Acc 450 Chapter 5

Front 1

Inherent Risk

Back 1

Risk of a misstatement assuming no internal controls

Front 2

Control Risk

Back 2

Risk there is a a misstatement that won't be detected by internal controls

Front 3

Detection Risk

Back 3

Risk that audit procedures won't detect a material misstatement

Front 4

Type of evidence that must be obtained by an auditor according to GAAS

Back 4

Sufficient and appropriate

Front 5

9 types of audit evidence

Back 5

1. Accounting Information System
2. Documentary Evidence
3. Third party Representations
4. Physical Evidence
5. Computations
6. Data Interrelationships
7. Client Representations
8. Evidence from related party transactions
9. Subjective Evidence

Front 6

Documentary Evidence

Back 6

Documents prepared by outsiders are more reliable than those prepared within, some papers are transmitted directly to the auditors and hold much more audit value

Front 7

confirmation

Back 7

indicate existence of items from third party reps

Front 8

physical evidence

Back 8

proving the existence of items listed in financials by seeing them physically

Front 9

Computations

Back 9

prove arithmetic accuracy of financial statements

Front 10

Data Interrelationships

Back 10

compare financial and non-financial data

Front 11

Client representations

Back 11

Questions asked to employees and officers of the client organization

Front 12

three approaches to auditing estimates

Back 12

1) Review managements approach and consider its reasonableness
2) Independently develop your own estimate
3) Review subsequent events to the estimate

Front 13

To Determine FMV

Back 13

1) Compare to identical assets going rates in active market
2) Compare to similar assets going rates in the active market
3) Look at inputs that aren't observable in the market i.e. private appraising company

Front 14

What 5 things make Audit Evidence Reliable?

Back 14

1) Retrieved from Independent Source
2) Effective Controls
3) Obtained directly by auditor
4) Documented rather than oral
5) Original documents (not copies)

Front 15

Appropriate is like

Back 15

quality of evidence

Front 16

Sufficiency is like

Back 16

Quantity of evidence

Front 17

Vouch

Back 17

From F/S to Internal Documents

Front 18

Trace

Back 18

From Internal Documents to F/S

Front 19

Three types of tests used to gather appropriate and sufficient evidence

Back 19

1) Risk assessment procedures
2) Tests of Controls
3) Substantive Evidence

Front 20

substantive tests

Back 20

Test the end of processing. Test if the end balance of an account is correct.

Front 21

Three reasons for analytical procedures

Back 21

1) Planning
2) Substantive testing
3) Overall Review
*Only planning and overall review are required

Front 22

horizontal analysis

Back 22

also called trend analysis. reviews ratios and trends over time.

Front 23

Cross sectional analysis

Back 23

reviews ratios of similar firms at a point in time. Comparing numbers of client firm to industry averages.

Front 24

Vertical Analysis (Common Size)

Back 24

presents items as a percentage of another item. aka inventory is shown as a percentage of assets.

Front 25

reasonableness test

Back 25

amounts are compared to an expected number and if the amount varies further investigation may be required

Front 26

Best time for analytical procedures

Back 26

1) Better for income statements since their relationships are more predictable
2) Not good for balance sheet
3) Not good for testing management discretionary items

Front 27

3 types of substantive tests that should be done

Back 27

1) Test of Details of transactions
2) Direct test of ending balances
3) Test of disclosures

Front 28

Something that tests both substantive means and internal controls

Back 28

dual purpose test

Front 29

permanent file

Back 29

contains information that doesn't change very frequently

Front 30

tickmarks

Back 30

notes on working papers summarizing results of audit tests

Front 31

cross reference

Back 31

when same information is included in two working papers there is an index indicating where the sister information is

Front 32

if prepared by client in working papers.....

Back 32

then must be clearly indicated in working papers PBC.

Front 33

Should the auditor initial and date each working paper

Back 33

YES

Front 34

Working papers are kept confidential because

Back 34

they contain client date and information

Front 35

Documentation Completion Date

Back 35

60 days after the audit report date