Mod 1 slides

Question 1

Auditing is

Answer 1

evidence gathering

Question 2

Evidence involves

Answer 2

finding errors in managements assertions

Question 3

Assertions

Answer 3

Existence/occurence
error- fictitious

Completeness
poor- unrecorded, understated

Ownership rights/ obligations
error- improperly capitalized

Valuation
error- wrong amount

Allocation
error- wrong period

Presentation/disclosure
error- improperly recorded, summarized, disclosed

Question 4

Procedures involve

Answer 4

action verbs that find specific errors

Question 5

Procedures of the Assertions

Answer 5

existence/occurence
procedure- confirmation, physical inspection, document inspection (vouching)

completeness
procedure- document inspection (tracing)

ownership/obligation
procedure- document (title) inspection

valuation
procedure- re-computation

allocation
procedure- document inspection (either vouching or tracing)

presentation/disclosure
procedure-re-performance of client procedure, reading

Question 6

Audit Risk Formula

Answer 6

AR = IR x CR x DR

RMM = IR x CR

Question 7

If RMM is low, then higher detection risk, meaning have less effective audit, may choose analytical procedure
analytics, final, large n

If RMM is high, then lower detection risk, meaning have a more effective audit, so choose a more detailed test
detailed, final, large n

Answer 7

look at chart understand correlation

Question 8

Materiality

Answer 8

is what’s important to the users of the FS

an error that’s big enough to change the mind of the user of the FS

Question 9

Materiality Steps

Answer 9

step 1
determine overall materiality (planning materiality)

step 2
determine tolerable MM (performance) allocation of materiality at individual account/class of transactions

step 3
evaluate auditing findings (near the end of the audit)

Question 10

Types of Audit Procedures

Answer 10

Risk Assessment Procedures
used to obtain an understanding of the entity and its environment, including its internal controls

Tests of Controls
directed toward the evaluation of the effectiveness of the design and operation of internal controls

Substantive Procedures
detect MM in a transaction class, account balance, and disclosure component of the FS