Audit Risk Flashcards
management assertions in the form of financial statements
U-PERCV
Understandability + Classification Presentation + Disclosure Existence or Occurence Rights + Obligations Completeness + Cutoff Valuation, Allocation + Accuracy
Audit Procedure
ICORRIIA (substantive tests)
Inquiry Confirmation Observation Recalculation Reperformance Inspection of tangible assets Inspection (examination) of records Analytical procedures
detection risk consist of
test of detail
analytical procedures
mgmt assertions
representations made by mgmt in f/s being audited
mgmt assertions
COCA-CURVE
Completeness Occurence Cutoff Accuracy Classification Understandability Rights and obligations Valuation and allocation Existence
3 diff groups of mgmt assertions:
- classes of transaction and events (CPA-CO)
- Account balance at year end (RACE)
- Presentation and disclosures (RACOU-n)
classes of transaction and events
CPA CO
Completeness Period Cutoff Accuracy Classification Occurrence
Account balance at year end
RACE
Rights and obligations
Allocation and valuation
Completeness
Existence
Presentation and disclosure
RACOU-n
Rights and obligations Accuracy and valuation Completeness Occurence Understandability and classification
audit objection
auditor develops specific audit objections in order to substantiate assertions that are MATERIAL to the FS.
substantive test 2 categories
- test of details (TD) ‘ICORRI’
2. analytical procedures (AP) ‘A’
tracing
source»_space;> books
‘completeness’
what was ordered was shipped was billed bill was received what received was deposited
vouching
books»_space;> source
‘existence/occurence’
starts at a/r
find sales, does a/r exist?
analytical procedure
study of data comparison and relationships
relationship b/w numbers
expectation/anticipation theory
whats better for analytical procedure (ratios)
bs or i/s?
income statement
5 types of comparison performed by analytical procedures
CRAFT
client v industry related accounts actual v budget financial v nonfinancial this year v prior
current ratio
current asset/ current liab
quick ratio
quick asset / current liab
quick asset
cash
marketable sec.
a/r
receivable turnover
net credit sales / avg AR
inventory turnover
COGS/ avg level of inventory
debt equity ratio
total liab / stockholders equity
audit approaches
- test of balances (BS)
- test of transactions (IS)
test of balances
many transactions, small dollar amounts
cash, a/r, inventory, a/p
test of transactions
few transactions, large dollar amounts
investments, PPE, bonds, n/o,, stockholder’s equity
3 types of confirmation
negative
positive
blank
negative confirm
customer is asked to respond only if the amount is incorrect
RMM low
CR low
positive confirm (RSVP)
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
blank confirm
special form of positive confirm
customer asked to provide an amount without being told the value on the client’s records
derivatives
SUN
settlement for net amount
underlying amount
notional amount
weakness of working paper
CCHIT - Foot
Comment on exceptions Conclusions Heading Initials Tick marks Foot - check math accuracy
