BUS 425
Engagement Planning,
Auditing
Tad Miller
Internal Control Evaluation
Audit Strategy
May 2015
1. COMMUNICATION WITH PREDECESSOR AUDITOR What issues do auditing standards require the
successor auditor to discuss with the predecessor auditor?
2. AU-C 315
Write the objective of AU-C 315.
3. RELATED PARTIES
of an audit.
Describe or define related parties. Be sure to put your answer in the context
4. ANALYTICAL PROCEDURES
5. MATERIALITY
Briefly describe analytical procedures.
Write the definition of materiality.
6. PERFORMANCE MATERIALITY (TOLERABLE ERROR / TOLERABLE MISSTATEMENT)
materiality.
Describe performance
7. ESTIMATING MISSTATEMENT -- ALLOWANCE FOR SAMPLING RISK
Performance materiality for
inventory is $35,000. The inventory balance is $450,000 comprised of 810 SKU numbers. We
sample 90 items with recorded values totaling $50,000. The audited value of those 90 items is
$46,500 with a sample mean of $516.67. Explain why you would with either 1) accept the
conclusion that inventory is not materially overstated or 2) be unwilling to conclude on inventory.
Show your work. You will be graded on you analysis and the use of the appropriate words.
8. ACCEPTABLE AUDIT RISK Define acceptable audit risk. Do not list the elements of audit risk.
9. AUDIT RISK Define audit risk. Do not list the elements of audit risk.
10. AUDIT RISK MODEL Which element(s) of audit risk are auditors able to reduce with audit
procedures and which element(s) of audit risk are auditors unable to reduce with audit
procedures. Please do not abbreviate the names of the elements.
11. CONTROL RISK
Define control risk.
12. Define planned detection risk.
13. AUDIT RISK MODEL If we preliminarily assess control risk as low, what does that imply about our
beliefs about the effectiveness of the client's control activities ?
14. AUDITOR’S RESPONSIBILITY PARAGRAPH
In addition to discussing internal controls, the second
paragraph of the Auditor’s Responsibility Section of the Audit Report, includes five elements that
are covered by an audit. Please list these five elements ...
15. SARBANES OXLEY As a result of Sarbanes Oxley, the PCAOB establishes specific reporting
requirements for management regarding the company's internal control structure. List the three
statements pertaining to internal controls that management must include in the company's
annual report.
16. INTERNAL CONTROL
control
How does COSO (committee of sponsoring organizations) define internal
17. COMPONENTS OF INTERNAL CONTROL
List the five components of internal control.
18. SEGREGATION OF DUTIES with regard to segregation of duties, what four functional
responsibilities should be performed by different people
.
19. UNDERSTANDING THE CLIENT'S ACCOUNTING SYSTEM In order to document our understanding of
the client's accounting system (which is an important part their internal controls). We need to
demonstrate that we understand the flow of transactions. Please list the steps between identifying
"the various classes of significant transactions" and how those transactions get "placed in the
financial statements and disclosures."
types of material errors and fraud that could occur
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– identify the various classes of significant transactions and methods by which each
significant class of transactions is:
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20. TYPES OF DOCUMENTATION
What three different types of documentation are typically used to
demonstrate our understanding of the internal controls?
21. MANAGEMENT ASSERTIONS During the audit, you find an entry in the sales journal for which there
is no supporting shipping document or sales order. To which financial statement assertion does
this condition relate?
22. MANAGEMENT ASSERTIONS Cash appears to be overstated. You find a check which was written
but was never entered into the cash disbursements journal. To which financial statement
assertion does this condition relate?
23. SIGNIFICANT DEFICIENCY / MATERIAL WEAKNESS
Define a deficiency in internal control.
24. AUDIT RISK MODEL PRIVATE CLIENT NOT SUBJECT TO SARBANES OXLEY We have obtained an
understanding of the client's internal controls, evaluated the design, and determined they would
not be effective.
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are auditors always required to perform some Tests of Controls during audits of
private companies
how will you preliminarily assess control risk
which audit approach will you take
how extensive will you Test Controls
how extensive will your Substantive Tests be
25. AUDIT RISK MODEL SEC CLIENT SUBJECT TO SARBANES OXLEY We have obtained a sufficient
understanding of the client's internal controls, evaluated the design, and we believe the controls
would be effective, if they are properly implemented.
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are auditors always required to perform some Tests of Controls during audits of
public companies
how will you preliminarily assess control risk
which audit approach will you take
if your preliminary assessment of control risk is correct, how extensively will you
Test Controls
if your preliminary assessment of control risk is correct, how extensive will your
Substantive Tests need to be
26. AUDIT RISK MODEL SEC CLIENT SUBJECT TO SARBANES OXLEY We have obtained a sufficient
understanding of the client's internal controls, evaluated the design, and determined the controls
would not be effective, even if they are properly implemented.
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27. AU-C 500
are auditors required to perform some Tests of Controls on all audits of public
companies
how will you preliminarily assess control risk
which audit approach will you take
if your preliminary assessment of control risk is correct, how extensively will you
Test Controls
if your preliminary assessment of control risk is correct, how extensive will your
Substantive Tests need to be
write the objective of AU-C 500.
28. Please do not abbreviate the audit approaches in the first reference. You may abbreviate if you
refer to an approach more than once.
Under which approach are auditors required to obtain an understanding of the internal
controls?
Under which approach are auditors required to obtain sufficient appropriate evidence?
29. LIABILITY ACCOUNTS
Over
Under
With regard to a typical liability account.
Are we most concerned about overstatement or understatement ?
Complete Exist
Are we most concerned about completeness of existence ?
Vouch
Will we vouch from the Gen. Ledger to the supporting documents
or trace from the supporting documents to the Gen Ledger
Trace
30. REVENUE ACCOUNTS
Over
Under
With regard to a typical revenue account
Are we most concerned about overstatement or understatement ?
Complete Occur
Are we most concerned about completeness or occurrence ?
Vouch
Will we vouch from the Gen. Ledger to the supporting documents
or trace from the supporting documents to the Gen Ledger
Trace