Audit Chapters 3,4,5

Front 1

Steps in Considering the Risk of Fraud

Back 1

1. Audit Team Discussion (Brain Storm)
2.Identify Information Necessary to Assess Fraud Risk Factors
3. Identify and Asses Fraud Risk Factors
4. Respond to Risk Assessment
5. Evaluate the Audit Evidence
6. Communicate Fraud Matters
7. Document Fraud Matters

Front 2

Information risk

Back 2

the probability that the information (including financial statements) distributed by an entity will be materially false and misleading

Front 3

Audit risk

Back 3

the probability that an audit team will give an inappropriate opinion on financial statement

Front 4

Inherent risk

Back 4

the probability that, in the absence of internal controls, material errors or frauds could enter the accounting system used to develop financial statements

Front 5

Factors that increase inherent risk

Back 5

Dollar size of the account
Liquidity
Volume of transactions
Complexity of transactions
Subjective estimates

Front 6

Control risk

Back 6

the probability that the client's internal control policies and procedures will fail to prevent or detect material misstatements, provided any enter or would have entered the accounting system in the first place

Front 7

Detection risk

Back 7

the probability that audit procedures will fail to detect material misstatements, provided any have entered the accounting system in the first place and not been detected and corrected by the client's internal controls

Front 8

Materiality

Back 8

information is material if it is likely to influence financial statement user's decisions

Front 9

Auditors use audit procedures for three reasons

Back 9

1. To gain an understanding of the client and the risks associated with the client (risk assessment procedures)
2. Test the operating effectiveness of client internal control procedures (tests of controls)
3. To produce evidence about managements assertions

Front 10

Risk of material misstatement

Back 10

the combination of inherent and control risk

Front 11

Audit programs

Back 11

a list of audit procedures the auditors need to perform to gather sufficient appropriate evidence on which to base their opinion on the financial statements

Front 12

2 Types of Audit Programs

Back 12

1. Internal control programs
2. Substantive audit programs