Audit Risk

Question 1

management assertions in the form of financial statements

Answer 1

U-PERCV

Understandability + Classification
Presentation + Disclosure
Existence or Occurence
Rights + Obligations
Completeness + Cutoff
Valuation, Allocation + Accuracy

Question 2

Audit Procedure

Answer 2

ICORRIIA (substantive tests)

Inquiry
Confirmation
Observation
Recalculation
Reperformance
Inspection of tangible assets
Inspection (examination) of records
Analytical procedures

Question 3

detection risk consist of

Answer 3

test of detail

analytical procedures

Question 4

mgmt assertions

Answer 4

representations made by mgmt in f/s being audited

Question 5

mgmt assertions

Answer 5

COCA-CURVE

Completeness
Occurence
Cutoff
Accuracy
Classification
Understandability
Rights and obligations
Valuation and allocation
Existence

Question 6

3 diff groups of mgmt assertions:

Answer 6

1. classes of transaction and events (CPA-CO)
2. Account balance at year end (RACE)
3. Presentation and disclosures (RACOU-n)

Question 7

classes of transaction and events

Answer 7

CPA CO

Completeness
Period Cutoff
Accuracy
Classification
Occurrence

Question 8

Account balance at year end

Answer 8

RACE

Rights and obligations
Allocation and valuation
Completeness
Existence

Question 9

Presentation and disclosure

Answer 9

RACOU-n

Rights and obligations
Accuracy and valuation
Completeness
Occurence
Understandability and classification

Question 10

audit objection

Answer 10

auditor develops specific audit objections in order to substantiate assertions that are MATERIAL to the FS.

Question 11

substantive test 2 categories

Answer 11

1. test of details (TD) ‘ICORRI’

2. analytical procedures (AP) ‘A’

Question 12

tracing

Answer 12

source&raquo_space;> books

‘completeness’

what was ordered 
was shipped
was billed
bill was received
what received was deposited

Question 13

vouching

Answer 13

books&raquo_space;> source

‘existence/occurence’

starts at a/r
find sales, does a/r exist?

Question 14

analytical procedure

Answer 14

study of data comparison and relationships

relationship b/w numbers

expectation/anticipation theory

Question 15

whats better for analytical procedure (ratios)

bs or i/s?

Answer 15

income statement

Question 16

5 types of comparison performed by analytical procedures

Answer 16

CRAFT

client v industry
related accounts
actual v budget
financial v nonfinancial
this year v prior

Question 17

current ratio

Answer 17

current asset/ current liab

Question 18

quick ratio

Answer 18

quick asset / current liab

Question 19

quick asset

Answer 19

cash
marketable sec.
a/r

Question 20

receivable turnover

Answer 20

net credit sales / avg AR

Question 21

inventory turnover

Answer 21

COGS/ avg level of inventory

Question 22

debt equity ratio

Answer 22

total liab / stockholders equity

Question 23

audit approaches

Answer 23

• test of balances (BS)

- test of transactions (IS)

Question 24

test of balances

Answer 24

many transactions, small dollar amounts

cash, a/r, inventory, a/p

Question 25

test of transactions

Answer 25

few transactions, large dollar amounts

investments, PPE, bonds, n/o,, stockholder’s equity

Question 26

3 types of confirmation

Answer 26

negative
positive
blank

Question 27

negative confirm

Answer 27

customer is asked to respond only if the amount is incorrect

RMM low
CR low

Question 28

positive confirm (RSVP)

Answer 28

confirmations

customer asked to verify correctness of the amount of confirmation

requires response
most applicable for large balances
provide ‘explicit evidence’

RMM high
CR high

Question 29

blank confirm

Answer 29

special form of positive confirm

customer asked to provide an amount without being told the value on the client’s records

Question 30

derivatives

Answer 30

SUN

settlement for net amount
underlying amount
notional amount

Question 31

weakness of working paper

Answer 31

CCHIT - Foot

Comment on exceptions
Conclusions
Heading
Initials
Tick marks
Foot - check math accuracy