Acct 407 Exam 3

Front 1

roll-forward procedures

Back 1

extend work from the interim period to date of financial statements (includes tests of controls and substantive procedures)

Front 2

analytical procedures

Back 2

study of relationships among financial and non -finc data

Front 3

attorney's letters

Back 3

letter of audit inquiry sent to the client's attorneys is the primary means of obtaining or corroborating info about litigation, claims, and assessments

Front 4

Written Representations

Back 4

"rep letter" - management's responsibility for finc stmts and internal control

Front 5

going-concern assessment

Back 5

auditor considers whether evidence obtained during audit raises questions about ability to continue as a going concern and if so, evaluate mgmt's plans to mitigate

Front 6

Subsequent Events

Back 6

occur after balance sheet date but before issuance of finc stmts and that materially affect the finc stmts

Front 7

type 1 subsequent event

Back 7

additional evidence of conditions that existed at the balance sheet date, requires adj to finc stmts

Front 8

type 2 subsequent event

Back 8

conditions did not exist at the balance sheet date, and do not affect accuracy of finc stmts, requires disclosure and possibly pro forma finc stmts

Front 9

adjustments to the standard unqualified opinion

Back 9

modified wording (opinion based in part on the report of another auditor), explanatory paragraph (reference to report on ICFR, going concern, lack of consistency, additional emphasis)

Front 10

group finc stmts

Back 10

finc stmts comprised of more than one division/subsidiary/segment/component

Front 11

group auditor

Back 11

conduct audit of material portion of the entity

Front 12

component auditors

Back 12

MAY BE ENGAGED BY GROUP AUDITOR TO AUDIT DIVISIONS/SUBSIDS/COMPONENTS

Front 13

going-concern uncertainties

Back 13

modified language: "substantial doubt" and "going concern"

Front 14

pervasiveness

Back 14

not confined to specific elements/accounts/items or represent a substantial portion, fundamental to users understanding

Front 15

scope limitation opinion

Back 15

qualified if material, disclaimer if pervasive

Front 16

GAAP departure opinion

Back 16

qualified if material, adverse if pervasive

Front 17

circumstance imposed scope limitation

Back 17

situation beyond auditor's and client's control that limits procedures

Front 18

client-imposed scope limitation

Back 18

client specifically limits auditor's procedures -> sketchy, should be viewed as significant restriction and a disclaimer is ordinarily issued

Front 19

sampling risk

Back 19

likelihood that decision based on sample differs from decision that would be made if entire population were examined

Front 20

how to control sampling risk

Back 20

determine appropriate sample size, ensure all items have equal likelihood of selection, adjust for sampling risk

Front 21

type 1 sampling error

Back 21

risk of incorrect rejection - auditor efficiency loss

Front 22

type 2 sampling error

Back 22

risk of incorrect acceptance - auditor effectiveness loss (more concerning)

Front 23

nonsampling risk

Back 23

incorrect conclusion unrelated to the nature of the sample - error of judgement or execution

Front 24

how to control nonsampling risk

Back 24

training and supervision, reasonable working conditions, effort

Front 25

nonstatistical sampling

Back 25

auditor doesn't use statistical techniques to determine sample size, select sample items, or measure sampling risk

Front 26

statistical sampling

Back 26

uses laws of probability to compute sample size and evaluate results - auditor is able to use most efficient sample size and quantify sampling risk

Front 27

advantages of statistic sampling

Back 27

design an efficient sample, measure sufficiency of evidence obtained, quantify sampling risk

Front 28

disadvantages of statistic sampling

Back 28

training auditors in proper use, cost to design and conduct sampling application, lack of consistent application across audit teams

Front 29

steps in sampling: planning

Back 29

1) determine the objective of sampling 2) define the characteristic of interest 3) define the population

Front 30

steps in sampling: performing

Back 30

4) determine sample size 5) select sample items 6) measure sample items

Front 31

unrestricted random selection

Back 31

select items based on random numbers matched to items in population

Front 32

systematic random selection

Back 32

bypass a fixed number of items in population by selecting every nth item

Front 33

block selection

Back 33

select contiguous units

Front 34

haphazard selection

Back 34

select items in a nonsystematic manner

Front 35

steps in sampling: evaluating

Back 35

7) evaluate sample results, make conclusion about the population at large

Front 36

reliability

Back 36

confidence level, desired level of assurance

Front 37

precision

Back 37

allowance for sampling risk. difference between the expected and tolerable deviation rate

Front 38

documentation of sampling

Back 38

document all steps, including factors affecting smaple size, method of selecting sample and measuring sample items, and evaluation of sample results

Front 39

attribute sampling

Back 39

used to estimate the extent to which a characteristic (attribute) exists within a population

Front 40

variables sampling

Back 40

used to estimate the amount or value of a population

Front 41

upper limit rate of deviation (ULRD)

Back 41

use sample size and actual number of deviations and risk of overreliance to find on table

Front 42

sample rate deviation

Back 42

number of deviations / sample size

Front 43

allowance for sampling risk

Back 43

ULRD - sample rate deviation

Front 44

Monetary unit sampling (MUS)

Back 44

define sampling unit as individual dollar in account balance

Front 45

(dis)Advantages of MUS

Back 45

includes transactions or components reflecting larger dollar amounts, more effective for overstatement errors, not as effective for understatement or omission errors

Front 46

sampling interval for MUS

Back 46

population size / sample size

Front 47

tainting percentage for MUS

Back 47

(recorded balance - audited value) / recorded balance

Front 48

projected misstatement for MUS

Back 48

sampling interval * tainting percentage --> do not project if logical unit > sampling interval

Front 49

incremental allowance for sampling risk for MUS

Back 49

rank projected misstatements in descending order, determine incremental confidence factor for each misstatement (from table), multiply projected misstatement by incremental confidence facrtor -1

Front 50

basic allowance for sampling risk for MUS

Back 50

sampling interval * confidence factor

Front 51

upper limit on misstatements for MUS

Back 51

projected misstatements + incremental allowance for sampling risk + basic allowance for sampling risk