A3 Flashcards
Factors that change the supply
ECOST
Expectation of a change in price
Cost to produce
Other goods price changes
Subsidies changes
Technological improvements
list of the walkthrough procedures usually performed in an issuer’s integrated audit
Inquiry, observation, inspection of relevant documentation, and reperformance of controls.
An auditor would most likely perform risk-assessment procedures to
evaluate the design of relevant controls when obtaining an initial understanding of the system of internal control sufficient to assess the risk of material misstatement of the financial statements.
Substantive testing is an audit procedure designed to
detect material misstatements
the auditor should usually rely on audit evidence that is
persuasive
what is the auditor’s direct personal knowledge
examination, re-computation, inspection, and observation
professional judgment
evaluate the sufficiency and appropriateness of audit evidence. For example the amount of evidence required and how relevant it is.
Professional requirements
inform the auditor of their minimum responsibilities in the audit (Part of professional standards)
Substantive tests are
concerned with dollar amounts and consist of tests of details of transactions and balances and analytical procedures
Accounts that are less predictable
What accounts tend to be more predictable more predictable than balance sheet accounts
Income statement accounts.
To determine whether transactions have been recorded
the auditor should trace from the source documents to the accounting records (general ledger, trial balances, etc.).
Reperformance occurs when
an auditor independently performs procedures or controls that were originally performed as part of an entity’s internal control.
If there are few transactions in an account what test is ran
Test of detail
Analytical procedures are used for
Accounts that are more predictable, Focuses on the comparison between accounts and their balances
*developing an expectation (based on plausible relationships) and comparing recorded amounts or ratios based on recorded amounts to that expectation
Most of the time is will be Income Statement accounts
From accounting records to source document
Helps detect overstatements (Tests existence)
From source document to accounting records
Helps with Completeness that all transactions are included
Analytical procedures applied during the final review stage should be used to
determine whether adequate evidence has been gathered in response to unusual or unexpected balances identified during the audit.
By using statistical sampling
the auditor can quantify sampling risk to assist in limiting it to a level considered acceptable.
The efficiency of the audit
is related to the risk of incorrect rejection and the risk of assessing control risk too high.
the risk of incorrect acceptance and the risk of assessing control risk too low relate to
effectiveness of an audit
Attribute sampling is used to
Test controls
Nonsampling risk includes
the auditor selecting inappropriate auditing procedures, using inappropriate audit evidence, and failure by the auditor to recognize misstatements in documents examined.
If the auditor is not able to test the control as planned, nor perform alternative procedures
the auditor should treat the item as a deviation from the prescribed control in their documentation.
What has no effect on sample size
Population size is not an issue in determining a sample size,
Allowance for sampling risk
recognizes that it is likely that what we found in the sample isn’t exactly what we would find in the population
Stratification
Separate data into homogeneous groups
Each group is treated as a separate population
Generally results in a reduction of sample size
(Used mostly when data has a high variable recorded amount)
Ratio estimation is most effective
if there is a correlation between book values and audit amounts.
Stratified mean per unit (MPU) sampling
Produces an estimate having a desired level of precision with a smaller sample size.
In PPS sampling
the auditor controls the risk of incorrect acceptance by specifying that risk level for the sampling plan.
Identifies large overstatement errors
(Struguls with smaller amounts and understatement)
Sampling interval
Tolerable misstatement / Reliability factor
Sample size
Recorded amount of the population / sampling interval
Descriptive analytics
describe what happened within the data
Prescriptive analytics
prescribe or recommend actions to be taken based on advanced analytics to reach a desired goal.
Diagnostic analytics
explain why something happened
Predictive analytics
provide expected or predicted outcomes based on historical data
What are leading indicators
Those that predict what will happen
What are coincident indicators
Those that change with the market
When are we required to test the operating effectiveness of controls
when we are relying on them to reduce substantive tests
or
when we can’t obtain substantive audit evidence without testing controls
A dual-purpose test is defined as a
Test of controls that is performed concurrently with a test of details on the same transaction.
In what audit do we perform substantive procedures
In an FS audit
Not in an internal control over financial reporting
When do we test the operating effectiveness of internal controls
When we plan on relying on the control
What is not an arms-length transaction
Consignment sales as it requires a non related party
What is corroboration
Support for an event
When do we use and emphasis of matter paragraph in going concern
When the concern is alleviated and properly disclosed
When would test of details be most useful
When there are little transaction in the account throughout the year
Risk of deviation
Assessing control risk too High/Low
Ratio estimation is most effective if there is a
correlation between book values and audit amounts.
In PPS sampling, the auditor controls
the risk of incorrect acceptance by specifying that risk level for the sampling plan.
What is not an indication that the operating effectiveness of controls may not need to be tested
There is a material error, this is not an indicator that the control is for sure not operating effectively therefore you must do test of controls to reassure that if it is operating efectively
What is the most likely sequence of events an auditor might follow in considering internal control?
An auditor performs tests of controls at the same time that he or she is obtaining an understanding of internal control, because it may be more efficient to do so.
What would most likely assist an auditor in identifying related party transactions?
Reading the minutes of the Board of Directors meetings to see if any material transactions were authorized.
