Auditor should examine evidence obtained from the following Procedures: “ADMITS”
- Analytical Procedure
- Debt Compliance – review loan agreements
- Minutes – review minutes of BOD meetings
- Inquiry – client’s legal counsel
- Third Parties
- Subsequent Events Review
Conditions and Events that may be indicative of substantial doubt: “FINE”
- Financial Difficulties – (ie. loan defaults, denial of usual trade credit, debt restructuring)
- Internal Matters – (ie. labor difficulties, work stoppages, significant revision of operations)
- Negative Trends – (ie. recurrent losses, working capital deficiencies, negative cash flows)
- External Matters – (ie. legal proceedings, new legislation, loss of a key franchise, natural disaster)
Updated opinion – only “DORCS” change their mind:
- Date of the auditor’s previous report
- Opinion type previously issued
- Reason for the prior opinion
- Changes that have occurred
- Statement that the “opinion…is different”
Auditor’s responsibility for Subsequent Events: “PRIME”
- Post balance sheet transactions
- Representation letter should be obtained from management
- Inquiry – (ie. new commitments, sale of assets, unusual accounting adj., legal counsel)
- Minutes of BOD meetings
- Examine latest available interim FS – compare to FS under audit
Understanding a Client’s business for a Compilation include: “STAFF”
- Staff Qualifications
- Transaction types and frequency
- Accounting basis used to prepare the FS
- Form of accounting records
- Financial statements’ form and content
Performance requirements applicable for a Review audit: “U LIAR CPA”
- Understanding with client should be established
- Learn and obtain sufficient knowledge of entity’s business
- Inquiries should be addressed to appropriate individuals
- Analytical procedures should be performed
- Review – other procedures should be performed
- Client representation letter should be obtained from management
- Professional judgment should be used to evaluate results
- Accountant (CPA) should communicate results
Agreed-Upon Procedures include: “I AM SURE”
- Independence of the Practitioner
- Agreement of the Parties
- Measurability and Consistency – (Implied)
- Sufficiency of the Procedures – (Implied)
- Use of the report is Restricted to Specified Parties
- Responsibility for the Subject Matter – (Client)
- Engagements to perform on Prospective Financial Statements
Six main Financial Statement Assertions: “COVER U”
- Completeness – (Tracing, Analytical Review, Observation)
- Cut-Off – (before and after YE)
- Valuation, Allocation, and Accuracy – (Inspection, Footing, Independent Recalculation, Recon.)
- Existence and Occurrence – (Confirmation, Vouching, Observation/Inspection/Examination)
- Rights and Obligations – (Inspection)
- Understandability and Classification – (Inspection, Review, Inquiry of Management)
COSO framework for components of Internal Control: “CRIME”
- Control Environment: the overall tone of the organization
- Risk Assessment: managements identification of risk
- Information and Communication Systems: way of recording transactions and communicating
- Monitoring: assessment of internal control performance over time
- Existing Control Activities: control policies and procedures
Existing Control Activities for a strong internal control: “PAID TIPS”
- Prenumbering documents
- Authorization of transactions
- Independent checks to maintain asset accountability
- Documentation
- Timely and appropriate performance reviews
- Information processing controls
- Physical controls for safeguarding assets
- Segregation of duties
Segregation of Duties should always include: “ARC”
- Authorization
- Record Keeping
- Custody
Audit Evidence Hierarchy: “A E I O U”
- Auditor Knowledge and Performance – (Inquires, Observation, Inspection, and Performance)
- External Evidence
- Internal Evidence
- Oral Evidence
- U – Know it!
What are the Ethics requirements relating to Government Auditing Standards (GAGAS): (SIOPP)
- Serving the Public Interest
- Integrity
- Objectivity
- Proper use of Government Information, Resources, and Positions
- Professional Behavior
Six interrelated elements of Quality Control are: “HELP ME”
- Human Resources
- Engagement/client acceptance and continuance
- Leadership Responsibilities
- Performance of the engagement
- Monitoring
- Ethical Requirements
What are the three general standards?
let me give you a TIP on how to remember this
Training
Independence
Professional Care
What are the three standards of fieldwork?
in the field we like to get lots of PIE
Plan
Internal Control
Evidence
What are the four standards of reporting?
All Cpas Do Ok
(GCDO)
Accounting Principles
Consistency
Disclosures
Opinion
Components of internal control environment:
ICHAMBO
Integrity & Ethics Commitment to Competence HR Policies/Practicies Assignment of Authority Management's Philosophies BOD/Audit Committee Organizational Structure
Limitations to IC:
HHCOCN
Human Judgment Human Error Collusion Override Controls Cost Constraints Not Absolute
List of Transaction Assertions:
OCACC
Occurrence Completeness Accuracy Cutoff Classification
List of Account Balance Assertions:
ERCV
Existence
Rights/Obligations
Completeness
Valuation/Allocation
List of Disclosures Assertions:
ORCACU
Occurence Rights/Obligations Completeness Accuracy Classification Understandability
