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AUD > (A3)M7-M9 > Flashcards

(A3)M7-M9 Flashcards

1
Q

when using ratio analysis, would an increase in the numerator increase or decrease the ratio?

A

increase!

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2
Q

when using ratio analysis, would an increase in the denominator increase or decrease the ratio?

A

decrease

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3
Q

current ratio

A

current assets/current liabilities

(liquidity) 1.5

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4
Q

quick ratio

A

cash + ST marketable securities + receivables (net)/current liabilities
(liquidity) .8

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5
Q

accounts receivable turnover

A

sales (net)/avg AR (net)

activity

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6
Q

days sales in AR

A 
ending AR (net)/(net sales/365)
(activity)
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7
Q

inventory turnover

A

COGS/avg inventory

activity

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8
Q

days in inventory

A

ending inventory/(COGS/365)

activity

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9
Q

AP turnover

A

COGS/avg AP

activity

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10
Q

days of payables outstanding

A

ending AP/(COGS/365)

activity

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11
Q

cash conversion cycle

A

days sales in AR + days in inventory - days of payables outstanding
(activity)

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12
Q

asset turnover

A

sales (net)/avg total assets

(activity) *higher is better

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13
Q

profit margin

A

net income/sales (net)

profit

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14
Q

ROA

A

net income/avg total assets

profit

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15
Q

return on equity

A

net income/avg total equity

profit

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16
Q

gross profit margin

A

sales (net) - COGS/sales (net)

17
Q

operating cash flow

A

cash flow from operations/ending current liabilities

18
Q

debt to equity

A

total liabilities/total equity

(LT debt paying ability) *lower is better

19
Q

total debt

A

total liabilities/total assets

LT debt paying ability

20
Q

equity multipler

A

total assets/total equity

(LT debt) *lower is better

21
Q

times interest earned

A

income before interest exp and taxes/interest exp

LT debt

22
Q

there is a ___ relationship between sample size and tolerable rate/misstatement.

A

inverse

23
Q

if the upper deviation rate (sample deviation rate + allowance for sampling risk) is greater than the tolerable rate, should auditor rely on the control?

A

NO

24
Q

name the non statistical sampling techniques.

A

block, haphazard, stratified

25
Q

what kind of relationship exists between sample size and the expected error rate?

A

Direct

26
Q

the sample size in an attribute sampling application is affected by which 3 factors?

A

allowable risk of assessing control risk too low, tolerable deviation rate, likely rate of deviations (expected)

27
Q

what type of sampling would be used to determine whether a given account balance is reasonable?

A

variables

28
Q

if dual purpose sampling is used, auditor should use which sample size?

A

larger of the two

29
Q

upper deviation rate = ___ + ___

A

sample deviation rate, allowance for sampling risk

30
Q

the ___ sampling technique is not designed to test for zero or negative balances.

A

probability-proportional-to-size (PPS)

31
Q

what kind of relationship is there between assessed level of control risk and sample size?

A

direct

32
Q

discuss mean-per-unit estimation

A

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

33
Q

discuss ratio estimation

A

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

34
Q

discuss difference estimation

A

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

35
Q

risk of incorrect acceptance has a direct or inverse relationship with sample size?

A

inverse

36
Q

population variability has a direct or inverse relationship with sample size?

A

direct

37
Q

number of items in population has a direct or inverse relationship with sample size?

A

neither, it has virtually no impact

38
Q

what does stratification generally result in?

A

smaller sample size and more precise estimate

39
Q

which account typically has a smaller balance, AR or sales.

A

AR, so when calculating days sales in AR an equal increase in sales and AR would have a greater impact on AR

AUD (18 decks)

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