A3 - Identifying, assessing, and responding to risk Flashcards
1
Q
when are substantive analytical procedures often used ?
A
when there is a large volume of predictable transactions and when the risk of material misstatement is LOW
2
Q
When would auditor NOT likely to test controls?
A
- when performing substantive tests would take LESS TIME than it would to perform tests of controls and if there is no other reason to test controls (like there is not a high degree of electronic processing)
- when performing substantive tests are MORE EFFICIENT than it would to perform tests of controls (like there is not a high degree of electronic processing)
3
Q
what are dual-purpose tests?
A
- a test of controls that is performed concurrently with a test of details on the same transaction. Ex: a dual-purpose test on a client’s invoice to determine whether the invoice was approved and to ascertain the amount and other items of the invoice
4
Q
what are the tests used to evaluate the operating effectiveness of a control?
A
Inquiry, inspection, observation, and reperformance
5
Q
when are tests of controls performed?
A
- the auditor’s risk assessment is based on the assumption that controls are operating effectively
- when substantive procedures alone are insufficient
6
Q
During the planning phase, what should the auditor consider to obtain an understanding of the internal control system?
A
- types of misstatements that may occur
- risk that misstatements may occur
- factors that influence the design of tests of controls and substantive tests
- assessment of inherent risk
- judgement about materiality
- complexity and sophistication of the entity’s operation system
- use of manual vs. computerized control procedures
- previous experience/audits with the client
the auditor is NOT REQUIRED to obtain knowledge about operating effectiveness as part of the understanding of internal control. This knowledge is obtained later, for specific controls on which the auditor plans to rely.
