A3 Flashcards
seeking of information that is done by management
inquiry
assesses risk of material misstatement, and determines nature, extent, and timing of audit procedures
analytical procedures
occurs when margins revenue is equal to marginal cost
profit maximization
growth, rising economic activity, profits, lower unemployment
expansionary phase
falling economic activity
contractionary phase
predict economic activity
leading indicator
tatistical indicators that usually change simultaneously with general economic conditions
coincidentent indicator
tend to follow economic activity
lagging indicators
quantity to which audit is performed
extent
method to prevent misstatement
substantive approach
uses control and details
combined approach
test of controls is used when
-auditor’s risk assessment i s based on assumption they are effective
-substantive procedures are insufficient
used to gather evidence to support account balances in FS
test of details
study of plausible relationships in financial and non financial data
substantive analytical procedures
date that increases risk auditor won’t detect material misstatements
interim date
identified high risk of fraud risk of material misstatement
period end
based on auditor’s judgment
sufficiency
obtain representation from external third parties
confirmation
examines support for what’s been recorded
vouching
review of year-end transactions, especially inventory, cash, purchases, sales, and accruals
cutoff
provides assurance event is being given proper recognition in books+ records
tracing
procedures performed after balance sheet date to date of auditor’s report
subsequent events review
what are the substantive procedures?
tests of details and substantive analytical procedures
evidence obtained through 3rd party
external confirmation
used to measure numerical measurement of population
variables sampling
maximum monetary misstatement auditor will accept
tolerable misstatement
population has highly variable recorded amounts
stratification
three types of classical variables sampling
mean per unit, ratio estimation, difference estimation
Advantags of PPS sampling
stratisfies sample, requires smaller sample
formula for sampling interval
tolerable misstatement/ reliability factor
sample size formula
recorded amount of population/ sampling interval
hierarchy of audit evidence
- Auditor’s direct personal knowledge
- External evidence
- Internal evidence
- Oral evidence
PCOAB audit evidence depends on
Design of audit procedure
Timing of audit procedure
provides additional support, gives validity to recorded data
corroborating evidence
obtained from independent sources outside+ provides greater reliability
external evidence
creates charts, graphs, diagrams, and dashboards to help emphasize trends and relationships
data visualization
explain what happened, what is happening
descriptive analytics
understand underlying cause of result of why something happened
diagnostic analytics
uses historical data/ facts to make predictions
predictive analytics
most advanced and complex analytic
prescriptive analytics
what to evaluate in ADA
quantitative data, qualitative data, date and time data, geographic
allows auditor to evaluate relationships between variables
regression analysis
compare company’s forecasted or budgeted values against actual values
variable analysis
used to develop expectation of future results
trend analysis
attributes that contain primary key from another table
foreign key
required attribute in every table that contains unique identifier
primary key
designed to provide reasonable assurance of valid transactions
preventative controls
errors or irregularities are discovered and corrected on timely basis
detective controls
large, unusual, or nonrecurring transactions
Manual Controls
high volume and recurring transactions
Automated Controls
Support effective functioning and authorization of internal controls
General Controls
Help ensure transactions occurred and are authorized
Information processing controls
Implementation procedures
- Inquiry of entity personnel
- Observation
- Inspection
- Reperforming
Types of Documentation (FIND)
Flowchart, Internal Control Questionnaire, Narrative, Documentation
