Part 2 Flashcards
The practice of inflating sales figures by forcing more products through a distribution channel than the channel can actually sell.
Channel stuffing
The simple average, computed by adding all the numbers in a series of n samples and dividing by n.
Mean
The application of auditing skills to gather evidence that may be used in a court of law for a criminal or civil matter.
Forensic auditing
The level of caution that an individual exercises when performing a due diligence audit and reporting the results.
Due care
The ratio of gross profit to sales.
Gross profit margin
A nonrandom cause of variability.
Assignable cause
A measure of how efficiently a company uses its fixed assets to generate sales; the higher the ratio, the better.
Fixed asset turnover ratio
A measure of operational efficiency as well as effective pricing and cost controls.
Operating profit margin
A control chart that tracks the variability in a percentage measure of errors (or other attributes) in successive samples.
P chart
A statistical technique used to measure the amount of change in one value in relation to a change in another value.
Regression analysis
The money remaining from sales revenues after deductions for the cost of goods sold.
Gross profit
The ratio of total earnings to number of shares outstanding; a commonly used measure of a company’s value to investors.
Earnings per share
The value that is farthest from the mean in the positive direction but still within the range that represents statistical control.
Upper control limit
A random cause of variability in a sample.
Common cause
The process of investigating a person, business, or financial transaction.
Due diligence
Those conditions that, in the judgment of the chief audit executive, could adversely affect an organization achieving objectives; may include conditions dealing with irregularities, illegal acts, errors, inefficiency, waste, ineffectiveness, conflicts of interest, and control weaknesses.
Significant engagement observations
The average distance of each value in a distribution from the mean value of the distribution (sum of the differences divided by the number of items in the distribution).
Mean absolute deviation (MAD)
A type of evidence that is inferior to primary evidence in reliability; may be a copy of a document or oral evidence of a document’s contents.
Secondary evidence
The branch of statistics concerned with collecting, analyzing, describing, and presenting data, for example, mean, median, mode, range, variance, standard deviation.
Descriptive statistics
Financial statements that express all account balances as percentages of one relevant aggregate balance.
Common-size financial statements
A type of evidence that proves an intermediate fact from which a primary fact can be logically inferred.
Circumstantial evidence
The graph of a normal distribution of random variables in a population; perfectly symmetrical, with the mean, median, and mode lying at the same central point, most values clustered near that midpoint, and a decreasing number occurring at greater distances from the midpoint.
Bell curve
A measure of the size of variability in relation to the size of the mean; calculated by dividing the standard deviation by the mean.
Coefficient of variance
A method of discovery sampling in which a variable is added to the definition of the sample by weighting items by their size.
Dollar unit discovery sampling (DUDS)
A control chart that tracks variability in the means of successive samples.
X-bar chart
A random cause of variability in a sample.
Natural cause
The capability of sifting through and analyzing large volumes of data to find certain patterns or associations.
Data mining
A measure of an operation’s effectiveness in using debt and equity to generate earnings.
Return on capital
A ratio that measures the relationship of short-term debt to short-term assets by subtracting liabilities from assets; a larger number indicates a greater ability to pay current debts.
Net working capital ratio
A measure of how well assets are being used to produce revenue.
Total asset turnover
A statistical technique used to trace the effects of more than one independent variable on one dependent variable.
Multiple regression analysis
The ratio of all an organization’s debts to all of its assets; provides a general measure of ability to repay creditors.
Debt ratio
A process by which internal auditors determine the adequacy, effectiveness, and timeliness of actions taken by management on reported engagement observations and recommendations, including those made by external auditors and others.
Follow-up
A ratio that is similar to the current ratio but eliminates inventory, which is considered the least liquid portion of current assets and therefore the least available for reducing current debts.
Quick ratio
The branch of statistics concerned with drawing inferences about a population from samples selected from the population.
Inferential statistics
A number that measures the degree of dispersion from the mean of all values in a sample.
Variance
A type of analysis used to review historical sequences of data; more appropriately used in reviewing data from income statements or expense statements rather than balance sheets, which present financial information for a particular point in time.
Horizontal analysis
A measure of an organization’s ability to pay fixed obligations within a set period of time.
Fixed payment coverage ratio
A control chart that tracks the variability of attributes (values that can be counted, such as errors) in successive samples.
C chart
A type of analysis used to review historical sequences of data; more appropriately used in reviewing data from income statements or expense statements rather than balance sheets, which present financial information for a particular point in time.
Trend analysis
A type of evidence that proves a fact without requiring presumptions or interference, for example, testimony of an eyewitness to a fraud.
Direct evidence
A measure of a company’s effectiveness in collecting accounts receivable; a smaller number indicates greater effectiveness in managing and collecting money from customers.
Days’ sales outstanding
A type of evidence that is generally documentary; original writing is required when available.
Best evidence
A control chart that tracks the variability of the range of values in successive samples.
R chart
A type of evidence that is generally documentary; original writing is required when available.
Primary evidence
A ratio that measures an organization’s ability to cover long-term liabilities from owners’ equity.
Debt to equity ratio
A measure of an operation’s effectiveness in using assets to generate profits.
Return on investment (ROI)
A measure of an operation’s relative success in generating net profits (profits after subtracting cost of goods sold, operating expenses, interest, and taxes) from a given amount of shareholders’ equity.
Return on equity (ROE)
The exact midpoint of a distribution, with an equal number of items below it and above it.
Median
The number that occurs most frequently in a series.
Mode
The value that is farthest from the mean in the negative direction but still within the range that represents statistical control.
Lower control limit
Special government auditing standards published by the US Comptroller General.
Yellow Book
An analytical procedure that begins with the recognition that one set of data differs from another set in an unexpected way; for example, expenses for the current period may be unexpectedly greater than expenses for the past period by a significant amount.
Variance analysis
A measure of the number of times during the year that inventory is replaced; a higher number indicates greater efficiency.
Inventory turnover
A measure of an organization’s ability to service all of its liabilities; the number of times a company can cover fixed obligations with earnings before interest and taxes (EBIT).
Times interest earned
A type of evidence that supplements evidence already given and tends to support it.
Corroborative evidence
