Section 1

Question 1

6 Elements of Quality Control

Answer 1

HEAL-ME

Human Resources (Personnel management)

Ethical Requirements (Independence)

Acceptance and continuance of client relationships and specific engagements

Leadership responsibilities for quality within the firm “Tone at the top”

Monitoring

Engagement Performance

Question 2

Quality Control

Answer 2

A CPA firm must establish a system of quality control designed to provide it with reasonable assurance that the firm and its personnel comply with professional standards and applicable regulatory and legal requirements, and that the firm or engagement partners issue reports that are appropriate in the circumstances.

Question 3

Planning Procedures

Answer 3

BRAINSTOPS

Basic discussions with the client

Review of audit documentation

Ask about recent developments

Interim financial statements- perform analytical procedures (mandatory) to identify accounts that may be misstated

Non-Audit personnel

Staffing

Timing

Outside Assistance

Pronouncements

Scheduling with the client

Question 4

Elements of the Engagement Letter

Answer 4

FACSIMILE

Fees

Auditor’s responsibility (GAAS)

Confirmation of the Engagement

Scope & Objective of Engagement

Internal Control

Managements Responsibilities

Irregularities - Fraud

ILlegal Acts - Noncompliance with applicable laws and regualtions

Errors

Question 5

Assess Control Risk

Answer 5

The auditor assesses control risk by obtaining an understanding of internal control, observation to determine whether controls have been put into place and reperformance to verify that controls are effective.

Question 6

Risk of Material Misstatement (RMM)

Answer 6

RMM consists of inherent risk (IR), which is the risk that an item will be materially misstated if there are no controls in place, and control risk (CR), which is the risk that internal controls will neither prevent a material misstatement nor detect and correct it on a timely basis. May be expressed in either quantitative or qualitative terms.

Question 7

Audit Program

Answer 7

A step-by-step list of audit procedures. These procedures are designed to achieve specific audit objectives and the audit program describes the nature, timing and extent of audit procedures.

Question 8

Generally Accepted Auditing Standards (GAAS)

Answer 8

GAAS represent benchmarks against which to measure the quality of the auditor’s performance.

GAAS includes rules that are acknowledged by the accounting profession as well as procedures used to gather evidence, which enable the auditor to achieve quality.

GAAS are communicated to the profession in the form of pronouncements issued by the Auditing Standards Board (ASB).

Question 9

Steps in an Audit

Answer 9

1. ) Prepare for the audit
2. ) Obtain understanding of client, its environment, including internal controls.
3. ) Assess risk of material misstatement and determine nature, timing and extent of further procedures
4. ) Perform tests of controls
5. ) Perform Substantive Procedures
6. ) Formulate an opinion
7. ) Issue audit report

Question 10

Clarity Standards

Answer 10

Apply to audits of non-issuers (non-public companies). Designed to clarify auditing standards, make them easier to follow and understand.

The format for each standard contains the following sections:

1. ) Introduction - purpose and scope of each standard, when they do or do not apply.
2. ) Objective - what requirements are expected to be achieved, used in planning and performing an audit.
3. ) Definitions
4. ) Requirements - unconditional or presumptively mandatory requirements
5. )Application guidance or other explanatory material - provides guidance, further explanation, and suggestions on how to go about applying the requirements and complying with standards.

Question 11

Unconditional Requirement

Answer 11

Must be complied with in order for the auditor to complete an engagement in accordance with GAAS. Required to comply in all cases, includes the word “must” or “is required to.”

Question 12

Presumptively Mandatory Requirement

Answer 12

the auditor is expected to comply with in every circumstance to which it applies. The auditor may depart from a PMR but must document how an alternative procedure was sufficient to achieve the objective of the standard. Includes the word “should.”

Question 13

10 GAAS (Issuer Comapnies)

Answer 13

Measures of the quality of the auditors performance. Divided into three categories:

1. ) General Standards - apply to all aspects of the engagement. Qualification of the auditor and the quality of work.
2. ) Fieldwork Standards - Only apply to the portion of the engagement devoted to the gathering of evidence. How the audit is planned and how evidence is accumulated and evaluated.
3. ) Reporting Standards - Manner in which the audit report is to be written. Preparation and content of the audit report.

TIPPICANOE

Question 14

TIPPICANOE - 10 GAAS

Answer 14

General Standards -
Training and proficiency
Independence
Due Professional Care

Fieldwork Standards-
Planning and Supervision
Internal controls - Rely
Corroborative Audit Evidence - Substantive Testing

Standards of Reporting -
Accounting Principles in conformity with US GAAP
No new accounting principles applied - consistency
Omitted informative disclosures - None
Expression of an Opinion

Question 15

Audit Process

Answer 15

1. ) Qualification of the auditor and quality of work
2. ) Competency and Capabilities
3. ) Ethical Requirements - Independence & Due professional cares
4. ) Skepticism and Professional Judgement
5. ) Integrity of management
6. ) Predecessor Auditor - Successor initiates convo.
7. ) Audit Committee - Communication with
8. ) Engagement Letter

Question 16

Accepting and Engagement

Answer 16

Two key considerations:
1.) Acceptability of financial reporting framework being applied.
2.) Managements acceptance of certain responsibilities
a.) Preparation and fair presentation of FS
b.) Design, implementation, and maintenance of
internal control (DIM)
c.) Providing access to all relevant info (no client-
imposed scope limitation)

Question 17

RID-C

Answer 17

Must speak with the predecessor auditor to determine:

1. ) Reasons for the change in auditor
2. ) Integrity of management
3. ) Disagreements arising during predecessors audit
4. ) Communication with audit committee - confidential info

Question 18

DISAPPROVE

Answer 18

Matter the auditor should communicate with those charge with governance:

1. ) Disagreements with management
2. ) Noncompliance with applicable laws and regulations
3. ) Significant accounting policies
4. ) Adjustments
5. ) Prior discussions with management
6. ) Problems - obtaining evidence and employee cooperation
7. ) Responsibilities - auditor under GAAS to obtain reasonable assurance
8. ) Other info - responsibilities
9. ) View of other accountants - contacted by mgmt
10. ) Estimates