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CJ
321, law and defenses
120
Criminal Justice
Undergraduate 4
11/06/2012

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Cards

Term
After determining problem, and hearing managements plans to correct going concern issues, what do you do
Definition
re-evaluate; if doubt remains you modify. If doubt is gone you should disclose the conditions and events.You could issue a disclaimer if need be.
Term
As part of gaining an understanding of internal control an auditor may
Definition
Interview the client,Review the procedures manual,Perform a transaction review
Term
Attributes sampling
Definition
test of controls
Term
Auditors generally use a ___________when using PPS; both sampling unit and sampling intervals would be in dollars.
Definition
systematic selection
Term
Classical variables sampling methods
Definition
Difference Estimation, MPU, SMPU, and ratio estimation
Term
Another term for systematic
Definition
random sample
Term
Component auditors
Definition
report on a piece of a company (like a subsidiary)
Term
Confirmation of accounts receivable provides evidence in support of
Definition
Existence
Term
DUS is a
Definition
variation of PPS; stands for dollar unit sampling
Term
Detection risk
Definition
the audtiors probability of not finding the misstatement by random occurance.
Term
Deviation rate
Definition
frequency of control deviation=deviations/sample size
Term
An imprest account is one
Definition
That has a balance that does not change
Term
Disclaimer Opinion
Definition
bad GAAS problem (often this is per a scope limitation on evidence.)
Term
COSO defined internal control as the process designed to provide
Definition
Reasonable Assurance
Term
An auditor desires to reduce sampling risk. S/he could
Definition
Increase sample size
Term
Discovery Sampling
Definition
Is used for fraud, its the probability of finding 1 more deviation then you will allow.
Term
EPDR 2%, TDR 6%, risk of setting control risk too low is 5%; table says sample size is 127 (3); if you find only 2 deviations then what is UDR?
Definition
5.5% and we can rely on controls and do less substantial tests.
Term
For petty cash an auditor should
Definition
Consider reviewing account distribution for reimbursements if there is a high volume of activity in the account.
Term
Group auditors should be careful in regard to
Definition
the investee F/S that a component auditor does since they did not do them themselves
Term
If EPDR is 2%, risk of assessing CR too low is 5%, TDR is 8% and SDR is 1%, the allowance for sampling risk will be about
Definition
6%; in the presence of SD (sdr) we take sd +/- the average of EPDR and TDR.
Term
An audtior defines his population to 10,000 invoices and takes a sample of invoices numbered 200 to 300 and 5000 to 5100, s/he is probably using
Definition
block sampling technique
Term
EPDR is 6%, TDR is 8%, do you test the controls (non-public)
Definition
the sample size would be too large since within 2% of eachother, we would set control risk high and do more substantial tests.
Term
If EPDR is 2%, risk of assessing CR too low is 5%, TDR is 8% and SDR is 1%, the auditor
Definition
will set CR to low; 2+8/2=5+/-1=6% UDR; UDR
Term
If EPDR is 5%, risk of assessing CR to low is 5%, the population is 20,000 items and TDR is 6% the auditor
Definition
Will probably set CR high, per there is only 1% difference between EPDR and TDR you would have a very large sample size and it would require too much work.
Term
If a auditor is doing a review and they run into a scope limitation, and they can't do a qualified/modified opinion they drop down to?
Definition
compilation (it is the lower)
Term
If controls are found to be weak (we don't trust controls) then we would use
Definition
MPU instead of PPS.
Term
If the auditor is performing a PPS test and the book value for one item is $20
Definition
It will not change the sampling interval; pps looks at population bv
Term
Financial statement auditors must communicate control related matters if
Definition
The control item may cause a material error,The likelihood of an error occurring is high,The likely error is more than inconsequential
Term
Problem with using systematic/random sample generator
Definition
you may have some accounts/items with much larger than average numbers and you want these in your sample.
Term
There are two types of Unqualified Opinions reports; one is unmodified "clean opinion" and the other is_______where a emphasis of a matter regarding going concern or change in accounting principles is discussed.
Definition
Modified wording
Term
If you are looking at auditors choices and you are in the Incorrect/accept quadrant, is this good or bad
Definition
bad, we set CR too low and/or incorrect acceptance (substantive test)
Term
If you are looking at auditors choices and you are in the Incorrect/reject quadrant, is this good or bad
Definition
good, rejection of a incorrect item(risk of incorrect acceptance)
Term
If you are looking at auditors choices and you are in the accept/correct quadrant, is this good or bad
Definition
good; accepting a item that is correct
Term
If you are looking at auditors choices and you are in the correct/reject quadrant, is this good or bad
Definition
bad, risk of setting control risk too high; incorrect rejection
Term
In a Compliation you basically
Definition
Compile the information into F/S form; no assurance, no IC/substantive test, no inquiries, and not independent.
