3. Planning and Risk Assessment Flashcards
Why should an auditor make specific and reasonable inquires of the predecessor auditor?
1) reasons for the change in auditor
2) disagreements with management about accounting principles, auditing procedures, or other significant matters
3) information that would bear on the management’s integrity
What is the primary objective of the fraud brainstorming session?
Assess the potential for material misstatement due to fraud.
What accounts are more likely to be predictable when performing analytical procedures?
Relationships involving income statement accounts tend to be more predictable than relationships involving only balance sheet accounts.
What should an auditor maintain throughout the course of the audit?
Professional skepticism.
When should materiality be determined?
In the planning stage
What does audit risk consist of?
Inherent Risk
Control Risk
Detection Risk
What is the first step to analytic procedures?
Develop an expectation.
A basic premise underlying analytical procedures is that
Plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary.
If noncompliance or fraud is found, disclosure of these acts to outside parties
Ordinarily is not the auditor’s responsibility and would violate the duty of confidentiality (AU-C 240).
If inventory is increasing at a faster rate than sales, the turnover rate decreases
It suggests a buildup of unsalable inventory.
What are some examples of info raising questions about possible illegal acts?
Unauthorized or improperly recorded transactions,
A governmental investigation,
Violations reported by regulators,
Large payments for unspecified services to consultants,
Excessive commissions or fees,
Unusual cash payments or checks payable to cash,
Unexplained payments to government officials or employees,
& failure to file tax returns or pay governmental duties or similar fees.
