A3 N Flashcards
government establishes a fixed price what are the anticipated long-term effects on consumers and producers?
Consumers will buy more and producers will make less.
OJO: Como hay precio fijo + gente lo va a comprar y menos va a haber de produccion pq demanda es muy alta
Lagging indicators
follow economic ACTIVITY
I.E. Inventories-to-sales ratios, the prime rate charged by banks and the consumer debt-to-income ratio
Leading economic indicators
Tend to predict economic activity.
I.E. Orders for goods, building permits, and unfilled orders are all examples of leading indicators.
Coincident indicators
These indicators change at approximately the same time as the whole economy
What are Analytical procedures?
Analytical procedures involve comparison of recorded amounts to independent expectations developed by the auditor.
During the planning stage, analytical procedures generally use financial data, such as unaudited information from internal quarterly reports.
Performing preliminary test of controls over selected transaction cycles.
is NOT a risk assessment procedure recommended by PCAOB standards
Risks relevant to financial reporting can arise due to which of the following circumstances?
Rapid growth in the entity’s operations.
BUSINESS CYCLE:
The trough of a business cycle is an economic low point with no positive indicators for the future.
This is characterized by?
The trough of a business cycle is an economic low point with no positive indicators for the future.
During a trough, firm profits are likely to be at their lowest level. Firms often try to reduce the size of their workforce and reduce other costs.
BUSINESS CYCLE:
Peak Phase
The peak of a business cycle marks the highest point of economic activity.
At that point, firms are likely to face capacity constraints and labor shortages, which will put upward pressure on the overall price level.
BUSINESS CYCLE:
Expansionary phase
Firm profits will generally be increasing, because the demand for goods and services is increasing.
BUSINESS CYCLE:
Contractionary phase
Decrease in economic activity, when the economy is contracting. This phase follows a peak, and firm profits will generally be decreasing.
BUSINESS CYCLE:
normal sequence of a business cycle is?
Expansion, peak, contraction, and trough.
Automated controls more suitable for:
> High-volume transactions that require additional calculations.
Circumstances that require a high degree of accuracy.
Situations with routine errors that can be predicted and corrected
MANUAL controls more suitable for:
Large, unusual, or nonrecurring transactions.
Preventative controls
are applied before the processing of transactions
Which of the following constitutes a potential risk associated with the use of information technology in an entity’s system of internal control?
Unauthorized changes to systems.
Monitoring controls
help assess the quality of control operation.
Physical controls
relate to safeguarding assets, such as using security devices to limit access to programs and restricted areas.
Information-processing controls
apply to the processing of individual transactions and help to ensure that transactions occurred, are authorized, and are completely and accurately processed and reported.
General controls
are policies and procedures that relate to many applications and support the effective functioning and proper operation of the information system.
WALKTHROUGH
always include OBSERVATION and ?
Inquiry, observation, inspection of relevant documentation, and reperformance of controls.
NEVER a SAMPLE
Example of Limitations of IC
The limitations of internal control.
Human error, including faulty or biased judgment used in decision making, is an example of a limitation of internal control.
Inherent limitation to a system of internal control is
The fact that controls can be circumvented by management override.
Test of Controls vs. Substantive testing
After performing risk assessment procedures, an auditor might decide not to perform tests of controls because it would be inefficient. In other words, the time required to perform tests of controls would be greater than the reduction in time spent on substantive testing
An overall response to address a high-assessed risk of material misstatement at the financial statement level of a nonissuer may include:
> Providing more supervision of the audit team.
Increase the emphasis on professional skepticism when gathering and evaluating audit evidence with the audit team.
Assigning more experienced staff or those with specialized skills to high-risk areas.
method of sampling does not impact the sample size
The sampling method may help the auditor select the items for the tests of details, but it will not modify the nature, extent, or timing of the tests of details.
Which of the following factors should prompt an auditor to seek a larger sample size for tests of details?
High assessed level of control risk and high assessed level of inherent risk
CONTROLS:
In order to set Control RisK at LOW
tests of controls would need to be performed.
CONTOLS:
It is OK NOT to TOC if
If it would take less time or be more efficient to perform substantive tests than it would to perform tests of controls, and if there is no other reason to test controls (i.e., if there is not a high degree of electronic processing).
Substantive audit procedures ONLY required for….
financial statement audit
NOT required for audit of internal control over financial reporting
Una de las claves para hacer INTERIM Testig es :
que las cuentas puedan ser reasonably predictable (IS)
RECESSION
A recession occurs when economic activity or output, as measured by GDP, declines.
CONTROLS:
Substance over form
relate to controls that appear on the surface to exist but in reality are not operating effectively.
I.E.=Management may establish appropriate procedures but not enforce compliance with them.
