83The possibility that the auditors may unknowingly fail to appropriately modify their opinion on financial statements that are materially misstated
49Investigate the identities and reputations of the client’s directors, officers, and major stockholders 51The reputation of management
81The company’s financial strength and credit rating.
85Make inquiries of the client’s banker, legal counsel, and predecessor auditor. 26Determine that independence requirements are met.
16Communicate on matters such as management integrity
18Disagreements with management
29Communications with the audit committee
24The reason for the change of auditors.
74Review of working papers related to opening balances and the consistency of application of accounting principles.
7,79 Study relationships among financial and nonfinancial data to identify areas that may represent higher risks.
32Evaluate difficult- to- audit transactions or balances
28Difficult accounting issues.
78Significant judgment by management.
90Valuations that vary significantly based on economic factors.
TYPES OF FINANCIAL STATEMENT ASSERTIONS
MATERIAL MISSTATEMENT DUE TO FRAUD/WAYS TO IDENTFY FRAUD RISK 31Discussions with engagement personnel
42Inquiries of management and others within the organization 7analytical procedures
37fraud risk factors.
OVERALL RESPONSES TO RISKS
59Obtain more reliable evidence in support of specific financial statement items 57Obtain additional corroboration of management’s explanations or representations 8Assign additional staff with specialized skill and knowledge 9Assign more experienced staff to the engagement
4Adjust the extent of the supervision of the audit staff
38Further consider management’s selection and application of accounting principles 40Incorporate an added element of unpredictability in the selection of auditing procedures. 11Ateration in the nature, timing, and extent of the procedures performed 69Procedures to further address the risk of management override of internal control.
CONTROL ENVIRIONMENT FACTORS
47Integrity and ethical values
15Commitment to competence
14Board of directors
52Management’s philosophy and operating style
10Assignment of authority and responsibility
39Human resource policies and practices.
COSO COMPONENTS OF INTERNAL CONTROL
76Risk assessment process
1Accounting information system
53Monitoring of controls.
65Performance reviews Information processing controls
77Segregation of duties
SEGREGATION OF DUTIES
50Maintaining custody over assets.
70Executing the specific transaction
TRANSACTION CYCLES USED TO UNDERSTAND INTERNAL CONTROLS
73Revenue ( or sales and collections) cycle
3Acquisition ( or purchases and disbursements) cycle
23Conversion ( production) cycle
UNDERSTANDING OF INTERNAL CONTROLS
43Inquiring of entity personnel
56Observing the application of specific controls
44Inspecting documents and reports
86Tracing transactions through the information system
IMPLEMENTATION/WAYS TO DETERMINE DUTIES & RESPONSIBILITIES OF CLIENT PERSONNEL 45 B B inspecting organization charts and job descriptions and interviewing client personnel. Many clients have procedures manuals and flowcharts describing the approved practices to be followed in all phases of operations. Another excellent source of information is in the reports, working papers, and audit programs of the client’s internal auditing staff.
DOCUMENTS UNDERSTANDING OF INTERNAL CONTROLS
87Understanding of internal control