AUD 1 Flashcards
What are the six elements of quality control?
“PALMER”
- Performance of the Engagement
- Acceptance of the Client and Engagement Continuance
- Leadership Responsibilities
- Monitoring
- Ethical Responsibilities
- Human Resources
What are the four approaches to auditing through the computer (CAAT)?
- Test data approach
- Embedded audit module approach
- Tagging transactions
- Parallel simulation
What is the main difference between the test data approach and parallel simulation?
The test data approach is also known as the integrated test facility and is performed on the client’s computer, whereas parallel simulation is performed on the auditor’s computer.
What are the four types of specialists an auditor may use?
- Actuaries
- Engineers
- Appraisers
- Lawyers
What are the five components of internal control?
“CRIME”
- Control environment
- Risk assessment
- Information and communication
- Monitoring
- Existing control activities
What are the five principles of the control environment?
- Commitment to ethics and integrity
- Board independence and oversight
- Organizational structure
- Commitment to competence
- Accountability
What are the four principles of risk assessment?
- Identify and assess changes
- Consider potential for fraud
- Specify objectives
- Identify and analyze risk
What are the three principles of information and communication?
- Obtain and use information
- Internally communicate information
- Communicate externally
What are the two principles of monitoring?
- Ongoing and/or separate evaluations
- Communication of deficiencies
What are the three principles of existing control activities?
- Select and develop control activities
- Select and develop technology controls
- Disposition of policies and procedures
What is the audit risk formula?
Risk of material misstatements (assessed) x detection risk (controlled; acceptable level)
OR
Inherent risk x control risk x detection risk
When will the sample size increase (direct relationship)?
- Expected misstatements
- Population variability
- Assessed level of risk
When will the sample size decrease (inverse relationship)?
- Tolerable misstatement
- Acceptable level of risk
What are the risks and the use of attribute sampling?
Risk of assessing control risk too high = inefficient audit
Risk of assessing control risk too low = ineffective audit
Used for testing internal controls
Hint: This can often be answered as “yes” or “no”
What are the risks and the use of variable sampling?
Risk of incorrect rejection = inefficient audit
Risk of incorrect acceptance = ineffective audit
Used for testing substantive procedures
Hint: This can often be answered as a dollar value