Term
PPS is systematic, why
Definition
the more understated the less likely we see it; overstatement we will see it so its a good test for existance (overstatement)
Term
Significance depends on
Definition
potential for mistatement
Term
In a Review, what do you NOT do (in compared to a normal audit)
Definition
No test of internal controls and No test of details, plus they inquire of managment
Term
We send negative confirmation when
Definition
The respondent is likely to respond,The controls are strong,There are many small accounts
Term
In an audit you do
Definition
test of controls (public) and substantive tests (test of details & analytics)
Term
If the auditor is performing a PPS test and the book value for one item is $500, the sampling interval is $50,000, the audit value is $100 and the risk of incorrect acceptance is 5% the auditor will
Definition
Project an error of $40,000 from this one item; BV-Audit value=x/bv=% mult. by sampling interval =40,000
Term
In order to do a statistical test, your sample must be
Definition
random
Term
PPS minimizes
Definition
variance issues
Term
In public, you must test controls anyways, regardless of
Definition
the size of the sample this requires (though in practice there may be modifications made.)
Term
If the bank deposit date is 12/31 and the bank withdrawal date is 1/1
Definition
There should be an outstanding check
Term
In regards to Auditors responsibility; our goal is to determine _________, __________ and _______ of testing.
Definition
nature, timing and extent
Term
In regards to audit reports, what is a key word that needs to be in the title?
Definition
Independent
Term
In regards to internal auditors, we need to assess
Definition
Their objectivity and competence
Term
The purpose of bank confirmation is
Definition
To provide evidence in support of the bank balance
Term
Significant deficiency where potential mistake is greater in magnitude
Definition
material weakness
Term
In what sector do we NOT do compilations
Definition
public
Term
In your report, you may NOT state that
Definition
no significant deficiences were noted (this implies a good opinion of effectiveness of controls which you may not have tested if non public.)
Term
In your report, you may state that
Definition
no material weaknesses were noted
Term
Management must assess effectiveness
Definition
as of the end of the most recent fiscal year
Term
Non-sampling risk (human eror)
Definition
Cannot be quantified
Term
Objectives of internal control framework as defined by COSO
Definition
Control environment, risk assessment, accounting information system, control activies, and monitoring
Term
Probability Proportionate to size, used as alternative to classical variables sampling methods for performing substantive tests of transactions or balances.
Definition
PPS
Term
Adverse opinion
Definition
is a GAAP problem; material and pervasive
Term
PPS applies to
Definition
theory of attributes sampling to estimate the total dollar amount of misstatement in a population.
Term
Procedures that might show us evidence of a problem in regards to going concern
Definition
analytics, review of subsequent events, board of directors minutes, inquiry of legal counsel, review of debt and loan agreement compliance
Term
Ratio estimation is preferred when
Definition
the size of misstatements is nearly proportional to the BV's of the items
Term
What are automatically significant deficiencies?
Definition
Control weakness over selection and application of GAAP,Antifraud control weakness,Control weakness over non-routine and nonsystemic transactions
Term
When we sign and date the report on 1) last day of fieldwork and 2) report issue date( date it goes to the public) we are
Definition
dual dating
Term
The group auditor is the one who
Definition
audits biggest portion % of the total operation (biggest piece of the pie).
Term
Reduces sample size
Definition
when a auditor stratifies the population
Term
SMPU controls
Definition
the variance which lowers sample size so its more efficient if we can figure out how to stratify
Term
Sampling interval is calculated by
Definition
population BV divided by sample size
Term
In the area of internal control reasonable assurance refers to
Definition
the Cost benefit of internal control
Term
Sharing responsibility with more than one auditor (firms) in the current year
Definition
group audits
Term
what is not a acceptable method to document the auditors understanding of internal control
Definition
Document copies
Term
Significant deficiencies in internal control must
Definition
Be communicated in writing to management and those charged with governance within 60 days of report issue date
Term
what is not a automatic significant deficiency
Definition
Control weakness over payroll
Term
Your client transfers cash around year end and records the deposit on the books but not the withdrawal. The bank clears the deposit in the current year but not the check. This is an example of:
Definition
Kiting to inflate earnings
Term
Stop and Go or Sequential sampling
Definition
add 30 to your sample; may tighten up allowance so you can rely on controls
Term
Stratification
Definition
Controls for variance, therefore the test is more efficient with risk constant.
