AUD Deck 4 Flashcards
What is Fraud Risk?
Fraud risk is the risk that misstatements will arise from FRAUDULENT FINANCIAL REPORTING or MISAPPROPRIATION OF ASSETS
What is non-sampling risk?
MISAPPLYING AUDIT PROCEDURES
the average duration of unemployment is ________ (lagging/leading) economic indicator
LAGGING
______ (lagging/leading) indicators tend to occur before the fact or predict economic activity
LEADING
_____ (lagging/leading) indicators tend to follow economic activity or occur as a result of economic activity (give signal after the fact)
LAGGING
_______ indicators occur contemporaneously with economic activity
COINCIDENT
manufacturing and trade sales are an example of ______ indicators along with industrial production
COINCIDENT
What does inherent limitations of internal control include?
COLLUSION, HUMAN ERROR, and MANAGEMENT OVERRIDE
What is the primary objective of a walkthrough?
help the auditor obtain evidence about the DESIGN and IMPLEMENTATION of internal control
a ________ follows a transaction from its origination until it is reflected in the F/S
WALKTHROUGH
Performing tests of controls occurs _____ (before/after) the auditor completes the risk assessment, which includes performing analytical procedures
AFTER
_____ (preventative/detective) controls are applied BEFORE the processing of transactions
PREVENTATIVE
a ______ is a way an auditor can describe their understanding of internal control
NARRATIVE
______ visualize the logical flow of data AND THE PHYSICAL aspects of that flow
FLOWCHARTS
______ depict the logical flow of data BUT NOT THE PHYSICAL ASPECTS
DATA FLOW DIAGRAMS
the _____ (less/more) complex the IT System, the more extensive the documentation (ex: flowcharts, narratives, questionnaires, decision tables, etc)
MORE
if there is a high likelihood of misstatements then auditor sets materiality at a _____ (higher/lower) amount which results in the auditor looking closer at audit evidence
LOWER
Inspecting documentation, inquiry, observation, and reperformance are procedures to obtain audit evidence about?
Control Risk / Test of Controls
MCQ-02487
the _____ (higher/lower) the auditor’s risk assessment, the closer to period end substantive procedures should be performed
HIGHER
effective controls ____ (increase/decrease) control risk and reduce the RMM allowing ____ (less/more) interim testing to occur
DECREASE, MORE
in an environment that is highly automated may make it impractical or impossible to reduce detection risk to an acceptable level through substantive testing alone resulting in __________ need to be performed (to support a lower level of assessed control risk)
TESTS OF CONTROLS
when many internal control weaknesses are identified, the auditor would not be likely to perform tests of controls. the assessed level of control risk is decreased and more reliance would be placed on substantive tests as opposed to tests of controls (T/F)
FALSE; the assessed level of control risk would INCREASE
when performing additional tests of controls, an auditor is attempting to support a ______ (higher/lower) level of control risk
LOWER
the auditor should test controls when auditor’s risk assessment is based on the assumption that controls are operating effectively or when substantive procedures alone are insufficient (T/F)
TRUE
an auditor of a nonissuer should design tests of ______ (controls/details) to ensure that sufficient audit evidence supports the planned level of assurance at the relevant assertion level
DETAILS
tests of _____ (controls/details) would help evaluate management’s assertions that controls exist and are operating effectively
CONTROLS
_________ (substantive analytical procedures/test of details) are used when there is a large volume of predictable transactions and when RMM is low
SUBSTANTIVE ANALYTICAL PROCEDURES
what are the tests of controls used in assessing control risk?
INQUIRY, INSPECTION, OBSERVATION, REPERFORMANCE
the auditor determines whether a risk is significant or not by its INHERENT RISK ALONE (T/F)
TRUE
if detection risk increases, then substantive tests _______ (increase/decrease). the auditor may reduce sample size.
DECREASE
MCQ-09815
An uninterrupted power supply is considered a general control. (T/F)
FALSE, PHYSICAL CONTROL
What are physical controls?
Physical controls MONITOR and CONTROL the ENVIRONMENT of the workplace and computing facilities. They also monitor and control access to and from such facilities.
What is a Dual-Purpose Test?
it’s a tests of controls that is performed concurrently with tests of details on the same transaction
tests of _____ (controls/details) is to SUPPORT relevant assertions or to detect material misstatements
DETAILS
__________ in a going concern situation include plans to dispose of assets, plans to borrow money or restructure debt, plans to reduce or delay expenditures, or plans to increase ownership equity
MITIGATING FACTORS
