Auditing3 Flashcards
What do test of controls evaluate?
Tests of controls evaluate the operating effectiveness of internal controls in preventing or detecting material misstatement.
What do substantive procedures detect?
Substantive procedures detect material misstatements. They include tests of details (as applied to transaction classes, account balances, and disclosures) and substantive procedures.
What are the six main financial statement assertions?
"COVERU" Completeness Cutoff Valuation, Allocation, and Accuracy Existence and Occurrence Rights and Obligations Understandability and Classification
What are the relevant assertions for Transactions and Events?
Completeness Cutoff Accuracy Classification Occurrence
What are the relevant assertions for Account Balances?
Completeness Allocation Valuation Rights Obligations Existence
What are the relevant assertions for Presentation and Disclosure?
Completeness Understandability Classification Rights Obligations Valuation Accuracy
What is Audit Risk?
Audit risk is the risk that the auditor may unknowingly fail to appropriately modify the opinion on financial statements that are materially misstated.
What is Inherent Risk?
The susceptibility of a relevant assertion to a material misstatement assuming there are no related controls.
What is Control Risk?
The risk that a material misstatement that could occur in a relevant assertion will not be prevented or detected on a timely basis by the entity’s internal control.
What is Detection Risk?
The risk that that auditor will not detect a material misstatement that exists in a relevant assertion.
What are the steps in assessing the risks of material misstatement?
“IMACPA”
Obtain an understanding of the entity, its environment, including its internal control
Assess the risks of material misstatement
Respond to the assessed level of risk by designing further audit procedures based on the assessment
Test internal controls to evaluate their operating effectiveness
Evaluate the sufficiency and appropriateness of audit evidence obtained.
What are the five components of Internal Control?
"CRIME" Control Environment Risk Assessment Information and Communication Systems Monitoring Existing Control Activities
Name the Control Activities that strengthen internal controls.
“PAID TIPS”
Prenumbering documents
Authorizations of transactions
Independent checks to maintain asset accountability
Documentation
Timely and appropriate performance reviews
Information Processing Controls
Physical Controls for safeguarding assets
Segregation of duties
What are the three duties that should not be combined?
“ARC”
Authorization
Recordkeeping
Custody of related assets
What types of documentation are is used for internal control?
“FIND”
Flowchart
Internal Control Questionnaire or checklists
Narrative
Documentation from the client, including copies of the entity’s procedures manuals and organizational charts.
