ch 9 review (exam 2)

Question 1

what are the levels to consider risk impacts in regards to substantive procedures

Answer 1

financial statement level and assertion level

Question 2

what are some examples of risk impacts at the financial statement level

Answer 2

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

Question 3

what are some risks impact at the assertion level

Answer 3

auditor’s response to risk: FIVE CAROTS

Question 4

what is assertion level

Answer 4

account balance/ transaction

Question 5

substantive procedures ______________ to perform for all ________________

Answer 5

required; relevant assertions

Question 6

nature of substantive procedures is most like which of the following: who, what, when, where, why, how

Answer 6

what

Question 7

what is considered the most important factor when responding to assessed risks

Answer 7

nature of substantive procedures

Question 8

what are. 2 types if substantive procedures

Answer 8

1) test of details
2) substantive analytical procedures
- combo of both

Question 9

what are three factors to consider when determining the type of substantive procedure:

Answer 9

• 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)

Question 10

initial procedures for auditing an account balance

Answer 10

• obtain trial balance or other detailed report- test for mathematical accuracy
• agree beginning balance to prior year audit working papers
• scan for unusual items

Question 11

must be sure that the ______________ is chosen for the assertion that is being tested

Answer 11

appropriate procedure

Question 12

what is confirmation bias

Answer 12

tendency of the auditor to interpret evidence in ways that support pre-existing expectations

Question 13

what is the timing of substantive procedures related to: who, what, when, where, why, how

Answer 13

when

Question 14

when are substantive procedures conducted

Answer 14

some at interim (end of 3Q) or but most at year end

Question 15

what are roll forward procedures

Answer 15

update audit findings from the time of interim procedures through year-end

Question 16

what are some factors to be considered that would affect risk of material misstatement

Answer 16

Internal Controls; Change in the accounting from interim to year-end; Can procedure be performed at interim

Question 17

the extent of substantive procedures depends on ____________________

Answer 17

auditor judgement

Question 18

can rely on__________________ for extend of substantive

Answer 18

audit risk model

Question 19

extent also refers to ___________________________

Answer 19

sample size

Question 20

_______________ factors considered when determining sample size

Answer 20

quantitative and qualitative factors

Question 21

what are some options when selecting sample size

Answer 21

• testing 100%
• select specific items from the population
• statistical sampling (true random sample

Question 22

what is testing 100%

Answer 22

for a small number of transactions; uses ADA to test 100%; depends on format of client’s data

Question 23

are are specific items selected from the population

Answer 23

sample is usually based on auditor’s judgement;
usually choose accounts with high dollar transaction or unusual transactions

Question 24

what is statistical sampling

Answer 24

true random sample

Question 25

can specifically chosen items from population be projected to whole population

Answer 25

no; not truly random

Question 26

what is an accounting estimate

Answer 26

a monetary amount for which the measurement is subject to an inherent lack of precision

Question 27

what are 2 accounting estimates

Answer 27

forecast and determining FV

Question 28

what is the auditor's. objective? obtain __________ evidence that estimates and related disclosures are _________

Answer 28

sufficient appropriate; reasonable

Question 29

what are three inherent risk factors

Answer 29

1. estimation uncertainty (EU) 2. complexity 3. subjectivity

Question 30

what is estimation uncertainty (EU) in context of IRs

Answer 30

lack of precision

Question 31

where there is more estimation uncertainty there is ___________ risk

Answer 31

more

Question 32

what is complexity in context of IRs

Answer 32

method uses complex assumptions; may need a specialist; obtaining data is complex

Question 33

what is subjectivity in context of IRs?

Answer 33

GAAP may not specify a method; uncertainty about the future

Question 34

what is management bias

Answer 34

lack of neutrality by management in the preparation and fair presentation of information

Question 35

risk assessment procedures for accounting estimates: - gain understanding of ___________________ - gain understanding of ___________________

Answer 35

the entity and its environment; IC related to estimates

Question 36

what are some questions to ask to gain an understanding of the entity and its environment

Answer 36

what are the material estimates? who prepares them? outcome of PY estimate?

Question 37

what are two risk response procedures for accounting estimates:

Answer 37

1. test of controls, if taking reliance controls strategy (interim) 2. test how management made the estimate

Question 38

how can how management made the estimate tested

Answer 38

recalc and inspect management's assumptions (reasonable)

Question 39

what are some substantive procedures that are in response to the risk for accounting estimates

Answer 39

-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

Question 40

what is a misstatement-

Answer 40

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)

Question 41

what are three types of misstatements

Answer 41

- factual misstatements - judgmental misstatements - projected misstatements

Question 42

what are factual misstatements

Answer 42

no doubt it is a misstatement; no judgment involved

Question 43

judgmental misstatements

Answer 43

poor selection of accounting policy; unreasonable accounting estimates/ FV amounts

Question 44

what are projected misstatements

Answer 44

from statisical sampling

Question 45

what is auditors identify more misstatements than expected

Answer 45

re-evaluate audit strategy

Question 46

in re-evaluating audit strategy auditors can

Answer 46

retest Internal controls, modify NET