Term
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Definition
| the risk that the auditor will incorrectly give an unqualified opinion on F/S's that are materially misstated |
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Term
AR = IR x CR x (TOD x AP)
The last part makes up ___ risk.
TOD = ?
AP = ? |
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Definition
DETECTION
TOD = substantive test of details
AP = substantive analytical procedures |
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Term
| What is the objective of the auditor as it relates to evidence? |
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Definition
| to design and perform audit procedures to obtain SUFFICIENT APPROPRIATE audit evidence to be able to draw REASONABLE (i.e., reasonable assurance) conclusions on which to base the auditor's opinion |
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Term
| list the 3 types of audit procedures |
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Definition
1) Risk assessment procedures(to address IR)
2)Tests of controls (to address CR)
3) Substantive procedures (to address DR) |
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Term
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Definition
| "toolbox" of the CPA firm; different firms use different mixes of procedures-everyone does this but sometimes different approaches are taken |
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Term
| List the audit procedures ("toolbox") |
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Definition
Inspection
Observation
Inquiry
Confirmation
Recalculation
Re-performance
Analytical procedures |
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Term
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Definition
| examining records or documents |
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Term
| list and define 2 types of inspection; also indicate which assertions are related to each |
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Definition
1)vouch- from f/s's to source documents (existence or occurence-does what they report actually exist or has it occurred)
2)trace- from source documents to f/s's (completeness-is everything recorded?) |
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Term
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Definition
| looking at a process or procedure being performed by others (e.g., the auditor's observation of inventory counting by the company's personnel) |
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Term
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Definition
| seeking information from knowledgeable persons in financial or nonfinancial roles within the company or outside the company (asking questions) NOTE: inquiry of company personnel, by itself, does not provide sufficient audit evidence- you need to combine it w/INSPECTION |
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Term
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Definition
| evidence from a third party (e.g., statement from bank) |
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Term
| Recalculation; also indicate relevant assertion(s) |
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Definition
| checking mathematical accuracy manually or electronically; old school-valuation and allocation, new school-mathematical calculation |
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Term
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Definition
| independent execution of procedures or controls (testing control) |
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Term
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Definition
| study of plausible relationships among both financial & non-financial data |
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Term
what should evidence be?
what did it used to be described as? |
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Definition
| APPROPRIATE; used to be COMPETENT |
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Term
| what are the 2 characteristics of evidence appropriateness? |
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Definition
1) reliability
2) relevance |
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Term
| characteristics of RELIABILITY |
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Definition
1)DIRECT > INDIRECT (e.g., auditor making observation (direct) rather than inquiring (indirect) about something)
2)External source > Internal source (Int. source-generated by the company)
3)Strong control > weak control
4)Documented (paper or electronic) > inquiry
5)Original documents > photocopies/fax (non-originals could be falsified) |
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Term
| (evidence) RELEVANCE- to assertion/objective |
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Definition
1)Designed to test assertion directly (has to test appropriate assertion)
2)Designed to test understatement/overstatement
3)Timing |
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Term
| Evidence should also be _____. |
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Definition
| SUFFICIENT (i.e., quantity of evidence) |
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Term
| characteristics of SUFFICIENT evidence |
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Definition
-Persuasive (what we are looking for; i.e., reasonable assurance)
-Convincing (not affordable) |
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Term
| what are the factors affecting SUFFICIENCY |
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Definition
1)Varies INVERSELY w/the competence of the evidence available (w/ a limit); you need MORE evidence the less competent the evidence available is)
2)Varies DIRECTLY w/risk of material misstatement
3) Varies INVERSELY w/the level of materiality (the lower materiality is, the more evidence we need)
4)Cost/benefit- cost alone is not a valid reason for omitting an audit procedure (can't elminate a procedure b/c it's too expensive) |
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