Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
31 Cards in this Set
- Front
- Back
Auditing |
Systematic process of objectively obtaining evidence regarding management assertions |
|
Purpose of an audit |
Enhance user confidence in financial statements |
|
Objective of an audit |
Express opinion. Give reasonable assurance financial statements are prepared in all material respects and in accordance with applicable reporting framework. |
|
Business risk |
Risk entity fails to meet its goals and objectives |
|
Information risk |
Probability information circulated by the company will be false or misleading |
|
Risk of material misstatement |
Likelihood error or fraud will exist in financial statements prior to considering Auditors work. Determines nature timing and extent of further audit procedures. Combination of inherent and control risk |
|
Inherent risk |
Probability in the absence of internal control material error or fraud could enter the accounting system. Based on the type of business |
|
Control risk |
Management's internal controls will not detect or prevent a material misstatement. |
|
Purpose of Enterprise risk management (COSO) |
Helps improve assessment and Mitigation Of Business risk |
|
8 elements of ERM |
Internal environment Objective setting Event identification Risk assessment Risk response Control activities Information and communication Monitoring |
|
Audit risk |
Risk the auditor will give an incorrect opinion |
|
Detection risk |
Auditors procedures fail to detect material misstatement undetected by managements internal controls. |
|
Employee fraud |
Either embezzlement or larceny to steal from an employer. 3 phases: Fraudulent Act Conversion of funds to fraudsters use Cover up |
|
Embezzlement |
Employees or not employees misappropriating funds or property that has been entrusted to their care custody and control often accompanied by fultz accounting entries |
|
Larceny |
Simple theft |
|
Defalcation |
Misappropriation of assets. Employee fraud embezzlement and larceny |
|
Audit risk |
Likelihood that an error or fraud will occur and not be caught by either internal controls or Auditors procedures. Eg.: unmodified opinion where material misstatements are present :( |
|
Significant account or disclosure |
May contain material misstatements, regardless of internal controls. |
|
Relevant assertions |
Management assertions that have a reasonable possibility of containing material misstatements without regard to the effective internal controls |
|
AR = 0.5 |
Relatively low audit risk. 5% of audit opinions would be wrong |
|
IR = 0.9 |
Audit team thought valuation of inventory balance was subject to Great inherent risk |
|
CR = 0.5 |
Internal control not very effective |
|
Audit committee |
Subsets of board of directors composed of outside members who can provide a buffer between audit firm and management |
|
Analytical procedures |
Reasonableness test used to gain understanding of financial statement accounts and relationships. Required during beginning and end of the audit. Can be used as substantial testing procedures to gather evidence |
|
ERM |
Responsibilities of company management |
|
Aunt made several large adjustments at or near |
Audit team should perform extended procedures |
|
Risk of material misstatement is composed of which audit risk components? |
Inherent risk and control risk |
|
Analytical procedures are generally used to produce evidence from... |
Relationships among: Current & prior financial balances, Forecast Non-financial data (minutes of meetings) |
|
Analytical procedure for budgets and forecasts |
Compare current account balance with expected balance |
|
Audit strategy memorandum |
Specifications of procedures for financial statements under audit |
|
Private Securities litigation Reform Act |
Independent Auditors are required to report to the SEC all instances of non-compliance with the ACT they believe having material effect on financial statements if the board of directors does not first report it |