AUD CPA Notes cont. PDF

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Summary

CPA AUD Notes...

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Audit notes from ninja 

Interim audit standards are authoritative

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Strongest evidence supporting dividends earned o Investment services

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If financial statements contain unadjusted immaterial misstatements, disclosures NOT necessary

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AICPA impairs o Direct and material indirect

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4 steps to data analytics o Planning audit data analytics o Access and prepare data o Assess relevance and reliability of data o Perform audit data analytics o Evaluate/conclude

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Review of interim o Modify for

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Departures

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Inadequate disclosures

Client acceptance o Evaluating CPA’s ability to properly service client

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CLIENT prepares account confirmation requests o Indicates details of customer’s account balances

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Annual report must contain o Responsibility of management for establishing and maintaining an adequate internal control structure and procedure for financial reporting o Must also contain an assessment of effectiveness of IC (public)

o Auditors report on the assessment OF management 

Computer processes show o Exceptions and control totals

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Independence NOT needed for o Prep tax return o Compilation of financial forecasts o Compilation of personal financial statements

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Analytical procedures most useful for o Income statement accounts (bc period of time) o Ex: operating expense transactions

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Risk of assessing control risk too low is risk that assessed level of control risk based on sample is less than true effectiveness of control o Sample from smaller population will be more representative o Risk is lower for same sample from smaller pop

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Prospective financial statements o Adverse opinion if no significant assumptions o Disclaimer opinion if practitioner cant perform certain procedures

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Professional care o Requires critical review at every level of supervision of the work done

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Internal control issues o Safeguards over assets o records and review of indications of fraud

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Risk of material misstatement at FS level

o Risks that relate pervasively to the FS as a whole and potentially affect many assertions 

Internal controllers o Cannot share responsibility

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Determination of when an award is expended should be based on o When the activity related to the award accurs

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Need independence for o Reviews o Agreed upon procedures

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Agreed upon procedures o Specified parties take responsibility o Not public accounting firm

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Electronic data interchange o Routine business transactions

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Indirect financial interest o Investment held through a regulated mutual fund

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Presumptively mandatory language o Should

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Before accepting engagement o Ethical requirements meant

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When unmodified o Explicitly report conformity w GAAP o Implicitly say adequate procedures

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When auditing supplementary infor o Use same materiality

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Variables sampling usually for o Determining proper dollar value of sampled item

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If client refuses contact with predecessor auditor o Auditor should seek out why and decide if they should disengage

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RE – determing whether restrictions on RE resulting from loans, etc o Compleness of disclosures

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SSARS o Standards for accounting and review standards o Not appricable for just assisting in preparing financials

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Embedded audit modules o Difficult to install once the program is operational o Auditors are required to be involved in system design of the application to be monitored o Protected from viruses

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Review o Less scope than audit o Does not express opinion o Limited assurance o Inform appropriate level of management about any material errors and evidence/info that comes to accountant’s attention during performance of review that fraud may have occurred o Reviews minutes during review of interim

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Data analytics o Test of controls o Test of details o Risk assessment procedures

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o Final opinion 

Mean per unit technique to get auditor’s estimate of population o Sample balance determined by auditor/number of items in sample = mean per unit o Then MPU x total # in population

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Difference estimation technique to get balance determined by auditor o First: Total misstatement  Balance by auditor of sample – book balance of sample o THEN divide by number in sample, multiply by number in population o Lastly, add that to the book balance

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Internal control for bank statements o Directly to internal auditor  By personnel who are not involved in executing or recording cash transactions

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Auditor only tests operating effectiveness of controls when o Auditor’s risk assessment includes expectation of the operating effectiveness of controls OR o When it is not possible or practicable to reduce detection risk at the relevant assertion level to an acceptably low level with evidence from substantive procedures alone o Auditor must always obtain knowledge about design and policies/procedures of controls

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Wording used to impose a requirement in IESBA o Shall

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Auditor needs to get written agreement from client that they can talk to ANY person within entity (not just specifics)

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Emphasis of matter not required if o In accordance with regulatory basis for general use

