Auditing Procedures and Internal Control Concepts
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Questions and Answers

What is one method an auditor might use to select documents for testing?

  • Selecting the most recent documents only
  • Selecting documents based on their volume
  • Choosing documents randomly without a specific criterion
  • Identifying documents by their dates and unique purchase order numbers (correct)
  • How does an auditor systematically sample documents from a population?

  • By selecting the first document and choosing every second document thereafter
  • By choosing documents based on personal judgment
  • By recording the source, starting point, and sampling interval (correct)
  • By using the last document in the population as the starting point
  • What information should an auditor record when making inquiries of specific entity personnel?

  • The time taken for each inquiry made
  • Only the job designations of the personnel involved
  • The results of the inquiries only
  • The inquiries made, dates, and names and job designations of the personnel (correct)
  • What must an auditor document when conducting an observation procedure?

    <p>The process or matter being observed and relevant individuals along with when and where the observation took place</p> Signup and view all the answers

    According to Section 220A, what is required of the auditor regarding the review of audit work performed?

    <p>To document who reviewed the audit work and the extent of the review</p> Signup and view all the answers

    What must management acknowledge in the terms of engagement for an audit of special purpose financial statements?

    <p>Its responsibility for appropriate informative disclosures</p> Signup and view all the answers

    Why is management's responsibility for internal control significant in an audit?

    <p>It helps achieve reasonable assurance about preparing fair financial statements</p> Signup and view all the answers

    What does the term 'internal control' encompass according to the content?

    <p>Components including risk assessment and communication</p> Signup and view all the answers

    When should a predecessor auditor limit their response to an auditor's inquiries?

    <p>If there are concerns of potential litigation.</p> Signup and view all the answers

    What is the inherent limitation of internal control mentioned in the content?

    <p>It can only provide reasonable assurance regarding financial reporting objectives</p> Signup and view all the answers

    What is required of the auditor regarding the internal control maintained by management?

    <p>To obtain management's acknowledgement of its responsibility</p> Signup and view all the answers

    What responsibility does management have concerning the predecessor auditor?

    <p>To authorize the predecessor auditor to respond to inquiries.</p> Signup and view all the answers

    What does the independent audit conducted in accordance with GAAS imply regarding internal control?

    <p>It does not substitute for management's maintenance of internal control</p> Signup and view all the answers

    What should the auditor do if the predecessor auditor provides no response to inquiries?

    <p>Evaluate the implications of the absence of a response.</p> Signup and view all the answers

    Which document should be created when an engagement is accepted after inquiries?

    <p>Documentation of the inquiries and their results.</p> Signup and view all the answers

    What is one responsibility of management related to the internal control system?

    <p>To monitor the effectiveness of internal control processes</p> Signup and view all the answers

    How should the auditor approach terms from a previous engagement during recurring audits?

    <p>Assess if the terms need to be revised and document any reminders.</p> Signup and view all the answers

    What is not implied by the agreement obtained from management regarding internal control?

    <p>The internal control will be free from deficiencies</p> Signup and view all the answers

    What is expected of the predecessor auditor’s response regarding known facts?

    <p>Responses should be prompt and factual unless unusual circumstances exist.</p> Signup and view all the answers

    What does SAS No. 147 specifically address regarding audits of financial statements?

    <p>Guidelines for matters relating to management and predecessor auditor communications.</p> Signup and view all the answers

    What factors can lead to a 'limited response' from a predecessor auditor?

    <p>Threatened litigation or disciplinary proceedings.</p> Signup and view all the answers

    What must an auditor document regarding significant findings or issues discussed with management?

    <p>The nature of the findings and when discussions took place.</p> Signup and view all the answers

    When documenting audit procedures performed, which of the following is NOT required?

    <p>The personal opinions of the auditor regarding the findings.</p> Signup and view all the answers

    What should an auditor include in audit documentation related to significant contracts or agreements?

    <p>Abstracts or copies of the contracts.</p> Signup and view all the answers

    In cases of departure from a mandatory requirement, what must an auditor document?

    <p>Justification for the departure and alternative procedures performed.</p> Signup and view all the answers

    What must be documented if an auditor finds information inconsistent with their final conclusion?

    <p>How the inconsistency was resolved.</p> Signup and view all the answers

    What two aspects must the auditor document when performing additional procedures after the audit report date?

    <p>The circumstances encountered and the new procedures performed.</p> Signup and view all the answers

    Who is responsible for documenting the review of the audit work performed?

    <p>The review should be documented by whoever reviewed the work.</p> Signup and view all the answers

    What information does an auditor NOT typically need to include in audit documentation?

    <p>The signatures of all team members involved.</p> Signup and view all the answers

    What is necessary for auditors to obtain during the audit process?

