- All records related to this specific event
When referring to the timing of a procedure, provide a few examples to which this relates
- At some interim date
- Following year-end
- Throughout the entire period
- Following some interim period
Suppose a company demonstrates strong internal controls. If so, the firm could rely on tests and procedures performed during the (1) interim period, or (2) year-end.

(1) interim period
Suppose a company demonstrates weak internal controls. If so, the firm could rely on tests and procedures performed during the (1) interim period, or (2) year-end.

(2) year-end

Author

BethM

332233

Card Set

AUD 2.04 - Planning

Description

Becker Review 2017

Updated

2017-07-09T18:24:59Z

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