Read the summary and the most important questions on Audit and Assurance

• Why Good Accountants Do Bad Audits

  This is a preview. There are 6 more flashcards available for chapter 10/05/2019
  Show more cards here

• What is the problem with corporate auditing?

  The pernicious problem with corporate auditing, as it is currently practices, it its vulnerability to unconscious bias (the real problem is not conscious corruption, it’s unconscious bias).

• What are the roots of bias?

  * Our desire powerfully influence the way we interpret information, even when we’re trying to be objective and impartial * We tend to critically scrutinize and then discount facts that contradict the conclusions we want to reach, and we uncritically embrace evidence that supports our position.
  * Self-serving bias
  * Armed with the same information, different people reach different conclusions, ones that favor their own interest
  -> Unconscious bias works by distorting how people interpret information.

• What are the three structural aspects of accoutning that creat substantial opportunities for bias to influence judgment?

  
  - Ambiguity
  - Attachment
  - Approval

• What are the three aspects of human nature that can amplify unconscious bias?

  
  - Familiarity
  - Discounting
  - Escalation

• What are the problems with the proposed reforms?

  
  - Disclosure
  - Stricter accounting standards

• What are redical remedies?

  
  - Full divestiture of consulting and tax services
  - Fixed limited contract periods during which they cannot be terminated
  - Clients prohibited from hiring individual auditor away from their audit firm
  - Awareness of self-serving bias

• What are judgment traps?

  
  - Anchoring tendency
  - Availability tendency (availability of information)
  - Rush to solve: quick judgment
  - Framing of the problem
  - Overconfidence tendency
  - Confirmatin tendency; you see what you believe - you also have your own preferences.

• Audit Quality

  This is a preview. There are 6 more flashcards available for chapter 11/05/2019
  Show more cards here

• Characteristics that could influence audit quality

  
  - Incentives
  - Uncertainty
  - Uniqueness
  - Process
  - Professional Judgment

• Audit Firm Culture

  This is a preview. There are 6 more flashcards available for chapter 12/05/2019
  Show more cards here

• Quality Control Systems

  COSO framework within auditing firms. QC systems are audit firm's internal control ensuring that audit services are competently delivered and adquately supervised.

• What will the PCAOB test when testing QC systems?

  Section 104 of SOX requires PCAOB inspections to focus on two elements; a review of individual audit engagements and an evaluation of the sufficiency of the firm’s QC systems (operating effectiveness of internal control). The QC system evaluation is based on a combination of specific tests of the firm’s QC policies and procedures and inferences derived from the review of individual engagements. Based on the inspection, the PCAOB will issue an inspection report.