# data[].attributes.headline
When is the public accountant associated with the financial statements? (2 ways)

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When is the public accountant associated with the financial statements? (2 ways)

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What are the three levels of assurances? 

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What are the three levels of assurances? 

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ANS: First is positive assurance, second is the middle level known as limited assurance (moderate or negative assurance), and finally, the lowest level is the no assurance engagement.

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Through some action, the PA associates himself or herself with information issued by the enterprise.

Without the PA’s knowledge or consent, the enterprise indicates that the PA was involved with information issued by it.

A third party assumes the PA is involved with information issued by an enterprise.

- Noah

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When a new audit client is accepted,  what must be obtained from the client? 

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When a new audit client is accepted,  what must be obtained from the client? 

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ANS: An engagement letter forms the contract for the audit, every year a new letter must be obtained for the new year.

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ANS: Materiality refers to a monetary amount the auditors believe financial statement users would find significant to their decision-making.

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Answer: the risk assessment process is how management identifies risks related to misstatements in the financial statements. (Marion)

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What is the difference between assurance and accounting credibility?

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What is the difference between assurance and accounting credibility?

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Assurance is the process of analyzing and used in the assessment of accounting entries and financial records. It is a process of verifying the records available in the company’s accounting record as per accounting standard and principle, and it also verifies that the accounting record is accurate or not. Accounting credibility includes the use of correct account titles and format in the financial statements, but there is no verification of the accuracy of the underlying accounting records.

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What are the 3 steps in the financial statements audit process?

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What are the 3 steps in the financial statements audit process?

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What are the three steps of the audit process?

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What are the three steps of the audit process?

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1. Risk assessment
2. Response to assessed risks
3. Concluding and reporting

- Noah

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The auditor assesses a business risk as high when:

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The auditor assesses a business risk as high when:

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it is likely and significant

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What can be found in an independent auditor's report on financial statements and when is it issued?

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What can be found in an independent auditor's report on financial statements and when is it issued?

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ANS: An independent auditor's report gives an opinion on a company's financial statements, stating if they are accurate and follow accounting standards. The report is issued after the auditor's examination of financial records.
Yann, Mattias, Justin

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ANS: Is the probability that the auditor's procedures will fail to detect a misstatement that has occurred and has not been corrected by the internal control team.

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What questions can analyzing business risk help an auditor answer?

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What questions can analyzing business risk help an auditor answer?

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What is the entity’s strategy? How does it generate revenues and profits?

Does the strategy appear to be successful now and for the future?

What are the business risks/threats that can prevent the entity from achieving its strategic goals?

What business processes, internal controls, and information systems does the entity management use to manage these risks?

What risks can affect the financial statements?

- Noah

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What is the difference between frauds and errors?

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What is the difference between frauds and errors?

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Answer: Frauds are intentional acts by one or more individuals involving the use of deception to obtain an unjust or illegal advantage. Errors are unintentional misstatements or omissions of amounts or disclosures in financial statements. (Marion)

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It is a proactive approach to detect financial frauds using accounting records and information, analytical relationships, and awareness of fraud perpetration and concealment schemes.

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1. Control environment
2. Management's risk assessment process
3. Information and communication
4. Monitoring

- Noah

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Define the concept of planning materiality.

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Define the concept of planning materiality.

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ANS: Planning materiality refers to a wrong amount set by the auditors during the audit's planning stage based on the materiality to financial statements.

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What is the purpose of a time budget in conducting an audit engagement?

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What is the purpose of a time budget in conducting an audit engagement?

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Time budgets are useful tools for scheduling the various parts of an audit engagement and for optimal assigning of personnel to these activities.

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What are the five major assertions of the audit process?

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What are the five major assertions of the audit process?

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ANS: Existence, completeness, ownership, valuation, and presentation.

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In your own words, define control activities in auditing. 

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In your own words, define control activities in auditing. 

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ANS: Controls are policies and procedures that ensure the achievement of the entity’s goals, including financial reporting goals.

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What is the purpose of management’s internal control structure? 

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What is the purpose of management’s internal control structure? 

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The objective of management’s application control procedures is to process transactions correctly. Correctly processed transactions produce accurate account balances and help produce reliable assertions in the financial statements.
-Arianne

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What are the three elements of the fraud triangle?

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What are the three elements of the fraud triangle?

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Answer: Fraud incentive, fraud opportunity and fraud rationalization. (Marion)

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What are the two types of fraud that auditors are mainly concerned about?

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What are the two types of fraud that auditors are mainly concerned about?

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ANSWER:
- Fraudulent financial reporting: Making false and misleading claims on financial statements.
- Misappropriation of assets: The theft or misuse of an organization's assets.

By Xavier, Nathan and Dominic

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What is earnings quality and what are the indicators of high-quality earnings?

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What is earnings quality and what are the indicators of high-quality earnings?

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Earnings quality is the ability of the auditee to replicate the earnings, amounts and trends over long periods.

