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Audit > Ch 4 And Ch 5 Class Notes > Flashcards

Ch 4 And Ch 5 Class Notes Flashcards

0
Q

Name a business risk of Walmart?

A

Not having product on the shelf

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1
Q

Audit risk equation

A

Planning tool for what audit procedures to do

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2
Q

Inherent risk

A

Risk of error or misstatement before considering controls

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3
Q

Control risk

A

Risk internal controls fail to detect fraud/error

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4
Q

Direct effect noncompliance, define, example

A

Material effects on financial statements

Ex. Violation of tax and pension laws

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5
Q

Audit strategy memorandum, who writes it?

A

Written by manager and looked over by partner

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6
Q

Indirect effect noncompliance

A

Violations laws in non material misstatements

Ex. Insider trading, OSHA violation

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7
Q

Stuff channels

A

Company gives product to distributor and records sale

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8
Q

Information risk

A

Risk management will provide false/misleading information

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9
Q

How does Walmart manage levels of inventory?

A

Perpetually, by having cash registers electronically linked to
Headquarters to track sales and inventory level

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10
Q

Test count

A

Sample count to calculate inventory

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11
Q

Do auditors or manager select the inventory samples that auditors count?

A

Auditors select inventory samples to count

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12
Q

5% difference from assertion

A

May or may not be worth checking

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13
Q

When do auditors count inventory?

A

Year end after client counts inventory

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14
Q

Audit risk

A

Risk of Giving clean opinion when shouldn’t have

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15
Q

Who asses management fraud risk?

A

Auditor assesses management fraud risk

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16
Q

Red flag in management fraud risk

A

High turnover of management

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17
Q

Errors

A

Unintentional

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18
Q

Irregularities

A

Fraud and intentional

19
Q

Revel’s business decision to build a casino last year was…

A

A bad business decision

20
Q

Employee fraud

A

Employee takes assets from company

21
Q

Embezzlement

A

Steal money from organization of money you are entrusted with

22
Q

Larceny

A

Misappropriation of assets

Basic stealing

23
Q

How can short shipment from vendors be prevented?

A

Should be counted to prevent

24
Q

Where are minutes meetings disclosed

A

Disclosed in footnotes

25
Q

How can auditor discover fictitious sales?

A

Auditor must look at sales journal and check shipping document
Then check invoices

26
Q

What should be looked at when shipments aren’t recorded?

A

Look at shipping to sales

27
Q

Checking failure to disclose litigation?

A

Auditor will ash clients for analysis of legal expenses

and ask for legal invoice

28
Q

When and how should litigation be disclosed in financial statements?

A

Booked in consolidated if probable and estimable

If either probable or estimable than disclosed in footnotes

29
Q

Circularity attorneys

A

Send confirm to client’s attorneys

Attorneys should respond directly to auditors

30
Q

PHAE

A

Proposed adjusting journal entries

Proposed adjustments from auditors to management

31
Q

Management override

A

The boss tells you what to report

Management can override internal controls

32
Q

Operating characteristics red flag: personnel

A

Personnel are lax or inexperienced in their duties

Note: info from inexperienced employees is unreliable to
Quantify control risk

33
Q

High control risk and high inherent risk must have…

A

Low detection risk

34
Q

AR= .32

A

32% chance audit opinion will be incorrect

35
Q

To lower detection risk an auditor must…

A

Turn over a lot of stones

36
Q

Sampling risk

A

Risk of choosing unrepresentative sample

37
Q

Non sampling risk

A

Risk auditor may reach inappropriate decision based upon
Available evidence

Ex. When unauthorized personnel approves transaction,
Auditor must ask client why

38
Q

Can auditors record receivables other than year end?

A

Yes, if strong internal controls

Ex. Where client monitors receivables and customer credit scores

39
Q

Inquiry of client is a lot less effective than…

A

Confirmation,

But inquiry of client is more efficient than confirmation

40
Q

Function of analytics?

A

Point out red flags

41
Q

Significant difference example

A

$1 million and $2 million has a 100% difference in accounts

42
Q

Purchase commitment

A

contract to purchase certain quantity of product at fixed price
For certain period of time

Must be disclosed

43
Q

Preliminary planning

A

Attention getter

Brainstorming occurs during planning

44
Q

Red flags of potential noncompliance: unauthorized transactions, how are they discovered?

A

Discovered because employee is careless and greedy

Audit (36 decks)

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