Week 2 - Audit 3 Flashcards
What are tests of control?
Procedures auditors use to assess the effectiveness of internal controls.
What is substantive testing?
Direct verification of financial transactions through analytical reviews and detailed tests.
How does control risk affect substantive testing?
High control risk → More substantive testing
Low control risk → Less substantive testing
What are walkthrough tests in auditing?
A method where auditors trace sample transactions through the system to evaluate control effectiveness.
What does ISA 330 require in audits?
Some level of substantive testing is always necessary, regardless of the control risk assessment.
What are common risks associated with non-current assets?
- Valuation errors
- revaluation estimates
- impairment
- incomplete asset records
How do businesses control risks related to trade receivables and sales?
By implementing:
- credit limits
- rapid billing
- regular reconciliation
What risks exist in inventory management?
- Demand fluctuations
- valuation errors
- inefficiencies in production
How do companies control trade payables and purchases?
By approving purchase orders, reconciling supplier statements, and monitoring cash outflows.
What are common procedures for auditing the balance sheet?
- Bank confirmations
- inventory counts
- reviewing contracts
