Audit Coordination & Preparation Flashcards

Which document summarizes management's understanding of the entity's key business processes and controls and is frequently used as a starting point for audit walkthroughs?

Answer: Process narrative or flow chart

Process narratives or flowcharts document how transactions are initiated, authorized, recorded, and reported, giving auditors a map for walkthrough testing.

An external auditor requests a population of all journal entries above a certain threshold for testing. The controller should ensure the population includes which of the following?

Answer: All entries including manual, recurring, and adjusting entries meeting the threshold

A complete population for journal entry testing includes all entry types—manual, automated, recurring, and adjusting—to address the fraud risk associated with improper entries.

Which concept describes the auditor's responsibility to maintain an attitude of professional skepticism throughout the audit?

Answer: Due professional care with a questioning mind regardless of past client integrity

Professional skepticism requires auditors to critically assess evidence and not assume management's honesty, even with clients who have a good track record.

A controller is establishing a cut-off testing schedule for revenue. What period should be the MOST critical focus for year-end cut-off testing?

Answer: Transactions occurring in the days immediately before and after the fiscal year-end

Cut-off testing focuses on transactions near the period-end to ensure revenue is recognized in the correct reporting period, as this is where misstatements are most likely.

Under GAAS, what is the auditor's responsibility regarding related-party transactions identified during audit preparation?

Answer: Obtain sufficient audit evidence to determine whether related-party transactions are properly disclosed and accounted for

AU-C Section 550 requires auditors to obtain sufficient evidence that related-party transactions are properly identified, authorized, and disclosed in the financial statements.

What is the primary purpose of a closing conference held at the end of an external audit fieldwork?

Answer: To communicate audit findings, proposed adjustments, and open items before the audit report is issued

The closing conference allows auditors to present findings and proposed adjustments, giving management the opportunity to respond before the final report is issued.

Which risk is MOST directly addressed by requiring dual signatures on journal entries above a defined threshold?

Answer: The risk of unauthorized or fictitious journal entries

Dual authorization on significant journal entries reduces the risk that a single individual could post fraudulent or erroneous entries without detection.