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Flashcards in Extra Deck (22):
1

Inherent risk and control risk are the ____

client's risks.

2

Audit Risk Model

Audit Risk = Control Risk x Inherit Risk x Detection Risk

3

The audit strategy chosen depends on the auditor's _________

preliminary inherent and control risk assessment (that is, the auditor's overall assessment of the risk of material misstatement).

4

By assessing control risk as high, an auditor will adopt a predominantly _______

substantive audit strategy.

5

When assessing control risk as low, an auditor will generally plan to perform a _________

combined audit strategy where the auditor obtains a detailed understanding of the client's system of internal controls and plans to rely on that system to identify, prevent, and detect material misstatements.

6

Combined audit strategy

strategy used when the auditor obtains a detailed understanding of their client's system of internal controls and plans to rely on that system to identify, prevent, and detect material misstatements

7

Substantive audit strategy

strategy used when the auditor does not plan to rely on the client's controls and increases the reliance on detailed substantive procedures that involve intensive testing of year-end account balances and transactions from throughout the year

8

Substantive audit strategy Steps

Understand IC
Assess CR as High
Substantive Testing

9

Combined audit strategy

Understand IC
Assess CR as Low
Test Controls
Substantive Testing

10

Inherent risk

the susceptibility of the financial statements to a material misstatement without considering internal controls

11

Audit risk

the risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated

12

Control risk

the risk that a client's system of internal controls will not prevent or detect a material misstatement

13

Detection risk

the risk that the auditor's testing procedures will not be effective in detecting a material misstatement

14

Audit Assertions (CAVE)

Completness
Accuracy and Cut-off
Valuation
Existence

15

Evidence Types

Confirmations
Documentary
Representations
Verbal
Computational
Physical
Electronic

16

Gathering Procedures
Documentary

Inspection

Internally Generated
External Held by Client

17

Gathering Procedures
Verbal

Enquiry

18

Gathering Procedures
Computational

Recalculate / re-perform / Analytical Procedures

19

Gathering Procedures
Physical

Observation / Inspection

20

Gathering Procedures
Eletronic

Observation / Inspection

21

Evidence is the information used to decide

Free of material misstatement
Fair presentation

22

Types of Audit evidence

Sufficient appropriate audit evidence
External confirmations
Documentary evidence
Representations
Verbal evidence
Computational evidence
Physical evidence
Electronic evidence