    <p>Written confirmation from management</p> Signup and view all the answers

    Which action may an auditor take if the audit results are not as expected?

    <p>Modify their opinion accordingly</p> Signup and view all the answers

    What must be acknowledged and agreed to by ABC Company regarding the audit process?

    <p>The arrangements including responsibilities</p> Signup and view all the answers

    What might be included in an auditor's report if there are unusual circumstances?

    <p>An emphasis-of-matter paragraph</p> Signup and view all the answers

    Which part of the audit letter is signed to indicate agreement?

    <p>The acknowledgment section</p> Signup and view all the answers

    What is expected upon completion of the audit of financial statements?

    <p>A written report addressed to the board of directors</p> Signup and view all the answers

    What occurs if the auditor discovers discrepancies during the audit?

    <p>They may withdraw from the engagement</p> Signup and view all the answers

    What is one of the key responsibilities of the auditor related to other information?

    <p>To issue a report complying with specific sections</p> Signup and view all the answers

    What is the primary objective of the auditor concerning documentation?

    <p>To prepare a sufficient and appropriate record for the auditor's report</p> Signup and view all the answers

    What does the term 'audit documentation' refer to?

    <p>The record of audit procedures performed and evidence obtained</p> Signup and view all the answers

    What is meant by 'documentation completion date'?

    <p>The date by which a final set of documentation must be retained</p> Signup and view all the answers

    Who qualifies as an 'experienced auditor'?

    <p>An individual with practical audit experience and understanding of relevant issues</p> Signup and view all the answers

    What must the auditor's documentation enable an experienced auditor to do?

    <p>Understand the nature, timing, and extent of audit procedures</p> Signup and view all the answers

    Which of the following is NOT a required aspect of audit documentation according to GAAS?

    <p>Documentation of the auditor's personal opinions and insights</p> Signup and view all the answers

    What does 'GAAS' stand for?

    <p>Generally Accepted Auditing Standards</p> Signup and view all the answers

    What is the purpose of an audit file?

    <p>To contain the records that form the audit documentation for an engagement</p> Signup and view all the answers

    Study Notes

    AU-C Section 210 - Terms of Engagement

    • Objective: The auditor's objective is to accept an audit engagement for a new or existing client only when the basis upon which it is to be performed has been agreed upon. This includes establishing that certain preconditions for an audit are present and confirming a common understanding of the terms of the audit engagement between the auditor and management, and when appropriate, those charged with governance.
    • Effective Date: Effective for audits of financial statements for periods ending on or after December 15, 2012, unless otherwise indicated. Amendments effective for engagements conducted in accordance with generally accepted auditing standards for periods beginning on or after December 15, 2025.
    • Preconditions for an Audit: The preconditions involve management using an acceptable financial reporting framework in preparing and presenting the financial statements; and the agreement of management, and, when appropriate, those charged with governance, with the premise on which the audit is conducted. Recurring audits should also follow the preconditions for new engagements.
    • Requirements for Audit Engagement Acceptance: The auditor should determine if the financial reporting framework used is acceptable and obtain agreement from management they acknowledge and understand their responsibilities for the preparation and fair presentation of the financial statements, in accordance with the applicable financial reporting framework.
    • Documentation of Engagement Terms: The agreed-upon terms of the audit engagement should be documented in an audit engagement letter, and should include the objective, scope, responsibilities of the auditor and management and a statement that some material misstatements may not be detected, even with a properly planned and executed audit.
    • Initial and Recurring Audits: Before accepting an initial audit engagement, the auditor should request management to authorize the predecessor auditor to respond fully to inquiries regarding matters that will assist the auditor in determining whether to accept the engagement. Recurring audits require the auditor to assess whether circumstances require a revision in the terms of the audit engagement.
    • Change in Engagement Terms: The auditor should not agree to a change in the terms of the engagement if there isn't a reasonable justification. The auditor must document any such changes.
    • Other Considerations: If law or regulation prescribes unique requirements for the auditor's report, the auditor must evaluate whether the requirements would cause users to misunderstand the report. The auditor also must consider whether users would understand alternative approaches that don't violate GAAS, in such cases.
    • Objective and Scope: The auditor's objective includes accepting an audit engagement, and clearly defining the scope of work.
    • Responsibilities of Auditor and Management: The auditor's responsibilities and management's responsibilities are specified, and how this affects the engagement acceptance process is outlined in the documentation.

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    Description

    This quiz covers essential auditing procedures, including document selection, sampling methods, and internal control responsibilities. You will explore the requirements for auditors and management in the context of special purpose financial statements and the role of predecessor auditors. Test your knowledge on these critical aspects of the auditing process.

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