Assessing & Developing A Planned Response Flashcards
What does the “Nature” of the audit refer to?
Type
What part of NET is this conveying?
Perform a specified procedure….
Nature
What part of NET is this conveying?
On a specified number of records from the population
Extent
What part of NET is this conveying?
As of interim date
Timing
What does the “Extent” of the audit refer to?
Scope
What does the “Timing” of the audit refer to?
When
What further audit procedure would be necessary?
Auditor’s risk assessment is based on operating effectiveness of internal controls?
TOC
What further audit procedure would be necessary?
Substantive procedures alone are insufficient
TOC
What procedures are required to detect material misstatements?
Substantive procedures
Why are substantive procedures required?
Inherent limitations to internal controls
What is the amount set by the auditor at less than materiality for the financial statements as a whole
Performance Materiality
What does performance materiality decide?
NET
What is the maximum error in a population that the auditor is willing to accept?
Tolerable misstatement
How does tolerable misstatement relate to performance materiality?
TM is application of PM in a sampling procedure
What is the C in CRIME?
Control Environment
What is the R is CRIME?
Risk Assessment
What is the I in CRIME?
Information and communication system
What is the M in CRIME?
Monitoring
What is the E in CRIME?
Existing controls
What component of internal control?
Setting the tone of the organization
Control environment
What component of internal control?
Identification by management of the risks relevant to the preparation of the FS
Risk assessment
What component of internal control?
Methods used to classify and report transactions and communicate roles and responsibilities
Information
What component of internal control?
Procedures established to assess the quality of IC over time
Monitoring
What component of internal control?
Policies and procedures established to ensure that management objectives are carried out
Existing controls
As the acceptable level of DR decreases, the assurance provided from substantive tests should _______
increase
RMM Formula
IR * CR
AR Formula
RMM * DR
Sample deviation rate
Number of errors / Sample Size
Upper deviation rate
Sample deviation + Allowance
Point estimate
Sample error + recorded balance
PPS Sampling
Sampling interval
Tolerable misstatement/reliability factor
Analytic procedures are required during the _______ and _____ phase
planning, final review
Working capital
current assets - current liabilities
Current ratio
Current assets/Current liabilities
Quick ratio
current assets (not inventory)/current liabilites
liquidity ratio
short term ability to pay cash
Activity ratio
how effectively an enterprise is using assets
AR turnover
Net Sales/ Average AR
Days sales in AR
Ending AR/ (Sales/365)
Inventory turnover
COGS/ Average inventory
Days in inventory
Ending inventory/(COGS/365)
Operating cycle
days sales in AR + Days in inventory
Working capital turnover
Sales/ Average Working Capital
Asset turnover
Sales/ Average total assets
What ratio indicates number of days between the acquisition of inventory and the realization of cash from selling the inventory
operating cycle
Profitability ratio
success or failure
Net profit margin
Net income/Net Sales
Net operating margin
Net operating income/Net Sales
Gross profit margin
Net sales - COGS/ Net sales
Return on asset
Net income/Average total assets
Debt to equity
Total liabilities/Total equity
Total Debt ratio
Total liabilities/Total assets
When would positive confirms be used? ______, _______, ______
Large receivables, higher risk, weak IC
Positive confirms require the customer to respond?
T/F
True
Negative confirms require the customer to respond?
T/F
False
Kiting
Check drawn on one bank account is deposited in another and no record of first disbursement is made
Lapping
today’s cash covers yesterday’s theft
Unqualified opinion
Issuer
Unmodified opinion
Nonissuer
