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jamlea343
Vouching Vouching:
Did the transactions summarized in the financial
statements actually occur? From the financial
statements to the accounts and ultimately to the
original transaction documents.
Tracing Tracing:
Have all transactions that occurred during the period
been recorded properly in the accounts and
summarized in the FS? (Completeness) From the
original transaction documents to the accounts and
ultimately to the finanical statements.
Independence Independence:
Auditors represent neither the financial statement
preparers (mgt) nor the financial statement users
(investors, creditors, etc.)
Materiality Materiality:
An audit is directed toward the discovery of material
misstatements or omissions in the financial statements.
Materiality involves professional judgement and is
influenced by the auditor's perception of the needs of
a reasonable person relying on the financial
statements.
Governmental Auditors Auditors who work for the federal, state, or local
government:
- Government Accountability Office (GAO) Auditors:
conduct audits for Congress
- Internal Revenue Agents: conduct compliance audits
for the IRS
Reference to predecessor's The successor should NOT make any reference to the
work predecessor's work or report as a basis, in part, for
the successor's own opinion.
Audit Risk Audit risk is the risk that an auditor may unknowingly
fail to appropriately modify the opinion on financial
statements that are materially misstated.
IR - Inherent Risk
CR - Control Risk
AP - Substantive Analytical Procedures Risk
TD - Test of Details Risk
Control Risk Control risk is the risk that a material misstatement that
could occur in a relevant assertion will not be
prevented or detected on a timely basis by the entity's
internal controls.
Detection Risk Detection risk is the risk that the auditor will not
detect a material misstatement that exists in a relevant
assertion.
The auditor normally sets the The auditor normally sets the levels of tolerable
levels of tolerable misstatements misstatements LOWER than the materiality level.
_____ than the materiality level.
Information & Communication This refers to the identification, retention, and transfer
of information in a timely manner enabling personnel
to execute their responsibilities.
Control Environment The control environment is the foundation for all other
components of internal control. It sets the tone of an
organization that influences the control consciousness
of its people.
The auditor should perform tests 1. The auditor's risk assessment includes an
of controls when: expectation of the operating effectiveness of controls
2. When it is not possible or practicable to reduce
detection risk at the relevant assertion level to an
acceptably low level with audit evidence obtained
from substantive procedures alone.
The significance of a deficiency The significance of a deficiency in internal control
in internal control depends on depends on the potential for a misstatement, not on
the potential for a misstatement, whether a misstatement actually has occured.
not on whether a misstatement
actually has occured.
The Third Standard of Fieldwork The auditor must obtain sufficient appropriate audit
evidence by performing audit procedures to afford a
reasonable basis for an opinion regarding the
financial statements under audit.
Rights & Obligations The entity holds or controls the rights to assets, and
liabilities are the obligations of the entity.
Valudation & Allocation Assets, liabilities, and equity interests are included in
the financial statements at appropriate amounts and
any resulting valuation or allocation adjustments are
recorded appropriately.
Occurence and Rights & Disclosed events and transactions have occurred and
Obligations pertain to the entity.
Accuracy & Valuation Financial and other information are disclosed fairly
and at appropriate amounts.
If the auditor is unable to obtain If the auditor is unable to obtain sufficient appropriate
sufficient appropriate audit audit evidence, the auditor should express a qualified
evidence, the auditor should opinion or a disclaimer of opinion.
express a qualified opinion or a
disclaimer of opinion.
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