AUD - 3 - M3 Flashcards
Risk, Evidence, & Sampling
Which visualization technique is best for correlation/regression
Scatter Plot
What are the 4 chart types and which are used for certain visualizations?
Scatter plot - show relationship amog variables and for regression/correlation
Pie chart - demonstrate proportional information
Bar chart - demonstrate comparative information
Line chart - demonstrate trend information
What are the 4 types of analytics
Descriptive analytic - describe what happened within the data
Diagnostic analytic - explain WHY something happened
Predictive analytic - provide expected or predicted outcomes based on historical data
Prescriptive analytic - prescribe or recommend actions to be taken based on advanced analytics to reach a desired goal
Tips for Memorization:
Tests of Controls = Focus on Process
“Is the control working properly?”
Substantive Tests = Focus on Numbers
“Are the financial statement amounts accurate?”
What is the main objective of a test of controls?
To determine whether internal controls are designed and operating effectively to prevent or detect material misstatements.
What is the main objective of a substantive test?
To detect material misstatements in the financial statements by testing transaction details and balances.
What is the main objective of a substantive test?
To detect material misstatements in the financial statements by testing transaction details and balances.
When should an auditor perform tests of controls?
When the auditor plans to rely of internal controls to reduce the level of substantive testing
What are some examples of tests of controls?
Inspecting documents for proper authorization
Observing control activities (e.g., inventory count)
Reperforming control procedures
What are some examples of substantive tests?
Confirming accounts receivable balances
Performing analytical procedures
Testing details of transactions and balances
What type of evidence is primarily gathered from tests of controls?
Internal control evidence, such as documentation, observation, and inquiries
What type of evidence is primarily gathered from substantive tests?
Financial evidence, such as transaction details, account balances, and external confirmations.
How do tests of controls affect audit risk?
Effective controls help reduce control risk, allowing the auditor to reduce substantive testing.
Are substantive tests always required?
Yes, substantive procedures are always required to address detection risk and obtain evidence for financial statement assertions.
Which assertions are typically tested with tests of controls?
Control-related assertions like Occurrence, Authorization, and Segregation of Duties.
Which assertions are typically tested with substantive tests?
Financial statement assertions like Existence, Completeness, Valuation, and Presentation & Disclosure.
“In connection with an audit of our financial statements, management has prepared, and furnished to our auditors a description and evaluation of certain contingencies.”
The foregoing passage most likely is from a(an):
A. Financial statement footnote disclosure. B. Management representation letter. C. Audit inquiry letter to legal counsel. D. Audit committee's communication to the auditor.
Choice “C” is correct. Legal counsel is best able to corroborate the description and evaluation of contingencies provided by management.
Choice “A” is incorrect. It would be inappropriate to indicate in the footnotes whether specific information was provided by management to the auditor.
Choice “B” is incorrect. The management representation letter serves to confirm, in writing, representations provided to the auditor. It does not include a statement indicating that management has prepared and furnished a list of contingencies.
Choice “D” is incorrect. The audit committee would not communicate to the auditor regarding the list of contingencies prepared by management.
