A1 Risk, Evidence, & Sampling Flashcards
Planning Process
Should include application of analytical procedures such as comparison of the FS with budgeted or anticipated outcomes.
Supply
Refers to quantity of a good or service that producers are willing & able to offer at different prices over a certain period of time. Supply increases as price rises(Positive Correlation)
Demand
Quantity of a good or service consumers are willing to purchase at different prices over a period of time. Demand decreases as price increases (Negative Correlation).
Market Equilibrium
Occurs where the supply curve & demand curve intersect and represents the equilibrium price.
Elasticity
Measures sensitivity of quantity supplied or demanded is to a change in price.
Price Elasticity of Demand
Measures the responsiveness of the quantity demanded to a change in price. Demand is elastic if it changes significantly with a small change in price. If there’s little change then demand is inelastic.
Income Elasticity of Demand
Measures how the quantity demanded changes as consumer income changes.
Cross Price Elasticity of Demand
Measures the responsiveness of quantity demanded for a good, to a change in price of another good. Can also indicate whether goods are complements or substitutes.
Price Elasticity of Supply
Measures the responsiveness of quantity supplied to a change in price
Profit Maximization
A process a business determines the price & output level that returns the greatest profit. A business maximizes profit by producing up to the point where MC=MR. If MR<MC the firm can increase profit by reducing output.
Marginal Revenue
Additional revenue by product sales increase by 1 unit.
Marginal Cost
Additional cost to produce one more unit
Business Cycles
Upward and downward movements in GDP levels & refers to the expansion & contraction of economic activity overtime. The normal sequence of the cycle consist of expansion, peak, contraction, trough.
Trough
Lowest point of the cycle where economic activity is weakest, output is low, unemployment is high.
Expansion
Follows the trough cycle, and serves as the economy beginning to recover and grow.
Peak
The highest point of economic expansion, with high output & employment levels, building inflation due to high demand of goods.
Recession/Contraction
Declining economic performance across the economy that last several months.
Economic indicators
Key states about the economy that help identify economy outlook which includes, leading, coincident, and lagging indicators.
Leading indicaters
Used to predict future movements.
Coincident indicators
Moves at the same time as the economy and assess it current state.
Lagging Indicators
Show a change after the economy has began to follow a particular pattern.
Analytical Procedures
Consist of evaluations of financial information. Helps identify unusual transactions in the planning and review stage. Includes data aggregated at a high level (by year, months, product). Involves company current year to prior year, to budget, & ratios to prior year.
Scalability
Refers to the auditors assessment of an entity to determine if its complex. Size & complexity may determine its system of internal control.
ECOST
Acronym that highlights the factors that change supply:
Expectation of supplier
Cost or changes in production cost
Other Goods
Subsidies changes or taxes
Technology
