Assessing and responding to risks of material misstatement, whether due to fraud or error Flashcards
Conditions and requirements of accepting and performing a compilation engagement.
Steps in the audit model
Auditors can respond to a heightened risk of material misstatement by
Decreasing materiality and reducing the acceptable lvl of detection risk
If control risk is at maximum lvl _____
The auditor must document how, when, who, and what risks the assessment identified.
How an auditor should respond to heightened assessed risk of material misstatement
What is the process for understanding internal control (I/C) and assessing control risk (CR)
To plan procedures for an engagement to review a nonissuers financial statements, an accountant needs to ________
Compilations do not inquire regarding the _______ of the F/S, but inquire about the ________ ______ the clients select
do not inquire about accuracy, but about accounting principles
Procedures performed before/after balance sheet date.
Review VS Audit
What is inherent risk?
Inherent risk is the risk that a material misstatement will occur absent any controls
Additional testing is required when inventory is material to the FS and susceptible to misappropriation. The auditor must _______
-Review procedures for safeguarding inventory and perform physical inventory count on the balance sheet date or as close as possible.
The nature, timing, and extent of substantive``` procedures reflects the amount of _________ the auditor is willing to except
Detection risk
Uses of Analytical procedures
What is the best method for preventing and detecting fraudulent activity?
Develop a fraud risk management program
If RMM is High, than _____
The auditor should make inquiries to determine the potential consequences of any deviations from prescribed control procedures
Auditor should report deviation or increase sample size of control tests only after determining the consequences.
Impact of risk on audit testing
Reviews vs Compilations
To maintain audit risk at an acceptable level, auditors apply audit procedures to ___________
decrease detection risk in response to an increase in assessed control risk or inherent risk
The RMM is a function of control and inherent risk. As RMM increase, the acceptable level of ______________
detection risk is increased. As RMM decreases, the acceptable level of detection risk is increased.
What is misappropriation of assets
A type of fraud that includes both outright theft and the dishonest use of entity’s assets.
Example of inherent audit risk
Factors influencing interim substantive testing
