Outline for Final
Old Material:
Objectives of the following sections of the auditing standards
AU-C Section 200 Overall Objectives of the Independent Auditor and Conduct of
an Audit in Accordance with GAAS
AU-C Section 315 Understanding the Entity and Its Environments and Assessing
the Risk of Material Misstatement
AU-C Section 500 Audit Evidence
AU-C Section 700 Forming an Opinion and Reporting on Financial Statements
Independence .. our definition
Management Assertions – identify which one apply
(if in doubt, Tad's favorites are Occurrence, Completeness, Accuracy, Existence,
Completeness, and Valuation & Allocation;)
Reporting (Unmodified, Qualified, Adverse, Disclaimer)
--Material misstatement: either Qualified or Adverse
(depends upon whether the misstatement can be
compartmentalized or is pervasive)
--Scope Limitation: either Qualified or Disclaimer of Opinion
Management refuses to sign rep letter, or Attorney won’t return
letter
Do you know the difference between a Qualified for Scope
limitations and a Qualified for accounting issues ?
Do you know the first sentence of each paragraph?
Audit Risk
1. Definition
2. Model: AAR = IR x CR x pDR
pDR = AAR / (IR * CR)
or pDR = AAR / RoMM
Audit Approaches & Type of tests performed
CR = Low or CR = MAX; pDR = Low or pDR = MAX
Reduced level of control risk or primarily substantive
Extent of tests of controls, extent of substantive testing
Tests of Controls
Substantive tests
Substantive tests of transactions
Substantive analytical procedures
Tests of details of account balances
Chapter 14 & 16 Sales and Collection cycle
Credit sales transactions
Collections or Cash receipts transactions
Cash
Accounts receivable
Sales
Vouching, tracing
Cutoff at 12/31/15
Last 25 entries in Sales Jnl before 12/31/15
First 25 entries in Sales Jnl after 1/1/16
Last 25 shipments before 12/31/15
First 25 shipments after 1/1/16
Last 25 entries in Cash Receipts Jnl before 12/31/15
First 25 entries in CR Jnl after 1/1/16
Last 25 entries in Cash Disbursements Jnl before 12/31/15
First 25 entries in CD Jnl after 1/1/16
From which audit reports will you decide if you find a material misstatement?
You should know the first sentence of each paragraph in the report.
Three types of substantive tests
Substantive tests of transactions
Substantive analytical procedures
Tests of details of account balances
Tolerable misstatement / Tolerable Error / Performance Materiality
Confirmation process
Types of receivable confirmations
Alternate procedures
Audit Sampling for Tests of Details of Balances
Project the sample results to the population
Consider allowance for sampling risk
Chapter 23
Audit of Cash Balances
Separation of Duties
Bank reconciliation / Proof of Cash - what they are used for
Cutoff Bank Statement
Bank Confirmation
Tests of Bank Transfers
Chapter 24
Completing the Audit
Contingent Liabilities / Contingent Losses
SFAS 5 Contingencies: probable, reasonably possible, remote
Inquiry of Client’s Attorneys
Letter of Inquiry
The response is often called the “Attorney Letter”
Subsequent Events: the two types of subsequent events
Letter of Representation or Management Representation Letter
This is very different than the Management Letter
What audit report do you issue if management will not provide a Letter of
Representation?
You should know the first sentence of each paragraph in the report.
Analytical Procedures: three stages, when required
AU-C 260 Communications with those charged with Governance
Other than internal control matters
AU-C 265 Communicating Internal Control related matters identified in an Audit
Significant Deficiencies, Material Weaknesses
Discussed but not on the Final
Dual Dating
Subsequent Discovery of Facts