A2 Flashcards
The internal control framework includes:
Control Environment
Risk Assessment
Information and Communication
Monitoring activities
Existing control activities
Components of the Control Environment “EBOCA”
Commitment to Ethical value
Board independence
Organizational structure
Commitment to competence
Accountability
Components of Risk Assessment “SAFR”
Specify objectives
Identify and Analyze risks
Consider the potential for fraud
Identify and assess changes
Components of Information and Communication “OIE”
Obtain and use information
Internally communicate information
Communicate with External parties
Objectives of an entity include:
Reliable financial reporting
the effectiveness and efficiency of operations
Compliances with laws and regulations
What is an audit plan?
A listing of audit procedures necessary to accomplish the objectives of the audit: required for every audit
What is an audit strategy?
an overall plan for the audit; typically used to develop a more detailed audit plan
What is a specialist?
A person or firm with special skills in a field other than accounting or auditing.
What must an auditor do in order to rely on the work of internal auditing and specialist?
Make a positive assessment of their objectivity and competence
Overall Materiality Equation
applicable benchmark x applicable percentage
Performance materiality equation
overall materiality x applicable percentage
What is detection risk?
the risk than an auditor will not detect a material misstatement that exist in a relevant assertion
what is inherent risk?
the susceptibility of relevant assertion to a material misstatement, assuming that there are no related controls
There is an inverse relationship between:
risk of material misstatement and detection risk
There is a direct relationship between:
risk of material misstatement and assurance from substantive testing
