Chapter 4 Flashcards

1
Q

(blank) could adversely affect companies ability to acheive objecties and execute strategies
* uncertainties from the businesses environement (economy,competitors, regulators, customers, suppliers, investors, etc) that managers tor try mitigate with controly activities

A

Business (inherent) Risks

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2
Q

Enterprise Risk Management (ERM) Framework

A
  • Interal Environment
  • Objective Setting
  • Event Identification
  • Risk assessment
  • Risk Repsonse
  • Control Activities
  • Info and communicatino
  • Monitoring
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3
Q

Internal Environment

A

Risk conciousness of the organization

includes risk mgmt philosophy, risk appetite, integrity and ethical values, operating environment

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4
Q

Mgmts repsonsibility to determine goals and objecties of the organization

A

objective setting

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5
Q

Identification of conditions and events that could adversely affect mgmts objectives

A

event identification

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6
Q

Systematic process for estimating the likelihood of sdverse conditions occuring

A

Risk assessment

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7
Q

How organization will prevent or repsond to the adverse conditions if they actually occur

A

Risk Response

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8
Q

Policies and procedures to ensure that risk repsonses are appropriate given the circumstances nad environment which the organization operates

A

control activities

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9
Q

(blank) links all components of the ERM

A

information and communication

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10
Q

Regular mgmt and supervisory activities over risk mgmt activites to make sure they remain in place and operate effectively

A

Monitoring

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11
Q

The probability that the info distributed by an entity will be materially false and misleading

A

Information Risk

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12
Q

Deliberate fraud committed by mgmt that injures investors and greditors through materially misstated info

A

MGMT Fraud

(fraudulent finan reporting)

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13
Q

The probability that in the absence of internal controls, material errors or frauds could enter the acct system used to develop finan statements

A

Inherent Risk

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14
Q

Probability that the clients internal control activities will fail to prevent or detect material misstatemnts provided they entered the acct system in the first place

A

Control Risk

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15
Q

Probability that audit procedures will fail to detect material misstatements provided that any entered the acct system in the first place

A

Detection Risk

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16
Q

Audit Risk Model

A

AR = IR x CR x DR

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17
Q

Risk of Materal Misstatement

A

Inherent Risk and Control Risk

Auditor assesses, noncontrollable

18
Q

Inverse relationship between the RMM & detection risk

A

if RMM increases detection risk decreases

19
Q

Detection Risk nature timing and extent

Lower DR allowed

A

Nature - more effective tests

Timing - testing at EOY

Extent - more tests

20
Q

Detection Risk Nature Timing and Extent

Higher DR allowed

A

Nature - less effective tests

Timing - testing at interim

Extent - Fewer Tests

21
Q

Audit risk can NEVER be?

A

Zero

22
Q

Factors related to succeptibility of accounts to misstatement or fraud

A
  • Dollar size of account
  • liquidity
  • volume of transactions
  • complexity of transactions
  • subjective estimates
23
Q

Five steps when completing analytical procedures

A
  1. Develop an expectation
  2. define a significan difference
  3. compare expectaion with recorded amount
  4. investigate significan differences
  5. docmument the preceding steps
24
Q

Discussion of previous experiences with the client, how a fraud might be perpetrated and concealed and procedures that might detect fraud (Required by standards)

A

Brainstorming

25
Q

Enterprise risk mgmt is the repsonsibility of

A

Company mgmt

26
Q

Failure to meet companys objectives is a result of

A

Business Risk

27
Q

One typical characteristic of mgmt fraud is

A

Vicitimization of investors through the use of materially misleading financial statements

28
Q

Likelihood that material missatatmens may have entered the accounting system and not been detected and correced by clients internal control is referred to as

A

Risk of Material Misstatement

29
Q

Specific procedural repsonse to a particual fraud risk in an acct balance or class of transactions

A

Performing procedures such as inventory observationand cash counts on a surprise basis

30
Q

Analytical procedures are generally used to produce evidence from

A

relationships among current finan balances and prior balances, forecasts, and nonfinancial data

31
Q

Source of info for comparison of current balances with expected balances

A

Companys budget and forecast

32
Q

Analytical procedures can be used in the following ways

A
  • A means of overall review at end of audit
  • attention directing methods when planning audit at beginning
  • a substantive audit prcedures to obtain evidence during an audit
33
Q

When planning an audit analytical procedures should concentrate on

A

accounts and relationships that can represent specific potential problems and risks in the finan statements

34
Q

Auditors are not responsible for accounting estimates with respect to

A

making the estimates

35
Q

An audit strategy contains

A

specifications of procedures the auditors believe appropriate for the finan statements under audit

36
Q

Under GAAs it is acceptible to

A

assess risk of material misstatment at high and acheive acceptibly low audit risk by performing extensive detection work

37
Q

Private securities litigation reform act independ auditors are required to first

A

Report to SEC all instances of noncompliance they believe to havea material effect on finan statements if the bod doesnt first report to SEC

38
Q

When evaluating whenter accting estimates made by mgmt are reasonable auditors would be most interested in?

A

evidence of aggressive or conservative systematic bias

39
Q

The first concern of noncompliance is

A

Effect on Finan statements

40
Q

Auditors must design their tests to obtain reasonalbe assurance that all noncompliance with direct material statement effects are detected

A
41
Q

Purpose of performing analytcal procedures in the planning stages of an audit

A

identify unusual conditions athat deserve more auditing effort