Term
Stratification divides
Definition
a population with a large variance (heterogeneous) into 2 or more gorups with smaller variances (homogeneous)
Term
Stratification does not
Definition
reduce variance; variance is what it is-reflective of population
Term
regarding an auditor’s interaction with the internal audit department
Definition
Financial statement auditors may use the work that internal auditors already do
Term
Substantial tests are usually cheaper then testing
Definition
internal controls
Term
What does ICQ mean
Definition
Internal Control Questionaire
Term
Systematic
Definition
Acceptable method for drawing a sample for a regular or fixed sample size attributes test
Term
The best evidence in support of NRV of accounts receivable is
Definition
Subsequent cash receipts
Term
The foreign corrupt practices act requires
Definition
Companies under the stewardship of the SEC to have strong controls
Term
To audit cash for existence an auditor could
Definition
Count the cash,Obtain a cutoff statement,Obtain a bank confirmation
Term
Two methods of non-random sample drawing
Definition
judgemental and block
Term
Under PPS; the percentage of misstatement in the account is called what? (known as the ____________ which we multiply by the sampling interval.)
Definition
tainting
Term
Variables sampling
Definition
substantive test
Term
We are not required to perform specific tests for this unless our normal tests lead us to evidence that this is a concern
Definition
Going concern
Term
We send blank confirmation requests when
Definition
We are attempting to obtain a more conscientious reply
Term
What do we always use for liabilities?
Definition
Non-random/Judgemental sample (side of B.S.)
Term
When your looking at stratifying a population; you need to consider what in regards to your data?
Definition
is it relatively easy to gather, and would it show correlation
Term
Which is bigger, significant deficiency or material weakness
Definition
material weakness
Term
Who is responsible for fair and accurate F/S?
Definition
management
Term
Without knowing whether a sample was "properly drawn"
Definition
You cannot know if its a sampling error (risk) or non-sampling risk (human error.) Do not assume "its likely".
Term
alternate procedures for accounts receivable
Definition
Get a build-up of the account by invoice,Tie items to shipping documents,Tie items to subsequent receipts
Term
first section of auditor report
Definition
identifies statements/exactly what you did
Term
What type of sample is needed to do a statistical test
Definition
Random
Term
fourth section of auditor report
Definition
opinion
Term
you may have your client
Definition
prepare the confirmation requests,prepare a build-up of account balances by invoice,prepare a schedule of subsequent cash receipts
Term
high variance means
Definition
the population is very spread out
Term
how far out are we responsible for determining if a company is a going concern
Definition
next 12 mos; but usually less then taht per time periiod is one year from the F/S date; it may not be released for a month or month in half later.
Term
in regards to going concern; what must you consider once you have determined there is a problem
Definition
managements plans
Term
management letter
Definition
us to managagement talking about any control problems.
Term
method used for related parties work and liabilites when auditing
Definition
judgemental, non-random
Term
negative insurance is saying
Definition
I did this work and nothing came to my attention showing non-compliance with GAAP.
Term
one that adversely affects the ability to initiate, authorize and build a F/S; that could result in a error in F/S.
Definition
Significant deficiency
Term
what should not be done in regards to confirmation requests and your client
Definition
Have the client mail the confirmation requests
Term
Reports; if something is material but not pervasive, problems with GAAP(GAAP departure)or GAAS , or basis for modification paragraph preceds the opinion pargraph and a "except for" is in place; you are reading what type of report
Definition
Modified option/Qualified
Term
auditor may
Definition
estimate error, balance and estimate error rate.
Term
second section of auditor report
Definition
outlines managements responsibility for the F/S using USA GAAP
Term
third section of auditor report outlines
Definition
auditors responsibility-3 paragraph scope
Term
variance
Definition
the measure of distribution of the population
Term
What is easy to implement but creates a cyclical problem of "hit or miss" (in regards to samples/how you collect)
Definition
intervals
Term
variance affects
Definition
effieciency or sample size, it DOES NOT effect risk.
Term
we use internal auditors
Definition
for the work they already do and work they do for us
Term
what are acceptable methods to document the auditors understanding of internal controls
Definition
flowchart, narrative and ICQ.
Term
what does pps mean?
Definition
Probability Proportionate to size
Term
what events might give you propondence of evidence?
Definition
negative trends such as losses and CF, loan defaults, credit problems, restructuring of debt, work stoppages, legal proceedings.
Term
what is not a component of internal controls as defined by COSO
Definition
auditing
Term
A manipulation causing an amount of cash to be included simultaneously in the balance of two or more bank accounts
Definition
Kiting
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