Indicators of high-quality earnings are...
1. The consistency of accounting accruals from year to year
2. The reduction of income through accounting policy changes
3. Short time lag between income recognition and related cash being received by the business

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What does it mean when an auditor evaluates the risk of incorrect information being presented?

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What does it mean when an auditor evaluates the risk of incorrect information being presented?

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When an auditor evaluates the risk of incorrect information being presented, it means they are checking the accuracy of the information provided and determining the possibility of it being inaccurate or misleading.

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What are the components of the audit risk model, and how are they defined? 

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What are the components of the audit risk model, and how are they defined? 

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The 3 basic components of an audit risk model are:

1.       Control Risk: Control Risk is the probability that the auditee’s internal control policies and procedures will fail to detect or prevent material misstatements.

2.       Detection Risk: Detection risk is the risk that any material misstatement that has not been prevented or corrected by the auditee’s internal control will not be detected by the auditor.

3.       Inherent Risk: Inherent risk is the probability that material misstatements affecting one or more assertions could have occurred in transactions within the accounting system used to develop financial statements, or in an account balance.

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What are the four basic accounting processes for auditing?

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What are the four basic accounting processes for auditing?

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ANSWER:
- Revenue process: Sales activities
- Purchasing process: Purchasing goods and services
- Production process: Manufacturing and inventory costing
- Financial process: All financial activities of the firm

By Nathan, Xavier and Dominic

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What are the two categories of controls and what are they?

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What are the two categories of controls and what are they?

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ANS: Preventive controls and detective controls
Preventive controls are procedures designed to ensure that error or fraud does not occur in the system.
Detective controls are procedures designed to detect any error or fraud that has occured in the accounting system.

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Generally accepted auditing standards

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It is the assessment of quality of internal control performance over time. It involves considering the design and operation while taking corrective actions if necessary to maintain efficiency of operations.

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List six main techniques used to gather audit evidence.

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List six main techniques used to gather audit evidence.

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Inspection, Observation, Confirmation, Reperformance/recalculation, Analysis, Inquiry
-Arianne

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What are five types of general analytical procedures

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What are five types of general analytical procedures

# data[].attributes.body
Compare current-year account balances with balances for one or more comparable periods.
Compare current-year account balances and financial relationships with similar information for the industry the company operates in.
Compare the current-year account balances with the company's anticipated results as found in the budgets and forecasts.
Evaluate the relationships of current-year account balances to other current-year balances for conformity to predictable patterns based on the company's experience.
Study the relationships of current-year account balances to relevant non-financial information.

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What is the auditor’s main purpose in understanding the auditee’s internal control system?

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What is the auditor’s main purpose in understanding the auditee’s internal control system?

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The auditor uses the understanding of internal control to identify types of potential misstatements, consider factors that affect the risks of material misstatement, and design the nature, timing, and extent of further audit procedures.

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The amount of credibility provided by accountants and auditors.

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What important factor affects the risk of management fraud?

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What important factor affects the risk of management fraud?

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ANS: The lack of integrity. Integrity is the only thing that prevents fraud at the top levels of the organization.

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A fraud opportunity is the ability for fraud to occur; usually arising from poor internal control, collusion, or management override of controls.

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Explain the materiality levels and how the amounts are determined

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Explain the materiality levels and how the amounts are determined

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Materiality is the first decision that the auditor has to take because it affects all of the other planning, reporting and examination decisions.

In the process of planning, materiality levels are based on the knowledge of the auditor on the business' risks and experience in prior audits.

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ANS: a positive assurance is a high, but not absolute, level of assurance.

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It is a statement that with a professional engagement states that nothing has come to the accountant’s attention that would give reason to believe that matters under consideration do not meet specified criteria.

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Describe what is meant by saying that an audit under GAAS is risk based.  

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Describe what is meant by saying that an audit under GAAS is risk based.  

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Management is also responsible for ensuring the company’s financial statements fairly present the business’s economic performance and financial position, both good and bad. At the preliminary stage of audit planning, the auditors will take a high-level view, based on the nature of the business and its environment, its financial strength, and its corporate governance, to make an overall assessment of the risk of material misstatement for the financial statements. This allows the auditors to focus on key risk areas that they expect to encounter and set up an overall audit strategy that sets out the main resources required to perform the audit.

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What is negative assurance and when is it permitted?

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What is negative assurance and when is it permitted?

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When an auditor believes certain facts to be accurate because he no evidence of the contrary can  be found. It is not permitted in reviews of audited financial statements because it is too weak of a conclusions, but it is allowed in reports on unaudited financial statements.

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Give some examples of accounting schemes for earnings manipulation and describe the auditor’s responsibilities relating to fraud. 

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Give some examples of accounting schemes for earnings manipulation and describe the auditor’s responsibilities relating to fraud. 

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ANS: Earnings may be manipulated by recording revenues before they are earned, by creating fictitious revenue, by boosting profits with non-recurring transactions, by shifting current expenses to a later period, failing to record or disclose liabilities, by shifting current income to another period and by shifting future expense to an earlier period. When auditors suspect fraud, they shall evaluate whether unusual relationships that were identified indicated risks of material misstatement because of fraud.