Audit Planning Ii

Front 1

Audit Risk

Back 1

risk that the auditor will express and inappropriate opinion when the financial statements are materially misstated

Front 2

Inherent risk

Back 2

the susceptibility of the financial statement to material misstatements without considering internal controls

Front 3

Assertion

Back 3

statement made by management regarding the recognition, measurement, presentation, and disclosure of items included in the financial statements

Front 4

significant risk

Back 4

an identified and assessed risk of material misstatement that, in the auditors judgement, requires special audit considerations

Front 5

control risk

Back 5

the risk that a clients system of internal controls will not prevent a material misstatement or detect a material misstatement

Front 6

detection risk

Back 6

the risk that the auditors testing procedures will not be effective in detecting a material misstatement

Front 7

Audit risk mathematical model

Back 7

AR = IR X CR X DR

Front 8

Detection Risk Model

Back 8

DR = AR/RMM (IR X CR)

Front 9

Most Auditors asses an acceptable level of audit risk as no more than

Back 9

5%

Front 10

Materiality

Back 10

information that impacts the decision-making process of users of the financial statements.

Front 11

Materiality is assessed at which stage?

Back 11

Planning stage of every audit

Front 12

Quantitative materiality

Back 12

information that exceeds an auditors preliminary materiality assesment

Front 13

Performance materiality

Back 13

an amount less than materiality, which is set to reduce the likelihood that a misstatement in a particular class of transactions, balances, disclosures do not exceed materiality for the financial statements as a whole

Front 14

Specific Materiality

Back 14

information that is relevant when some areas of the financial statements are expected to influence the economic decisions made by users of the F/S

Front 15

Audit Strategy

Back 15

strategy that sets the scope, timing and direction of the audit and provides basis for developping the detailed audit plan

Front 16

substantive audit strategy

Back 16

strategy used when the auditor does not plan to rely on the clients controls and increased the reliance on detailed substantive procedures that involve intensive testing of the year end account balances and transactions from throughout the year

Front 17

Combined Audit Strategy

Back 17

when the auditor obtains a detailed understanding of their clients systems of internal controls and plans to rely on that sustain to identify, prevent, and detect material mistatements

Front 18

walkthrough

Back 18

tracing a transaction through a clients accounting system

Front 19

Key performance indicators (KPI)

Back 19

measurements, agreed to beforehand, that can be quantified and that reflect the success factors of an organization

Front 20

profitability

Back 20

the ability of the company to earn a profit

Front 21

Price earning ratio

Back 21

market price per share/EPS

Front 22

EPS

Back 22

profit/WA shared issued

Front 23

Liquidity

Back 23

the ability of a company to pay its debts when they fall due - ability to meet its needs for cash in the short and longterm

Front 24

Debt Covenant

Back 24

a promise to maintain specified profitability, liquidity or other ratios before taking on new borrowings

Front 25

Analytical procedure

Back 25

an evaluation of financial information by studying plausible relationships among both financial and non-financial data

Front 26

trend analysis

Back 26

a comparison of account balances over time

Front 27

common-size analysis

Back 27

a comparison of account balances with a single line item (in B/S usually total assets, in the I/S usually general sales or revenues)

Front 28

Ratio Analysis

Back 28

conducted by the auditor to assess the relationship between various financial statement account balances

Front 29

Common Profitability Ratios

Back 29

Gross profit margin, profit margin, return on assets, return on shareholders equity

Front 30

GPM

Back 30

gross profit/net sales

Front 31

Profit Margin

Back 31

profit/net sales

Front 32

Return on assets

Back 32

Profit/average assets

Front 33

Return on Shareholders Equity

Back 33

Profit/average equity

Front 34

Short Term Liquidity Ratios

Back 34

Current ratio, asset quick ratio, inventory turnover, receivables turnover

Front 35

current ratio

Back 35

current assets/current liabilities

Front 36

asset test (quick) ratio

Back 36

cash + short term invest. + receivables/CL

Front 37

Inventory Turnover

Back 37

Cost of Sales/Avg. Inventory

Front 38

Receivables

Back 38

Net credit sales/average net receivables

Front 39

Solvency Ratios

Back 39

debt to equity, times interest earned

Front 40

debt to equity

Back 40

liabilities/equity

Front 41

Times Interest Earned

Back 41

profit before IT and Interest Exp./ Interest Exp.

Front 42

When is an auditor less likely to rely on Analytical Procedures?

Back 42

When they have reason to believe that the reliability of the clients data is compromised

Front 43

occurence

Back 43

transactions and events that have been recorded have occurred and pertain to the entity

Front 44

completeness

Back 44

all transactions and events that should have been recorded are recorded

Front 45

accuracy

Back 45

amounts and other data relating to recorded transactions and events have been recorded appropriately

Front 46

classifications

Back 46

transactions and events have been recorded in the proper accounts

Front 47

cut-off

Back 47

have the transactions been recorded in the right accounting period

Front 48

Testing for existence

Back 48

searches for evidence to verify that assets, liabilities and equity items that are included in the account balances actually exist

Front 49

Testing for valuation and allocation

Back 49

searches for evidence that assets, liabilities and equity items have been recorded at appropriate amounts and allocated to appropriate G/L accounts.

Front 50

testing for occurrence, rights, and obligations

Back 50

disclosed events, transactions, and other matters have occurred and pertain to the entity

Front 51

Assertions used about classes of transactions and events for the period under audit

Back 51

occurence, completeness, accuracy, cut-off, classifications

Front 52

Assertions about account balances at year end

Back 52

Existence, rights and obligations, completeness and Valuation and Allocation

Front 53

Assertions about presentation and disclosure

Back 53

completeness, occurrence rights and obligations, classification and understandability, accuracy and valuation

Front 54

Assertions used when testing transactions and events

Back 54

Occurence, Completeness, Cut-off, Accuracy, Classification

Front 55

Assertions used when testing balance sheer items

Back 55

Existence, rights and obligations, completeness and valuation and allocation