BUS 425
Auditing
Tad Miller
Nov. 10, 2015
Audit Planning, Materiality & Risk, Internal Control Evaluation and Overall Audit Approach
1.
AU-C 315
2.
COMMUNICATION WITH PREDECESSOR AUDITOR What three issues do auditing
standards require the successor auditor to discuss with the predecessor auditor?
3.
4.
Write the objective of AU-C 315
Related Parties Describe related parties as the term is used in auditing literature.
SARBANES OXLEY The PCAOB has established reporting requirements for
management regarding the company's internal control structure. List the three
statements management must include in the company's annual report pertaining to
internal controls.
5. ANALYTICAL PROCEDURES
Briefly list the two primary reasons auditors are required
to perform analytical procedures in the planning stage of an audit.
6.
ANALYTICAL PROCEDURES
List three commonly used types of analytical procedures
that would typically be performed during the planning phase of the audit.
7. MATERIALITY
Write the definition of materiality.
8. PERFORMANCE MATERIALITY
performance materiality.
Describe tolerable error, tolerable misstatement or
9. ESTIMATING MISSTATEMENT
Tolerable error for inventory is $5,000. The inventory
balance is $50,000 comprised of 1,000 SKU numbers. We sample 150 items with
recorded values totaling $7,500. However, the audited value of those 150 items is
$6,937.50 with a sample mean of $46.25. Explain why you would with either 1)
conclude 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.
10. CONTROL RISK
a timely b
Write the definition of control risk.
asis by the client’s internal controls.
11. AUDIT RISK MODEL If we assess control risk as high what does that imply about the
amount of evidence we will need to obtain from our tests of controls?
If planned detection risk is high what does that imply about the amount of evidence we
will need to obtain from our substantive tests? (circle the correct answers).
Amount of evidence test of controls must provide if CR is High
MINIMAL MODERATE EXTENSIVE
Amount of evidence substantive tests must provide if PDR is High
MINIMAL MODERATE EXTENSIVE
12.
INTERNAL CONTROL
How does COSO define internal control
13. SARBANES OXLEY As a result of Sarbanes Oxley, auditors must now issue a second
attestation report. What two reports do auditors issue for public clients?
14.
COMPONENTS OF INTERNAL CONTROL
List the five components of internal control.
15.
SEGREGATION OF DUTIES what four functional responsibilities need to be performed
by different people in order for duties to be adequately segregated?
16.
MANAGEMENT ASSERTIONS During the audit, you find an entry in the sales journal for
which there is neither an underlying shipping document nor a sales order. To which
financial statement assertion does this condition relate?
17.
MANAGEMENT ASSERTIONS During the audit, you find prices on invoices which are
higher than the official price list. To which financial statement assertion does this
condition relate?
18.
MANAGEMENT ASSERTIONS During the audit, you find a customer order and a shipping
document indicating the goods were shipped to the customer but you are unable to
find where the transaction was recorded in the sales journal. To which financial
statement assertion does this condition relate?
19.
AUDIT OBJECTIVES
Write three audit objectives for sales transactions
20. TYPES OF DOCUMENTATION
What three types of documentation are typically used to
document our understanding of the internal controls?
21.
MATERIAL WEAKNESS
Write the definition of material weakness.
22. SIGNIFICANT DEFICIENCY / MATERIAL WEAKNESS If an auditor becomes aware of either
a significant deficiency or a material weakness in a public company’s internal controls,
to whom must it be reported.
23.
AUDIT RISK MODEL What is the achieved detection risk (not the planned detection
risk but the achieved detection risk) at the beginning of every audit?
24.
AUDIT RISK MODEL If we preliminarily assess control risk as high what does that
imply about the effectiveness of their internal controls?
25. AUDIT RISK MODEL SEC CLIENT SUBJECT TO SARBANES OXLEY We have evaluated
the design of the client’s internal controls and we do not believe the controls would be
effective even if properly implemented. We also believe that substantive would cost
less to perform than test of controls.
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26.
AUDIT RISK MODEL PRIVATE CLIENT NOT SUBJECT TO SEC (SARBANES OXLEY) We
have evaluated the design of the client’s internal controls and do not believe the
controls would be effective even if properly implemented. We do believe that tests of
controls would cost less to perform than substantive tests.
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27.
Which audit approach will you take?
How will you preliminarily assess Control Risk?
What is the extent of Test of Controls will you perform?
What is the extent of Substantive Testing will you perform?
Are you required to perform Tests of Controls for private clients?
Which audit approach will you take?
How will you preliminarily assess Control Risk?
What is the extent of Test of Controls will you perform?
What is the extent of Substantive Testing will you perform?
AUDIT RISK MODEL PRIVATE CLIENT NOT SUBJECT TO SEC (SARBANES OXLEY) We
have evaluated the design of the client’s internal controls and we believe the controls
would be effective if properly implemented. We do believe that substantive would cost
less to perform than test of controls.




Which audit approach will you take?
How will you preliminarily assess Control Risk?
What is the extent of Test of Controls will you perform?
What is the extent of Substantive Testing will you perform?
28.
UNDERSTANDING THE CLIENT'S ACCOUNTING SYSTEM In order to document our
understanding of the client's accounting system (not their internal controls but their
accounting system which is an integral part of the control structure). We need to
demonstrate that we understand the flow of transactions by documenting:
 the significant classes of transactions
 how those transactions are:
29.
CLASSES OF SIGNIFICANT TRANSACTIONS
List the transaction cycle we have been
studying in class and the two significant classes of transactions that comprise this
transaction cycle.