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Completeness in revenue cycle o Invoice prepared for each shipping document

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Governance communication o When noncompliance is intentional and material o Auditor’s responsibilities to complete audit accordance w/GAAS o NOT required to talk about control deficiencies o IS required to report significant findings

 Auditor can’t delete anything for 7 years  Agreed upon procedures o List procedures performed o Related findings o Required elements of a report o NO reference to fairness of presentation  CAMS o Identify o Describe why a CAM o Describe how addressed o Refer to F/S o If NO CAMS – include statement that there are none  Governement audit of FS o Always report significant deficiencies in IC  Identifying related party transactions

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o Reviewing confirmations of compensating balance arrangements  Group engagement team should request component auditor to communicate o If ethical requirements met – including independence o Identification of financial info of component on which component auditor is reporting o Component auditor’s overall findings and conclusions  PCAOB standards o Communication with audit committee before issuance of audit report  In engagement letter o NOT promise to discuss specific procedures to be performed during the audit o DO include objective and scope in written agreement o Billing/fees o Reference to expected form and content of reports issued  Overall objectives of auditor o Reasonable assurance over FS o Report on FS  Attributes sampling o Determination of rate of occurrence in a population o Ex: identifying entries posted to incorrect amounts  Dollar amounts is VARIABLE testing  Dual purpose o Test of controls  Verify whether IC working and strong

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o Test of detail  Substantive procedures that verify different assertions in FS

 Comfort letters o Auditor must read all letters written by component auditors o Auditor is not required to accept an engagement to issue a comfort letter in connection w/fs included in a securities offering  SECURED automobile loan ok  If auditor planning test of controls and expects numerous errors o Sample size will need to be expanded o Sequential (stop or go sampling)  Each step is conditional on the results of previous step  Discovery sampling o When auditor expects low error rate  Dual purpose sampling o Used to test attributes and variables at the same time o Also when low error rate expected  Variable sampling o Concerned w/details of transactions and balances (substantive testing)

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Treasurer department

o Proper authorization of write offs of uncollectible accounts o Approvals Advisor to client’s board of trustees o Does NOT impair independence If no written representation about preparation and fair presentation of FS and for information provided and completeness of transactions o Disclaim because that’s management’s responsibility US GAAS o Developed and issued in form of SAS o Do NOT address the responsibilities of the auditor that may exist in legislation, regulation, etc o GAAS does NOT override laws or regulations that govern the audit of FS (auditor might need to do other stuff in addition) o GAAS codified into AU sections Test of controls intended it provide if o Controls operating effectively Substantive procedures related to tell us if o FS materially misstated o Risk of incorrect acceptance is too high Comfort letters in connection with an entity’s FS included in o A security offering Downside of systematic sampling o Auditor determines uniform interval o May occur in systematic pattern destroying randomness Advantage of statistical over nonstatistical sampling is that statistical provide a model for determining sample o Sample size while recognizing specific factors In nonstatistical sampling, auditor chooses sample size by o Based on his/her judgement Sample risk

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o Risk of drawing the wrong conclusion from a sample bc not representative of population Detection risk o Risk that audit procedures will incorrectly lead to conclusion that material misstatement does not exist, when It does Government audit o Report on scope of tests of compliance w/laws and regulations o May report recommendations to correct problems o Expresses opinion on whether info is correct o Users of report determine whether measures of economy and efficiency are valid and reliable and also the extent to which programs achieve the desired results If reporting on FS that aren’t with GAAP o EXCEPT for general use regulatory basis FS o Should include emphasis of matter that  Indicates FS prepared with applicable framework  Refers to note to FS that describes framework  States that special purpose framework basis of accounting other than GAAP Auditor may express different opinions on statements presented Material scope restrictions result in a qualification or disclaimer of opinion Auditor NOT precluded from reporting on only one FS Risk of material misstatement is assessed to determine o NET of further audit procedures Review engagement limited to o Inquires and analytics If auditor did not observe PY physical inventory o Most likely audit py inventory using alternative substantive procedures o

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