(A3)M1-M3

Question 1

what are the fraud risk factors and what do they mean?

Answer 1

incentive/pressure: a reason to commit fraud
opportunity: a lack of effective controls
rationalization/attitude: an attempt to justify fraud

Question 2

what are the 4 attributes of risk? “PSTL”

Answer 2

type: fraud financial reporting or misappropriation?
significance: can it lead to MM
likelihood: how likely to happen?
pervasiveness: affect FS as whole or only specifics?

Question 3

what are the 3 types of misstatements? explain.

Answer 3

factual: there is no doubt
judgmental: differences between management and auditor about estimates and policies
projected: auditor’s estimate of misstatements in populations (sampling)

Question 4

RoMM = ___ * ___

Answer 4

CR,IR

Question 5

audit risk model equation

Answer 5

DR = AR/(CR*IR)

Question 6

what does greater RoMM require the auditor to do?

Answer 6

gather more persuasive evidence, increase sample sizes, and/or test at YE instead of interim

Question 7

if CR is assessed at maximum, what kind of procedures should the auditor perform and why?

Answer 7

substantive: no effective controls relative to assertion, controls are ineffective, it would not be efficient to test controls

Question 8

what is auditor required to obtain an understanding of as it relates to internal controls?

Answer 8

design and implementation

Question 9

What are the procedures to test design effectiveness of IC?

Answer 9

inquiry, observation, inspection (i.e., walk-throughs)

Question 10

what are the procedures to test operating effectiveness of IC?

Answer 10

inquiry, observation, inspection, reperformance