Risk Flashcards
1
Q
What is an inherent risk?
A
The susceptibility of a balance to misstatement
2
Q
What is a control risk?
A
The risk that a client’s controls fail to prevent and detect misstatement
3
Q
What is a detection risk?
A
The risk that the auditor fails to detect misstatement
4
Q
What are the audit thresholds for sales, profit before tax and total assets?
A
Sales - 1/2%
Profit before tax - 5%
Total assets - 1%
5
Q
What is the acid test ratio?
A
Current assets - inventory/Current liabilities
6
Q
What is the gearing ratio?
A
Debt/Equity
7
Q
What is the interest cover ratio?
A
Profit before finance costs/Finance costs
8
Q
What is the return on capital employed ratio?
A
Operating profit/Equity + Non-current liabilities
