Auditing Theory Part 1

Intentional omission of the recording of a transaction to benefit a third party.

Misappropriation of assets for the benefit of management.

Misinterpretation by management of the facts that existed when the financial statements were prepared.

Preparation of records by employee to cover a fraudulent transactions.

Unrealistic time deadlines for audit completion imposed by management.

Limitation in audit scope imposed by management.

Conservative application of accounting principles.

Significant difficult-to-audit figures in the accounts

Efficiency of operations.

Reliability of financial reporting.

Effectiveness of operations.

Compliance with applicable laws and regulations

The principal purpose in conducting a study and evaluation of the existing internal control system is for the independent auditor to maintain a state of independence in mental attitude in all matters related to the audit.

Working papers can be destroyed after corporate and statutory retention requirements are met.

The audit program contains the list of specific tasks to be performed and estimated time required.

An audit program would not contain the documentation of system being reviewed.

Cash flows from operating activities are negative.

Research and development projects are postponed.

Significant related party transactions are pervasive.

Stock dividends replace annual cash dividends.

Having the technical qualifications to perform the engagement

Possessing the ability to supervise and evaluate the quality of staff work

Warranting the infallibility of the work performed

Consulting others if additional technical information is needed

Assurance

Compilation

Audit

Review

Keep silent of the denial.

Disclose the fact that the permission to disclose is denied by the client.

Disclose adequately to proposed auditor all noncompliance made by the client.

Seek legal advice before responding to the proposed auditor

Disagreements the predecessor had with the client concerning auditing procedures and accounting principles.

The predecessor’s evaluation of matters of continuing accounting significance.

The degree of cooperation the predecessor received concerning the inquiry of the client’s lawyer.

The predecessor’s assessments of inherent risk and judgments about materiality.

No duplicate shipments or billings occurred.

Shipments to customers were properly invoiced.

All goods ordered by customers were shipped.

All prenumbered sales invoices were accounted for.

Control risk.

Control activities.

Monitoring.

Control environment.

Bond indenture agreements.

Lease agreements.

Working trial balance.

Flowchart of internal control

Interbank transfer schedule.

Carry forward schedule.

Supporting schedule.

Lead schedule.

Presentation.

Completeness.

Rights.

Existence.

Actuary.

Appraiser.

Internal auditor.

Engineer.

Audit risk to an aggregate level of misstatement that could be considered material.

An auditor’s responsibility to detect material misstatements only to the extent that the letter is relied on.

The possibility of a misunderstanding concerning management’s responsibility for the financial statements.

The scope of an auditor’s procedures concerning related-party transactions and subsequent events.

The probable outcome of asserted claims and pending or threatened litigation.

Corroboration of the information furnished by management about litigation, claims, and assessments.

The attorneys’ opinions of the client’s historical experiences in recent similar litigation.

A description and evaluation of litigation, claims, and assessments that existed at the balance sheet date.

Need not consider the risk of assessing control risk too low.

Has committed a nonsampling error.

Will have to use discovery sampling to evaluate the results.

Should compare the deviation rate of the sample to the tolerable deviation rate.

Compare invoice price to purchase order price

Ensure that the purchase had been properly authorized

Ensure that the goods had been received by the party requesting the goods

Compare quantity ordered to quantity purchased

Periods presented plus the one preceding period

Current period only

Current period and those of the other periods presented

Current and immediately preceding period only