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Flashcards in Audit 11 Deck (20)
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An auditor assess control because it

Affects the level of Detection Risk that the auditor may accept


Fraud - when and to whom are you supposed to report if you come across it - at both low levels and at high management levels

- If it is at a low level and the amounts are inconsequential - it is sufficient to report it to a level of management above the one it occurred at. Would NOT require disclosure to senior management or the audit committee.

- - you are required to report all knowledge or suspicion of fraud to the client's senior management and its audit committee - but would not ordinarily report it to regulators, SEC, or other officials


What is meant by the term - GAAS

these are standards that provide a way of measuring the quality and adequacy of work being performed


During planning of an audit what are some of the things that an auditor will do

- make preliminary judgements about materiality


When do you get an engagement letter and when do you get written representations

Engagement letter - after you decide to take the audit engagement

Written rep - at the end of the engagement.


What are examples of items with inherent risk

- assets highly susceptible to theft

- complex or high volume transactions

- assets requiring significant estimates or judgement to determine their value


New innovation is introduced and therefore demand has declined only slightly - Risk? Why?

This is a relevant assertion level risk

- new tech may not be well understood and make warranty and liability estimates difficult


New federal regulations threaten industry profitability
- Risk? Why?

F/S level risk

- changes to conform to compliance requirements may not be done correctly


CEO and senior management are compensated on bonus tied to company net profits
- Risk? Why?

F/S level risk

- Pressure to meet bonus requirements might tempt them to misstate statements


CEO sets goal of 25% increase in sales.- Risk? Why?

F/S level risk

- unrealistic goals may motivate employees to report false reports


Prior firm it upset they lost audit - but there were no disagreements indicated
- Risk? Why?

No risk

No need to change your audit plan


Part of the facility seem to require some minor repair
- Risk? Why?

No unforeseen risk

- This is not an extraordinary neglect of physical assets. If it was - it might indicate a going concern issue

minor repair is not out of the ordinary


Several boats in inventory are much dustier than others

- Risk? Why?

ASSERTION level risk - inventory

- suggest possible obsolescence - the concern is limited to inventory valuation


Clerical employees are complaining about their rate of pay

- Risk? Why?

- No risk

- Don't need to change your audit plan - a little complaining is common
- unless there are picket lines or imminent strikes -

- If employees are committing fraud - they are more likely to be careful to appear innocuous


A payroll clerk was caught embezzling. - discovered by company and dealt with

- Risk? Why?

- A F/S level risk
- Known weaknesses in I/C suggest the unknown internal control weaknesses exist


CEO says that he is confident the payroll scheme was an isolated incidence.
- Risk? Why?

- F/S level risk

- This suggests that management is not very focused on internal controls causing concern about the tone at the top


First year co. operated at a profit B/C received increased fed and state funding .

- What affect on audit risk of any?

decreased audit risk


BoD, majority stake holder, and CEO = same person- What affect on audit risk of any?

Increased audit risk


Internal Audit reports to controller who reports to CEO

- What affect on audit risk of any?

Increased audit risk - should report directly to BoD


Acct dept. has experienced high rate of turnover of key personnel.- What affect on audit risk of any?

-Increased audit risk