Term
| Three Main Reasons for Planning |
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Definition
| 1. To obtain sufficient appropriate evidence for the circumstances (what we are going out for), 2. To help keep audit costs reasonable, 3. To avoid misunderstanding with the client |
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Term
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Definition
| 1. Acceptable audit risk (what’s acceptable vs. cost, what is acceptable to do what is adequate and still miss it.), 2. Inherent risk (no control over, need to understand client to identify inherent risk) |
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Term
| Planning an Audit and Designing an Audit Approach |
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Definition
| 1. Accept client and perform initial audit planning, 2. Understand the client’s business and industry. (who are our competitors, 3. Assess client business risk., 4. Perform preliminary analytical procedures, 5. Set materiality and assess acceptable audit risk and inherent risk. 6. Understand internal control and assess control risk., 7. Gather information to assess fraud risks., 8. Develop overall audit plan and audit program. |
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Term
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Definition
| 1. Client acceptance (1st year) and continuance (after 1st year), 2. Identify client’s reasons for audit (why do I need to be audited), 3. Obtain an understanding with the client, 4. Develop overall audit strategy (what is our approach) |
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Term
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Definition
| 1. Acceptable audit risk (what’s acceptable vs. cost, what is acceptable to do what is adequate and still miss it.), 2. Inherent risk (no control over, need to understand client to identify inherent risk) |
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Term
| Planning an Audit and Designing an Audit Approach |
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Definition
| 1. Accept client and perform initial audit planning, 2. Understand the client’s business and industry. (who are our competitors, 3. Assess client business risk., 4. Perform preliminary analytical procedures, 5. Set materiality and assess acceptable audit risk and inherent risk. 6. Understand internal control and assess control risk., 7. Gather information to assess fraud risks., 8. Develop overall audit plan and audit program. |
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Term
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Definition
| 1. Client acceptance (1st year) and continuance (after 1st year), 2. Identify client’s reasons for audit (why do I need to be audited), 3. Obtain an understanding with the client, 4. Develop overall audit strategy (what is our approach) |
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Term
| Understanding of the Client’s Business and Industry |
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Definition
| 1. Information technology, 2. Global operations, 3. Human capital |
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Term
| Understand client’s business and industry |
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Definition
| 1. Industry and external environment, 2. Business operations and processes, 3. Management and governance, 4. Objectives and strategies (what’s important to the company), 5. Measurement and performance |
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Term
| Industry and External Environment |
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Definition
| 1. Risks associated with specific industries, 2. Inherent risks common to all clients in certain industries, 3. Unique accounting requirements |
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Term
| Business Operations and Processes |
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Definition
| 1. Major sources of revenue, 2. Key customers and suppliers, 3. Sources of financing, 4. Information about related parties |
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Term
| Management and Governance |
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Definition
| 1. Corporate charter and bylaws, 2. Code of ethics (important to know if company has ethical behavior), 3. Meeting minutes |
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Term
| Client Objectives and Strategies |
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Definition
| 1. Financial reporting reliability, 2. Effectiveness and efficiency of operations, 3. Compliance with laws and regulations |
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Term
| Measurement and Performance |
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Definition
| 1. market share, 2. sales per employee, 3. unit sales growth, 4. Web site visitors, 5. same-store sales, 6. sales/square foot |
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Term
| Assess Client Business Risk |
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Definition
| the risk that the client will fail to achieve its objectives |
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Term
| preliminary analytical procedures |
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Definition
| Comparison of client ratios to industry or competitor benchmarks provides an indication of the company’s performance |
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Term
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Definition
| 1. Required in the planning phase (last year’s unaudited vs this year’s unaudited done be partner), 2. Often done during the testing phase, 3. Required during the completion phase (last year’s audited vs this year’s audited done be partner) |
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Term
| Five Types of Analytical Procedures |
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Definition
| 1. Industry data, 2. Similar prior-period data, 3. Client-determined expected results, 4. Auditor-determined expected results, 5. Expected results using nonfinancial data. |
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Term
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Definition
| 1. Short-term debt-paying ability, 2. Liquidity activity ratios, 3. Ability to meet long-term debt obligations, 4. Profitability ratios |
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Term
| Short-term Debt-paying Ability |
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Definition
| 1. Cash ratio, 2. Quick ratio, 3. Current ratio |
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Term
| Liquidity Activity Ratios |
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Definition
| 1. Accounts Receivable T/O, 2. Days to collect receivable, 3. Inventory turnover, 4. Days to sell inventory |
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Term
| Solvency Ratios (Ability to meet Long-term Debt Obligation) |
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Definition
| 1. Debt to equity, 2. Times interest earned |
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Term
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Definition
| 1. Earnings per share, 2. Gross profit percent, 3. Profit margin, 4. Return on assets, 5. Return on common equity |
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