Audit 11 Flashcards
An auditor assess control because it
Affects the level of Detection Risk that the auditor may accept
Fraud - when and to whom are you supposed to report if you come across it - at both low levels and at high management levels
- If it is at a low level and the amounts are inconsequential - it is sufficient to report it to a level of management above the one it occurred at. Would NOT require disclosure to senior management or the audit committee.
- you are required to report all knowledge or suspicion of fraud to the client’s senior management and its audit committee - but would not ordinarily report it to regulators, SEC, or other officials
What is meant by the term - GAAS
these are standards that provide a way of measuring the quality and adequacy of work being performed
During planning of an audit what are some of the things that an auditor will do
- make preliminary judgements about materiality
When do you get an engagement letter and when do you get written representations
Engagement letter - after you decide to take the audit engagement
Written rep - at the end of the engagement.
What are examples of items with inherent risk
- assets highly susceptible to theft
- complex or high volume transactions
- assets requiring significant estimates or judgement to determine their value
New innovation is introduced and therefore demand has declined only slightly - Risk? Why?
This is a relevant assertion level risk
- new tech may not be well understood and make warranty and liability estimates difficult
New federal regulations threaten industry profitability
- Risk? Why?
F/S level risk
- changes to conform to compliance requirements may not be done correctly
CEO and senior management are compensated on bonus tied to company net profits
- Risk? Why?
F/S level risk
- Pressure to meet bonus requirements might tempt them to misstate statements
CEO sets goal of 25% increase in sales.- Risk? Why?
F/S level risk
- unrealistic goals may motivate employees to report false reports
Prior firm it upset they lost audit - but there were no disagreements indicated
- Risk? Why?
No risk
No need to change your audit plan
Part of the facility seem to require some minor repair
- Risk? Why?
No unforeseen risk
- This is not an extraordinary neglect of physical assets. If it was - it might indicate a going concern issue
minor repair is not out of the ordinary
Several boats in inventory are much dustier than others
- Risk? Why?
ASSERTION level risk - inventory
- suggest possible obsolescence - the concern is limited to inventory valuation
Clerical employees are complaining about their rate of pay
- Risk? Why?
- No risk
- Don’t need to change your audit plan - a little complaining is common
- unless there are picket lines or imminent strikes -
- If employees are committing fraud - they are more likely to be careful to appear innocuous
A payroll clerk was caught embezzling. - discovered by company and dealt with
- Risk? Why?
- A F/S level risk
- Known weaknesses in I/C suggest the unknown internal control weaknesses exist
