Audit risk assessment Flashcards Preview

Advanced auditing > Audit risk assessment > Flashcards

Flashcards in Audit risk assessment Deck (17)
Loading flashcards...
1
Q

6 Financial Statement Assertions

A
  1. Existence or occurrence
  2. Valuation and allocation
  3. Accuracy
  4. Completeness
  5. Rights and obligations
  6. Presentation and disclosure
2
Q

Business risk

A

Significant conditions, events, circumstances and actions that could affect the entity’s ability to achieve its objectives

3
Q

3 categories of business risk

A
  1. Financial risk
  2. Operational risk
  3. Compliance risk
4
Q

4 business risk procedures

A
  1. Enquiries
  2. Analytical procedures
  3. Observation
  4. Inspection
5
Q

Importance of internal controls

A
  • Reliability of financial reporting
  • Operational effectiveness and efficiency
  • Compliance with laws and regulation
6
Q

Limitations of internal controls

A
  • Cost vs. benefit
  • Breakdowns
  • Mistakes in judgement
  • Changes in conditions
  • Non-routine transactions
7
Q

Management internal control responsibilities

A
  • Assets are safeguarded
  • Irregularities are prevented, detected and corrected
  • Financial records are accurate
  • Adherence to management policies
  • Operational efficiency is promoted
8
Q

Auditor internal control responsibilities

A
  • Obtain understanding of internal controls

- Determine nature, timing and extent of tests

9
Q

5 components of the internal control system

A
  1. Control environment
  2. Risk assessment
  3. Information systems and communication
  4. Control activities
  5. Monitoring
10
Q

Understanding internal controls

A
  • Identifying misstatements that may occur
  • Understanding factors that affect risk of material misstatement
  • Designing further audit procedures
  • Testing controls in computerized systems
11
Q

Procedures to obtain understanding of internal controls

A
  • Reviewing previous experience with entity
  • Inquiries of management and staff
  • Observation of documents
12
Q

3 ways to document internal control understanding

A
  1. Internal control questionnaire
  2. Flow chart
  3. Narrative memoranda
13
Q

Inherent risk

A

Possibility material misstatement will occur resulting from something other than internal controls

14
Q

Control risk

A

Risk that misstatements will not be detected by integral controls on a timely basis

15
Q

Detection risk

A

Risk that an auditor’s substantive procedures will not detect any material misstatements that exist in an assertion

16
Q

Audit risk model formula

A

Audit risk = IR x CR x DR

17
Q

Limitations of audit risk model formula

A
  • Assumes linear relationship of components

- Most auditors use non-quantified audit risk model