Audit A3

Question 1

what does risk assessment procedures allow the aduitor to do?

Answer 1

identify and asses the risk of material misstatement
make informed judgements about other audit matters

Question 2

why does the auditor perform risk assessment procedures?

Answer 2

to obtain an understanding of the entity and its environment, applicable financial reporting framework, and the system of internal control

Question 3

what do risk assessment procedures used by an auditor include?

Answer 3

inquires of mangement and other within the organization
analytical procedures that study relationships between financial and non financial data (including audit data analytics)
reviewing internal and external information obtained during the audit

Question 4

Can the risk assessment change and evolve as the audit progresses?

Answer 4

yes, it is an ongoing process

Question 5

what does the auditor need to obtain an understanding of in the risk assessment?

Answer 5

nature of the entity
entitys objectives, strategies, and business risks
slection and applicaiton of accounting policies
financial performance
the group, its compenents, and their environments when applicable
impact of inherent risks
IT environment
relevant external factors***

Question 6

what are relevant external factors that an auditor should obtain an understanding of in the risk assessment

Answer 6

industry, regulations, government policy, financial reporting, framework, technology, supply chain, other economic factors

Question 7

how might an auditor address FS level risks?

Answer 7

increased emphasis on maintianing prof skeptisism
assingning more experienced or specialised staff and changing th NET of audit procedures

Question 8

what are the two approaches an auditor may use for identified risks at the relevant assertion level?

Answer 8

substantive approach
combined approach

Question 9

what is the substantive approach

Answer 9

only substantive procedures will be performed (controls are nonexistent or ineffetive, or it would be inefficient to test them

Question 10

when might test of controls be required?

Answer 10

there is extensive use of technology, even if a substantive approach would otherwise be utilized

Question 11

what is a combined approach

Answer 11

test of controls are performed in hope that effective controls will allow a reduction in subtantive testing

Question 12

if controls are effective, are subtantive test required?

Answer 12

substantive tests are always required for each relevant assertion of each significant transaction class, acct bal, or disclousure item

Question 13

what are dual-purpose tests?

Answer 13

used to test control concurrently with test of details on the same transaction

Question 14

when are test of controls performed

Answer 14

when the auditors risk assessment is based on the assumption that controls are operating effectively or when substantive procedures alone are insuffienct

Question 15

what procedures are used to test operating effectiveness of controls?

Answer 15

inquiry (this alone is insufficient)
inspection
observation (relates only to a specific point in time)
reperformance

Question 16

if the test of controls indicates that controls are not opperating effectively, what should the auditor do

Answer 16

test alternative controls or
reassess control risk and perform more reliable and extensive substantive procedures

Question 17

if control deficiences are identified in the design or operation of controls, what should the auditor do?

Answer 17

consider compensating controls
determine if there is significant dificiency or material weakness
consider the magnitude and possibility of potential misstatements that could occur
design substative tests related to the deficiency to provide evidence that the FS are free from material misstatement in that audit area

Question 18

what are the two typse of substantive procedures?

Answer 18

test of details and substantive analytical procedures

Question 19

who is in charge of ensureing operations are conducted in accordance with applicable lawas and regs

Answer 19

mgmt and governance

Question 20

if an instance of noncompliance has a material effect on the entitys FS, what opinon should auditor issue

Answer 20

qualified or adversee

Question 21

if the auditor is unable to obtain sufficient appropriate evidence regarding actual or suspected noncomplicance, what opinon should be issued

Answer 21

qualified or disclaimer

Question 22

most reliable audit evidence to least reliable

Answer 22

auditors direct personal knowledge
external evidence
internal evidence
oral evidence

Question 23

What do test of details consist of

Answer 23

audit procedures applied to:
ending balances
details of transactions
OR combination of the two

Question 24

analytical procedures involve ?

