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Audit Part 3 > chap 9 audit risk > Flashcards

chap 9 audit risk Flashcards

1
Q

the risk of material misstatement at the assertion level consists of what 2 components

A

inherent risk control risk

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2
Q

what is control risk?

A

represents the auditors assessment of the risk that a material missatement could occur in an assertion and not be prevented or detected on a timely basis by the clients internal controls

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3
Q

auditing standards require the auditor to obtain an understanding of what in order to assess the risk of material misstatement in the clients FSs?

A

the entity and its environment, including its internal control

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4
Q

why is materiality important?

A

because it is impractical for the auditor to provide assurances on immaterial amounts

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5
Q

auditing standards require the auditor to assess the risk of material missatement at the ____ level for what 3 areas? this is done in order to determine what?

A

-assertion -classes of transactions, account balances, and presentation and disclosure -the nature, timing, and extent of further audit procedures

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6
Q

The first 4 steps of planning an audit are accept client and perform initial audit planning, understand the clients business and industry, perform preliminary analytical procedures, set preliminary judgement of materiality and performance materiality….what are the 5the and 6th steps

A

5th- identify significant risks due to fraud or error 6th- assess inherent risk

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7
Q

the risk assessment process is fundamental to ____ the audit and designing an audit ____

A

planning approach

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8
Q

why is it important for the auditor to consider risks at the overall FS level?

A

because those risks may increase the likelihood of risks of material misstatement accross a number of accounts and assertiions for those accounts

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9
Q

what is the risk of material misstatement?

A

the risk that the FSs contain a material misstatement due to fraud or error prior to the audit

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10
Q

the auditors assessement of the suceptibility of an assertion to material missatement, before considering the effectiveness of the clients internal control is what kind of risk

A

inherent

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11
Q

the risk of material misstatement exists at what 2 levels?

A
  1. the overall FS level 2. the assertion level for classes of transactions, account balances, and presentation and disclosures
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12
Q

what are 5 overarching factors that could incease the risk of material mistatement at the overall FS level?

A
  1. deficiencies in managements integrity or competence 2. ineffective oversight by the board of directors 3. inadequate accounting systems and records 4. declining economic conditions 5. significant changes in the industry
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13
Q

the risk of material misstatement is due to the susceptibility of what to being misstated? (2) what other risk plays into the risk of material misstatement?

A

the FS as a whole or individual accounts the risk that the clients controls may not be effective in preventing or detecting and correcting the misstatements

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14
Q

auditors typically assess the risk that audit _____ related to assertions for classes of transactions , account balances, and presentation and disclosure are not acheived

A

objectives

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15
Q

the risk of material misstatement is the risk that the FSs contain a material misstatement due to fraud or error when?

A

prior to the audit

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16
Q

the risk of material misstatement is the risk that the FSs contain a material misstatement due to what?

A

fraud or error

17
Q

responding to risk properly is critical to acheiving a ____ ____ audit

A

high quality

18
Q

auditing standards require the auditor to assess the risk of material misstatement at what levels and then do what?

A

FS as a whole and at the assertion level for classes of transactions, account balances, and presentation and disclosures. plan the audit in response to those assessed risks

19
Q

auditors accept some level of ____ or uncertiantain in peforming the audit function

A

risk

20
Q

inherent risk my be higher for accounts whose valuations are dependent on what (2)?

A
  1. complex calculations 2. accounting estimates subject to significant estimation judgement
21
Q

what are the 2 phrases in the auditors responsibility secion in an audit report that directly reatle to materiality and risk?

A
  1. obtain reasonable assurance- informs users that auditors do not guarantee or ensure the fair reprensentation of the FSs…there is some risk that they are not fairly stated even when the opinion is unmodified 2. free of material misstatement- - informs users that the auditors responsibility is limited to material financial info
22
Q

an effective auditor ____ that risks exist and deals with them in an _____ manner

A

recognizes appropriate

23
Q

the auditor gains an understanding of the of the clients business and industry in order to assess what 2 risks?

A

client business risk risk of material miststatements

24
Q

most risk auditors encounter are difficult to ____, require careful _____ before the auditor can ____ appropriately

A

measure consideration respond

25
Q

what is inherent risk?

A

the auditors assessement of the suceptibility of an assertion to material missatement, before considering the effectiveness of the cleints internal control

26
Q

thee assessment of risks is not a precise measurement but a matter of professional _____

A

judgement

27
Q

the auditor recognizes the inherrent uncertainty of what and the uncertainty of what 2 other areas?

A

the appropriateness of evidence the effectiveness of clients internal controls and whether the FSs are fairly stated when the audit is completed

28
Q

the risk of material misstatement at the overall FS level refers to risks that relate ______ to the FS as a whole and potentially affect a numbers of what?

A

pervasively different transactions and accounts

29
Q

what risk represents the auditors assessment of the risk that a material missatement could occur in an assertion and not be prevented or detected on a timely basis by the clients internal controls?

A

control risk

30
Q

control risk my be higher if the cliewnts internal control procedures fail to include what pertaining to the complex calculations used or significant estimates developed to determine the valuation of an account balance recorded in the clients FSs?

A

independent review and verification by other client personnel

31
Q

the risk that the FSs contain a material misstatement due to fraud or error prior to the audit is what kind of risk?

A

risk of material misstatement

Audit Part 3 (19 decks)

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