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20 Cards in this Set
- Front
- Back
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Difference b/w auditing risk and engagement risk
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AR is the risk an auditor will issue an unqualified report on a material misstated financial
ER is the risk that the auditor could be sued for not providing due professional care |
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Explain the audit risk model
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AR=IR*DR*CR A framework for auditors to follow in planning audit procedures and evaluating audit results, but has limitations
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Define misstatements arising from fraudulent financial reporting and misstatements arising from misappropriation of assets
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Financials are fraudulent with the intent to deceive.
Assets: Usually done through theft of entities assets, not with intention to deceive financials |
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Provide some examples of qualitative factors auditors would consider when determining tolerable misstatement for an account
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Size and complexity of account, importance of changes in account to key performance indicators, debt covenants, meeting published forecast or estimates
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Name and DESCRIBE three types of audit procedures
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RTS
Risk Assesment Test of Controls Substantive |
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Why is "appropriateness" important for audit evidence? What qualities must evidence have to be considered appropriate?
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A measure of the QUALITY of audit evidence, higher the quality the less evidence needed.
Relavent & Reliable |
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What steps should an auditor take to evaluate a new client?
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1. Obtain and review financial information
2. Inquire of third parties 3. Communicate with the predecessor auditor 4. Consider unusual business or audit risks 5. Determine if the firm is independent 6. Determine if the firm has the necessary skills and knowledge 7. Determine if acceptance violates any agency requirements or Code of Conduct |
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What factors should an external auditor consider when determining whether to use the work of the internal auditing staff?
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Pg151 Competence & Objectivity
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How would an auditor identify related parties and what is the importance of doing so?
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At arm's length...
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Name the 3 types of analytical prcedures and provide a definition and example of each
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RTR
Trend: Examination of changes in an account over time i.e. increase in AR Ration: Comparison across time or benchmark i.e. Current Ratio = CA/CL Reasonableness: Develop a model of expectations i.e. regression analysis |
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What is meant by "precision of the expectation," and what factors affect the precision of analytical procedures?
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The quality of expectation
PARD Plausibility & Predictability Analytical Data Reliability Disaggregation |
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What are some factors the auditor will consider in determining a tolerable difference between the expectation and the recorded amount
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FEEA
Economic changes Fraud Error Accounting Changes |
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Dual tests
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Substantive & Test of Controls
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3 steps to applying materiality
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PTE
Planning Materiality Tolerable Evaluate |
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Audit Evidence
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3I's
2R's SCAO |
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Tracing goes from source to j/e
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Vouching goes from j/e to source (occurance)
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Why accountants write
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The accounting profession is not simply a profession build around numbers
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Most reliable types of evidence
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Inspection of Assets and documents
Recalculation and Reperformance |
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Tolerable Misstatement
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is allocated to one account
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Audit risk components may be stated in non quantative terms
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everything
RMM IR |
