J.C Penney Forecast

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I. DEMAND FOR AUDIT SERVICES & THE PROFESSION

* ISQ1 – failure to conduct audit

II. CLIENT ACCEPTANCE
* Importance of an auditing firm having a formalized client acceptance & continuance process * Audit Quality
* Assumed Business Risk
* 4 principle factors you would consider in arriving at decision to accept a client [QC 10, AU 315] * Integrity of Client Management
* Likelihood of financial statement misrepresentation increases when the client’s management lacks integrity. * Ability to Meet Reporting Deadlines
* Affected by timing and complexity of the engagement, and availability of audit staff * Independence Issues
* Must be independent at the time of acceptance, and be able to maintain independence throughout the engagement. * Competency
* Firm must have personnel with experience and availability

* What is required within the documentation understanding of the terms of the engagement (engagement letter)? * Timing of the audit
* Assistance expected from client
* Specialists and internal auditor involvement
* Arrangement involving predecessor auditor
* Fees and billing arrangements
* Conditions under which access to audit documentation may be granted * Other services enumerated
* Users of reports
* Request the client to sign the engagement letter and return it to the auditor

III. RISK ASSESSMENT
* What is the purpose of performing a risk assessment during the financial statement audit? * Used to obtain an understanding of the entity and its environment, including its I/C, in order to assess the risk of material misstatement. * Determines the nature, extent, and timing of further audit procedures.

* Risk of material misstatement comprises 2 separate risks * Inherent Risks
* Susceptibility of a relevant assertion to a material misstatement * Control Risks
* Risk that material misstatement occurring in a relevant assertion will not be prevented or detected by I/C

* Describe the 3 levels of preliminary risk assessment & how they relate to each other * Assertion level risks
* Risks that relate to specific transactions, account balances, or disclosures at the relevant assertion level * Transaction level risks
*
* Financial statement level
* Risks that relate pervasively to the financial statements as a whole and potentially impact many relevant assertions * Include weaknesses related to:
* Process to prepare F/S
* Overall control environment
* Lack of qualified personnel in financial reporting roles * Selection and application of significant accounting policies

* 3 risks of material misstatements for … (we’re guessing the exam case). Relate each risk to possible F/S misstatements

* Explain how client acceptance efforts & results, gaining an understanding of the client’s business and its environment and risk assessment activities relate to each other. * Information obtained during the client acceptance process is audit evidence and should be considered during the audit.

IV. AUDIT CONCEPTS
Audit Evidence
* Identify and describe 3 unique and different weaknesses / limitations associated with using confirmations to obtain audit evidence and describe specific procedures or actions that can be taken to compensate for each identified weakness * Unsure of who is responding

* Declining response rate
* Error in returns
* Define audit evidence and name the 2 key characteristics of audit evidence that measure the quality of audit evidence. * All the information the auditor uses to arrive at the conclusions on which the audit opinion is based. 1. Reliability: dependent on the circumstances under which it is gathered. 2. Relevance: evidence must...
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