A1 Risk, Evidence, & Sampling

Question 1

Planning Process

Answer 1

Should include application of analytical procedures such as comparison of the FS with budgeted or anticipated outcomes.

Question 2

Supply

Answer 2

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)

Question 3

Demand

Answer 3

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).

Question 4

Market Equilibrium

Answer 4

Occurs where the supply curve & demand curve intersect and represents the equilibrium price.

Question 5

Elasticity

Answer 5

Measures sensitivity of quantity supplied or demanded is to a change in price.

Question 6

Price Elasticity of Demand

Answer 6

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.

Question 7

Income Elasticity of Demand

Answer 7

Measures how the quantity demanded changes as consumer income changes.

Question 8

Cross Price Elasticity of Demand

Answer 8

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.

Question 9

Price Elasticity of Supply

Answer 9

Measures the responsiveness of quantity supplied to a change in price

Question 10

Profit Maximization

Answer 10

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.

Question 11

Marginal Revenue

Answer 11

Additional revenue by product sales increase by 1 unit.

Question 12

Marginal Cost

Answer 12

Additional cost to produce one more unit

Question 13

Business Cycles

Answer 13

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.

Question 14

Trough

Answer 14

Lowest point of the cycle where economic activity is weakest, output is low, unemployment is high.

Question 15

Expansion

Answer 15

Follows the trough cycle, and serves as the economy beginning to recover and grow.

Question 16

Peak

Answer 16

The highest point of economic expansion, with high output & employment levels, building inflation due to high demand of goods.

Question 17

Recession/Contraction

Answer 17

Declining economic performance across the economy that last several months.

Question 18

Economic indicators

Answer 18

Key states about the economy that help identify economy outlook which includes, leading, coincident, and lagging indicators.

Question 19

Leading indicaters

Answer 19

Used to predict future movements.

Question 20

Coincident indicators

Answer 20

Moves at the same time as the economy and assess it current state.

Question 21

Lagging Indicators

Answer 21

Show a change after the economy has began to follow a particular pattern.

Question 22

Analytical Procedures

Answer 22

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.

Question 23

Scalability

Answer 23

Refers to the auditors assessment of an entity to determine if its complex. Size & complexity may determine its system of internal control.

Question 24

ECOST

Answer 24

Acronym that highlights the factors that change supply:

Expectation of supplier
Cost or changes in production cost
Other Goods
Subsidies changes or taxes
Technology

Question 25

Law of Demand

Answer 25

Price & quantity demanded are inversely related

Question 26

SPINE

Answer 26

Acronym that refers to the factors that change the demand curve:
Substitute goods
Popularity of goods
Increase in income
Number of Buyers
Expectation of prices