Acc 450 Chapter 6

Front 1

Risk assessment procedures

Back 1

Include inquiries of management, analytical procedures, observation and inspection, and other procedures.

Front 2

6 stages of the audit process

Back 2

1) Planning
2) Obtain an understanding of the client and its environment
3) Asses risk of misstatement and design further procedures
4) Perform further procedures
5) Complete the Audit
6) Issue the audit report

Front 3

engagement risk

Back 3

risk of losing reputation due to client with lack of integrity or being a part of a client who goes bankrupt

Front 4

engagement letter

Back 4

to the client from the auditor, contains information about the audit and if signed by the client it becomes a contract

Front 5

three risk factors for committing fraud

Back 5

1) Pressure
2) Opportunity
3) Rationalization

Front 6

strategic lens model

Back 6

obtaining information about the clients business environment.

Front 7

Areas of interest in strategic lens model

Back 7

1) Business Strategy
2) Customers
3) Suppliers
4) Investors
5) Regulators
6) Other external and internal parties

Front 8

materiality

Back 8

if reasonable person would have their decision changed by the amount that is misstated

Front 9

measures of materiality examples

Back 9

1) 5 to 10% of income
2) 1% of total assets or revenues
3) 1 to 5% of owner's equity
4) 1.6(greater of assets or revenues)^2/3

Front 10

materiality and audit risk

Back 10

inversely related

Front 11

evaluation

Back 11

used to determine whether a material misstatement is there

Front 12

iron curtain approach

Back 12

determines materiality based on total financial statement effect even if over multiple years

Front 13

rollover approach

Back 13

determines materiality based on current years effect

Front 14

iron curtain or rollover

Back 14

if either is found to be material an adjustment is necessary according to SEC

Front 15

5 things that can be done if there is high financial statement risk

Back 15

1. use more experienced auditors
2. increase supervision
3. increase emphasis on professional skepticism
4. Use unpredictable audit procedures
5. Increase the scope of the audit procedures

Front 16

Are analytical procedures related to revenues required?

Back 16

yes

Front 17

How do auditors respond to fraud risk?

Back 17

1) modify procedures and how the audit is conducted
2) an alteration in the nature, timing, and extent of the procedures performed
3) performance of procedures that further addresses managements ability to override controls

Front 18

The following items should be documented in relation to risk assessment?

Back 18

1. discussion with audit team about error and fraud
2. key elements about the entities environment
3. assessment of risk at financial statement and relevant assertion level
4. the risks identified

Front 19

The following should be documented in relation to auditors' consideration of fraud?

Back 19

1. discussion with engagement team about fraud risk
2. procedures performed to determine fraud risk
3. the fraud risks identified and the response to those risks
4. any other items that are necessary and caused the team to use additional fraud procedures
5. nature of communications with management, audit committee

Front 20

Vouch or Trace? Completeness assertion

Back 20

Trace

Front 21

Vouch or Trace? Existence assertion

Back 21

Vouch