Missed concepts

Question 1

Name the items required to be in the engagement letter.

Answer 1

1. objectives of the engagement
2. responsibility of management
3. responsibility of the practitioner
4. limitations of the engagement
5. identification of the applicable financial reporting framework
6. reference to the expected form and content of any reports to be issued by the auditor

Question 2

When is the only time the auditor should refer to the work or findings of a specialist in the audit report?

Answer 2

If reference to the specialist’s findings clarifies an emphasis-of-matter or other-matter paragraph (such as for an unusually important subsequent event) or facilitates an understanding of a departure from an unmodified opinion.

Question 3

When assessing the internal auditor’s objectivity, the auditor should obtain information about such factors such as?

Answer 3

1. the organizational status of the internal auditors responsible for the internal audit function and
2. the policies to maintain internal auditor’s objectivity about the areas audited

Question 4

The internal auditor’s work may affect the nature, timing and extent of the audit, including what 3 things?

Answer 4

1. procedures the auditor performs when obtaining an understanding of the entity’s internal control structure
2. procedures the auditor performs when assessing risk and
3. substantive procedures the auditor performs

Question 5

Before the external auditor uses the internal audit function to obtain audit evidence, the external auditor should review what 3 things?

Answer 5

1. the function’s organizational status
2. level of competence
3. its application of a systematic and disciplined approach, including quality control

Question 6

Name the 3 objectives of the auditor.

Answer 6

1. obtain sufficient appropriate audit evidence regarding material amounts and disclosures
2. perform specified audit procedures that may identify instances of noncompliance
3. respond appropriately to noncompliance or suspected noncompliance

Question 7

Name the 3 categories reflected in the definition of internal control.

Answer 7

1. reliability of financial reporting
2. effectiveness and efficiency of operations
3. compliance with applicable laws and regulations

Question 8

What is the ultimate purpose of assessing control risk?

Answer 8

to contribute to the auditor’s evaluation of the risk that material misstatements may exist in the FS.

Question 9

Name the 5 audit procedures that an auditor would normally use.

Answer 9

1. observation of entity activities
2. inspection of docs
3. reading reports prepared by mgmt.
4. physical observation
5. tracing transactions

Question 10

Name the 4 steps in the audit procedure with regard to related party t.ransactions

Answer 10

1. determine the existence of related party
2. identify transactions with related parties
3. examine the transactions as o their business purpose, substance, extent and effect on FS
4. Disclose the following: nature of the relationship(s), description of transactions, dollar volume of transactions, and amounts due from or to related parties and terms, if relevant

Question 11

To determine whether a particular assertion is relevant to a significant account balance or disclosure, the auditor should evaluate what 3 things?

Answer 11

1. nature of the assertion
2. volume of transactions or data related to the assertion
3. the nature and complexity of the systems,

Question 12

The auditor’s understanding of the entity and its environment consist of an understanding of what 5 aspects?

Answer 12

1. industry, regulatory and other external factors
2. nature of the entity
3. objective and strategies and the related business risks that may result in a material misstatement of the FS
4. measurement and review of the entity’s financial performance
5. internal control, which includes the selection and application of accounting policies