Answer 24

studying reasonable relationships amoung data and usually involve comparison of recorded amts to auditor expectations

Question 25

when are analytical procedures required

Answer 25

planning and overall review optioinal with respect ot substative procedures

Question 26

why are analytical procedures peformed during the review stage of the audit

Answer 26

to evaluate the overall financial statement presentation and to assess conclusions reached

Question 27

who should perform the review

Answer 27

manager or partner with comprehensive knowledge of the entitys business and industry

Question 28

if an auditor starts from original source documents and traces forward to accounting records, what assertion are they testing and what does it help them identify

Answer 28

completeness and understatement errors

Question 29

if an auditor starts from accounting records and vouches backwards to original source documents, what assertion are they testing and what does it help them identify

Answer 29

existence and overstatement errors

Question 30

what is the risk of incorrect acceptance

Answer 30

the sample indicates that the balance is fairly stated when it is not the audtor will not modify their opinon when they should have EFFECTIVENESS problem

Question 31

what is the risk of incorrect rejection

Answer 31

the sample indicates that the balance is not fairly stated when it actually is fairly stated the auditor modifies their opinion when they shouldnt have EFFICIENCY problem - auditor does more work than needed

Question 32

when is an auditor concerned with risk of incorrect acceptence or rejection?

Answer 32

when performing substantive test of details

Question 33

when is an auditor concerned with risk of assessing control risk too low or too high

Answer 33

when performing test of controls

Question 34

what is the risk of assessing control risk too low

Answer 34

the sample indicates that control risk is working when it is actually not working the auditor relys on the control when they shouldnt EFFECTIVENESS problem

Question 35

what is the risk of assessing control risk too high

Answer 35

the sample indicates that the control is not working when it actually is the auditor extends audit work when they shouldnt need to EFFICIENCY problem- auditor does more work than needed

Question 36

what is deviation rate

Answer 36

error rate in the sample

Question 37

what is tolerable deviation rate

Answer 37

max rate the auditor can accept

Question 38

expected deviation rate

Answer 38

auditors estimated error rate (before sampling)

Question 39

upper deviation rate

Answer 39

high end of range for auditors estimate of error rate (based on results from testing the sample)

Question 40

allowance for sample risk

Answer 40

adjusts sample rate to get to upper deviation rate

Question 41

upper deviation rate formula

Answer 41

sample deviation rate + allowance for sampling risk= upper deviation rate

Question 42

what relationship does risk of assessing control risk too low have on the sample size?

Answer 42

inverse relationship

Question 43

what relationship does the tolerable deviation rate have on the sample size

Answer 43

inverse relationship

Question 44

what relationship does the expected deviation rate have on the sample size

Answer 44

direct relationship

Question 45

upper deviation rate <= tolerable deviation rate

Answer 45

rely on control

Question 46

upper deviation rate > tolerable deviation rate

Answer 46

dont rely on control

Question 47

the auditors conclusion on the control will determine what?

Answer 47

the NET of substantive procedures to be perfomed

Question 48

when may discovery sampling and stop or go sampling methods be used/

Answer 48

types of attribute sampling methods that may be used when few or no deviations are expected

Question 49

tolerable misstatement

Answer 49

max monetary misstatement in an acct balance or class of transactions that an auditor is willing to accept

Question 50

expected misstatement

Answer 50

auditors estimate of misstatement (before sampling)

Question 51

projected misstatements

Answer 51

auditors estimated misstatement, based on the sample size

Question 52

what is the relationship expected misstatement has with sample size

Answer 52

direct relationship

Question 53

what is the relationship population variablility ( standard deviation) has with sample size

Answer 53

direct

Question 54

what is the relationship of assessed level of risk wiht sample size

Answer 54

direct

Question 55

what relationship does tolerable misstatement have with sample size

Answer 55

inverse

Question 56

what relationship does acceptable level of risk has with sample size

Answer 56

inverse

Question 57

what is the auditors conclusion about the balance based on?

Answer 57

whether the recorded book value falls wihtin the range defined by the point estimate, plus or mins an allowance for sampling risk

Question 58

what is pps sampling

Answer 58

hybrid method that uses attribute sampling theory to express a conclusion in dollar amounts rather than as rate of occurencde

Question 59

what are audit data analytics?

Answer 59

data analytic techniques that enable auditors to analyze and review both financial and non financial data to discover patterns, relationships, and anomalies during an audit