(A3)M7-M9 Flashcards
when using ratio analysis, would an increase in the numerator increase or decrease the ratio?
increase!
when using ratio analysis, would an increase in the denominator increase or decrease the ratio?
decrease
current ratio
current assets/current liabilities
(liquidity) 1.5
quick ratio
cash + ST marketable securities + receivables (net)/current liabilities
(liquidity) .8
accounts receivable turnover
sales (net)/avg AR (net)
activity
days sales in AR
ending AR (net)/(net sales/365) (activity)
inventory turnover
COGS/avg inventory
activity
days in inventory
ending inventory/(COGS/365)
activity
AP turnover
COGS/avg AP
activity
days of payables outstanding
ending AP/(COGS/365)
activity
cash conversion cycle
days sales in AR + days in inventory - days of payables outstanding
(activity)
asset turnover
sales (net)/avg total assets
(activity) *higher is better
profit margin
net income/sales (net)
profit
ROA
net income/avg total assets
profit
return on equity
net income/avg total equity
profit
gross profit margin
sales (net) - COGS/sales (net)
operating cash flow
cash flow from operations/ending current liabilities
debt to equity
total liabilities/total equity
(LT debt paying ability) *lower is better
total debt
total liabilities/total assets
LT debt paying ability
equity multipler
total assets/total equity
(LT debt) *lower is better
times interest earned
income before interest exp and taxes/interest exp
LT debt
there is a ___ relationship between sample size and tolerable rate/misstatement.
inverse
if the upper deviation rate (sample deviation rate + allowance for sampling risk) is greater than the tolerable rate, should auditor rely on the control?
NO
name the non statistical sampling techniques.
block, haphazard, stratified
what kind of relationship exists between sample size and the expected error rate?
Direct
the sample size in an attribute sampling application is affected by which 3 factors?
allowable risk of assessing control risk too low, tolerable deviation rate, likely rate of deviations (expected)
what type of sampling would be used to determine whether a given account balance is reasonable?
variables
if dual purpose sampling is used, auditor should use which sample size?
larger of the two
upper deviation rate = ___ + ___
sample deviation rate, allowance for sampling risk
the ___ sampling technique is not designed to test for zero or negative balances.
probability-proportional-to-size (PPS)
what kind of relationship is there between assessed level of control risk and sample size?
direct
discuss mean-per-unit estimation
uses the avg value of items in the sample to estimate the true population value.
(audited value of sample/sample size) x population size = point est
discuss ratio estimation
uses the ratio of the audited values of items to their book values to project true population value. Efficient when audited amounts are approx proportional to client’s book amounts.
(audited value of sample/BV of sample) x total BV of population = point est
discuss difference estimation
uses the avg difference between audited values of items and their book values to project actual population value. Used when ratio estimation is not efficient.
((BV of sample - audited value of sample)/sample size) x population size = projected error
total BV of population - projected error = point est
risk of incorrect acceptance has a direct or inverse relationship with sample size?
inverse
population variability has a direct or inverse relationship with sample size?
direct
number of items in population has a direct or inverse relationship with sample size?
neither, it has virtually no impact
what does stratification generally result in?
smaller sample size and more precise estimate
which account typically has a smaller balance, AR or sales.
AR, so when calculating days sales in AR an equal increase in sales and AR would have a greater impact on AR
