ch 9 review (exam 2) Flashcards
what are the levels to consider risk impacts in regards to substantive procedures
financial statement level and assertion level
what are some examples of risk impacts at the financial statement level
management pressure to meeting earnings target, auditor’s response to this risk, more elements of “unpredictability”, make change to the NET as needed, more experienced staff/ more supervision
what are some risks impact at the assertion level
auditor’s response to risk: FIVE CAROTS
what is assertion level
account balance/ transaction
substantive procedures ______________ to perform for all ________________
required; relevant assertions
nature of substantive procedures is most like which of the following: who, what, when, where, why, how
what
what is considered the most important factor when responding to assessed risks
nature of substantive procedures
what are. 2 types if substantive procedures
1) test of details
2) substantive analytical procedures
- combo of both
what are three factors to consider when determining the type of substantive procedure:
- assessed level of risk for the assertion
- reason for the assessed level of risk
- suitability of the procedure for the assertion being tested (is the auditor using the “best” procedure)
initial procedures for auditing an account balance
- obtain trial balance or other detailed report- test for mathematical accuracy
- agree beginning balance to prior year audit working papers
- scan for unusual items
must be sure that the ______________ is chosen for the assertion that is being tested
appropriate procedure
what is confirmation bias
tendency of the auditor to interpret evidence in ways that support pre-existing expectations
what is the timing of substantive procedures related to: who, what, when, where, why, how
when
when are substantive procedures conducted
some at interim (end of 3Q) or but most at year end
what are roll forward procedures
update audit findings from the time of interim procedures through year-end
what are some factors to be considered that would affect risk of material misstatement
Internal Controls; Change in the accounting from interim to year-end; Can procedure be performed at interim
the extent of substantive procedures depends on ____________________
auditor judgement
can rely on__________________ for extend of substantive
audit risk model
extent also refers to ___________________________
sample size
_______________ factors considered when determining sample size
quantitative and qualitative factors
what are some options when selecting sample size
- testing 100%
- select specific items from the population
- statistical sampling (true random sample
what is testing 100%
for a small number of transactions; uses ADA to test 100%; depends on format of client’s data
are are specific items selected from the population
sample is usually based on auditor’s judgement;
usually choose accounts with high dollar transaction or unusual transactions
what is statistical sampling
true random sample
can specifically chosen items from population be projected to whole population
no; not truly random
what is an accounting estimate
a monetary amount for which the measurement is subject to an inherent lack of precision
what are 2 accounting estimates
forecast and determining FV
what is the auditor’s. objective? obtain __________ evidence that estimates and related disclosures are _________
sufficient appropriate; reasonable
what are three inherent risk factors
- estimation uncertainty (EU)
- complexity
- subjectivity
what is estimation uncertainty (EU) in context of IRs
lack of precision
where there is more estimation uncertainty there is ___________ risk
more
what is complexity in context of IRs
method uses complex assumptions; may need a specialist; obtaining data is complex
what is subjectivity in context of IRs?
GAAP may not specify a method; uncertainty about the future
what is management bias
lack of neutrality by management in the preparation and fair presentation of information
risk assessment procedures for accounting estimates:
- gain understanding of ___________________
- gain understanding of ___________________
the entity and its environment; IC related to estimates
what are some questions to ask to gain an understanding of the entity and its environment
what are the material estimates?
who prepares them?
outcome of PY estimate?
what are two risk response procedures for accounting estimates:
- test of controls, if taking reliance controls strategy (interim)
- test how management made the estimate
how can how management made the estimate tested
recalc and inspect management’s assumptions (reasonable)
what are some substantive procedures that are in response to the risk for accounting estimates
-inspect events occurring after YE and up to the date of the auditor’s report
- test how management made the estimate
- develop an auditor’s estimate or range
what is a misstatement-
difference between a reported financial statement item (client-prepared) and what is required for the item to be in accordance with the financial reporting framework (GAAP)
what are three types of misstatements
- factual misstatements
- judgmental misstatements
- projected misstatements
what are factual misstatements
no doubt it is a misstatement; no judgment involved
judgmental misstatements
poor selection of accounting policy; unreasonable accounting estimates/ FV amounts
what are projected misstatements
from statisical sampling
what is auditors identify more misstatements than expected
re-evaluate audit strategy
in re-evaluating audit strategy auditors can
retest Internal controls, modify NET
