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CPA Exam - AUD > Procedures & Evidence > Flashcards

Procedures & Evidence Flashcards

1
Q

Assessed level of RMM determines

A

Level of Detection Risk >
Determine Assessed Risk (nature, timing, extent of Audit proc >
Detect Material Misstatement

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2
Q

Audit Risk

A

Risk auditor will issue incorrect opinion; prob of clean opinion w/ material misst present

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3
Q

Inherent Risk

A

Susceptibility of an assertation; Material misst due to error/ommision other than IC; Controls can’t catch

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4
Q

Control Risk

A

Material misst will not be prevented, detected, corrected by IC

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5
Q

Detection Risk

A

Auditor’s procedures to reduce risk to low level did not detect Material misst (DT= AP x TD)

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6
Q

Risk Material Misstatement

A

IR x CR

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7
Q

Auditor’s Procedures

A

Nature- specific substantive procedures = TD & AP

Timing- substantive proc performed;
Interim- prior to year end & books closed
Final- after year end & books closed

Extent- size of sample

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8
Q

Analytics & stages

A

Expectation; relationship between financial & non financial data

1) Planning- high level; quarterly & unaudited
2) Substantive
3) Review/Conclusion- unusual/unexpected balances

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9
Q

Analytical Factor expectations

A 
Prior comparison- 3 years sales
Budget anticipation
Industry ratios
F/S relationships- sales & HR
Financial & Non financial- payroll cost to # employees
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10
Q

Analytical factors

A

Effectiveness & efficiency; doing act
Nature
Predictable & effective
Reliability- quality
Expectation precision- sales by product instead total sales

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11
Q

Significant risks often involve

A

Judgmental matters

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12
Q

Audit Evidence

A

Info to base opinion; Persuasive, rarely conclusive; Auditor’s judgment

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13
Q

Sufficient Quantity

A

Based on assessed risk & quality

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14
Q

Appropriate Quality

A

Assertions

1) Independent sources
2) Directly obtained
3) Hard copy/original

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15
Q

Sampling

A

Selection & value of less than 100% of population; eval if characteristics

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16
Q

Sampling Attributes- Test of Controls

A

Test of controls
1) Objective
2) Deviation
3) Population
4) Sample- Statistical= random;systematic
Judgmental=hap hazard; block
5) Size- AICPA tables
6) Test & Deviation % = Tolerance % (# errors/n) 1/20th or 5%
7) Tolerable- # errors & still rely on IC
8) Upper Precision- AICPA tables
9) Reliable- Upper precision <= Tolerable

17
Q

Sampling Attributes - Substantive (variable)

A

Ending Balance

Stratification- separating population; lower sample size

18
Q

Sample Risk Types

A

Type #1 Incorrect Rejection-
Unereliance on IC; Assess Control Rick increased
Sample = Material misst
Acct bal= no

Type #2 Incorrect Acceptance-
Overeliance on IC; Assess Control Risk decreased
Acct bal = Material misst
Sample= no

19
Q

Projected Misstatement (Sample Error)

A

1) Recorded < Sample Interval; (recorded-audited)/recorded Tainted % + Sample Interval= Sample Error
2) Recorded >Sample Interval; Recorded-audited- Sample Error

20
Q

Sample Interval =

A

Tolerable (Deviation Rate) / Table Size (Reliability Factor)

21
Q

Upper Precision Limit =

A

Sample % + Allow Sample Rick

22
Q

Ratio Method =

A

Sample Audit / Sample Book= Ratio % x Book Population $ = Population Audit $

23
Q

Probability Proportional Size (PPS)

A

Controls risk incorrect accept by specifying risk level for sampling
Disadvantage- undestatm less likely detected
Advantage- efficiency

24
Q

Sample & Non Sample Risk

A

Sample does not reflect population

Auditor makes judgment error (Detection Risk)

25
Q

Efficiency & Effective

A 
Action
Moral (doing right)
26
Q

External Confirmations

A

Positive- response if agree or not with $ (not enough responses- alt procedures)
Negative (less reliable)- response if disagree w/ correct $; no response = agree

27
Q

UW Letters

A

Comfort letter- opinion F/S comply w/ SEC

28
Q

Financial Projection

A

Mgmt & 3rd party in negotiations; no eval assumptions; not for distribution

29
Q

Precision

A

Allowable Sample Risk; possibility of errors in either direction

30
Q

Tolerable Misstatement is high

Control Risk is high

A

More mistakes allowed = smaller sample size

High risk of material misstatement = larger population size

31
Q

Top down approach in audit of IC

A

Understand overall risks to IC over financial reporting @ the F/S level

32
Q

Substantive procedures prior

A

Assess difficulty in controlling incremental audit risk

Cost of tests

CPA Exam - AUD (4 decks)

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