Risk assessement Flashcards
What is the purpose of a good audit plan?
A good audit plan allows the auditor to:
* Effective time management and time allocation
* Identify directly problems and issues, and solve them
* Organize the audit engagement
* Select engagement team members with appropriate levels of capabilities and competence
* Supervise team members
* Coordinate work done by specialists
A well-structured audit plan enhances the overall efficiency and effectiveness of the audit process.
What are the major types of preliminary engagement activities?
Major types include:
* Client acceptance and continuance
* Preliminary engagement activities
* Planning audit
These activities are essential for establishing a solid foundation for the audit engagement.
What factors should be evaluated for client acceptance and continuance?
Factors include:
* Capabilities to perform the engagement
* Compliance with legal and relevant ethical requirements
* Integrity of the client
* Public interest considerations
These factors ensure that the auditor maintains professionalism and ethical standards.
What procedures are involved in evaluating a prospective client?
Procedures include:
* Determine if the firm has resources and technical skills
* Assess personnel experience and competence
* Ensure ability to meet deadlines
* Consider independence and ethical requirements
* Evaluate the integrity of the client
Proper evaluation minimizes risk and enhances the quality of the audit.
What should be established with the entity during preliminary engagement activities?
Establish an understanding of:
* Engagement letter
* Using the work of internal auditors
* Role of the audit committee
Clarity in these areas helps in aligning expectations and responsibilities.
What is the purpose of assessing business risks in audit planning?
The purpose is to:
* Identify potential issues
* Establish materiality
* Consider group audits
* Assess the need for specialists
* Document overall audit strategy
Understanding business risks allows auditors to tailor their approach effectively.
What are the types of audit tests?
Types include:
* Risk assessment procedures
* Tests of control
* Substantive procedures
Each type serves a specific purpose in evaluating financial statements.
What are the two categories of substantive procedures?
Categories include:
* Test of details
* Substantive analytical procedures
These categories help auditors detect material misstatements in financial statements.
What are dual purpose tests in auditing?
Dual purpose tests are audit procedures that:
* Conduct both a test of controls and a substantive test of transactions simultaneously on the same document
This approach enhances efficiency by combining two audit objectives.
What is audit risk?
Audit risk is the risk that an auditor might express an inappropriate audit opinion when the financial statements are materially misstated
Understanding audit risk is crucial for effective audit planning and execution.
What are the types of risk that assist the auditor in planning?
Types of risk include:
* Inherent risk
* Control risk
* Detection risk
These risks help auditors determine the appropriate audit procedures to mitigate potential misstatements.
What are the conditions indicative of fraud?
Conditions include:
* Incentive or pressure to perpetrate fraud
* Opportunity to carry out the fraud
* Attitude or rationalization to justify fraud
Recognizing these conditions is vital for fraud detection.
What assertions are related to classes of transactions and events?
Assertions include:
* Presentation
* Occurrence
* Completeness
* Authorization
* Accuracy
* Cutoff
* Classification
These assertions guide auditors in determining what evidence to collect.
What assertions are related to account balances at the period end?
Assertions include:
* Existence
* Rights and obligations
* Completeness
* Accuracy, valuation, and allocation
* Classification
* Presentation
These assertions are critical for assessing the validity of financial statement balances.
What is the significance of audit evidence?
Audit evidence needs to be:
* Sufficient (quantity)
* Appropriate (quality, relevance, reliability)
The sufficiency and appropriateness of evidence are fundamental for forming audit opinions.
What are common audit procedures to obtain evidence?
Common procedures include:
* Inspection of records and documents
* Inspection of tangible assets
* Observation
* Inquiry
* Confirmation
* Recalculation
* Reperformance
* Analytical procedures
* Scanning
* Vouching
* Tracing
These procedures provide a comprehensive approach to gathering necessary audit evidence.
