A3 and A4 Flashcards
`what is a trough of a business cycle
it is an economic low point with no positive indicators for the future.
business Cycle
Expansion -> peak -> contraction -> trough -> recovery
what is included in a walkthrough procedures
observations, inquiries, inspection of relevant documentation, and reperformance of controls
what is substantive testing
actually testing for accuracy and doing the dirty work (dollar amount testing)
veryfing accuracy of FS
what is test of controls
testing for efficiency, to see if controls are in place. a broad overview almost
Observation
when an auditor looks at a process or procedure performed by others
observing a person
Confirmation
specific type of inquiry that involves obtaining representation from independent third parties about account balances, transactions or events
Reperformance
auditor independently performs procedures or controls that were orginally preformed as part of hte entity’s internal contrls
inspection/examination
involves examining records or documents.
inspecting a thing
when are analytic procedures required?
planning and review
Vouching
testing for existence
testing for support
Bigger to smaller.
Start with FS go down to source documents
worried about overstatement
(starts iwth big to small, over statement)
Tracing
testing for completeness
testing for coverage
smaller to bigger
start with source documents then go up to FS
worried about understatement (exp , liabilities)
(small to big , understatement)
existence
records to source
compelteness
sources to records
directional testing
Going down is Vouching (Existence)
FS
trial balance
general ledger
sub ledger
book of og entry
source documents
execution of event
transaction approved
Going up is tracing (completeness)
what relationship does risk of assessing control risk too low have with sample size
inverse
what relationship does tolerable deviation rate have with sample size
inverse
what relationship does expected deviation rate have with sample size
direct
what risks are related to the efficiency of an audit?
risk of incorrect rejection and risk of assessing control risk too high
what is deviation rate
in a sample, it is the auditors best estimate of the deviation rate in the population
aka error rate in a population
what risks are related to the effectiveness of an audit
risk of incorrect acceptance and risk of assessing control risk too low
what is tolerable deviation rate
maximum rate of error the auditor can accept
variables sample and PPS sampling
typically used in substantive testing of account balances. dollar values
Expected deviation rate
auditors estimated error rate (before Sampling)
what is upper deviation rate
sample deviation rate + allowance for sampling risk
this number is the highest an auditor can estimate of error
when should auditor reduce reliance on controls (aka higher risk)
when upper deviation rate is greater than tolerable rate.
bc if the number we expect is higher than the number we can accept, we cant rely on contrls
attribute testing
deals with test of controls, often can be answered in a yes or no form
when do you NOT project a error for PPS samples
when the book value is greater than the sample interval value.
Descriptive analytics
what happened, what is happening ot the data. least complex
diagonstic analytics
the why. underestanding the underlying cause of results
predictive analytics
use historic data to make predictions about future events
prescriptive analytics
most advanced.
how to make something happen
