Starting Over Flashcards
What are analytical procedures and when are they performed?
Analytical procedures are one of the financial audit processes that help the auditor assess risk. It includes a comparison of financial info and non-financial operating data. It is REQUIRED during the planning and final review phase. OPTIONAL during substantive testing.
Data used aggregated at a high level. i.e. PY account balances or qrtly F/S.
Before applying substantive analytical procedures at an interim date before year end, what should be considered?
Whether the amounts of the yr end bal are reasonably predictable.
What is the audit plan and what should be documented in it?
The audit plan provides details on how the Overall Engagement Strategy will be executed.
Auditor should document NATURE, TIMING & EXTENT. As well as OTHER PROCEDURES needed, such as hiring a specialist and the details included with that.
If an auditor plans to set control risk low, what do they need to do?
Test of control on the design and operating effectiveness of the control.
Material theft of company assets are considered.
Misappropriation of assets
Price Elasticity of Demand
If the quantity demanded changes significantly with a small change in price., the demand is said to be
elastic. If it changes little, the demand is inelastic.
Elastic- % change in demand>% change in price- Rev declines if price increases
Inelastic- % change in demand<% change in price- Rev increases if price increases
Income Elasticity of Demand
Measures how the
quantity demanded changes as consumer income
changes. This can indicate whether a good is a
necessity or a luxury
Cross-Price Elasticity of Demand
Measures the
responsiveness of the quantity demanded for a good to
a change in the price of another good. This can indicate
whether goods are substitutes or complements.
Price Elasticity of Supply
Measures the
responsiveness of quantity supplied to a change in
price.
Profit Maximization
The process by which a firm
determines the price and output level that returns the
greatest profit.
A firm maximizes profit by producing up to the point where
Marginal Cost (MC) equals Marginal Revenue (MR).
If MR is greater than MC, the firm can increase profit by increasing
output.
If MR is less than MC, the firm can increase profit by
reducing output.
Marginal Revenue/Cost
he additional revenue that
will be generated by increasing product sales by one
unit and the additional cost of producing one more unit of a product.
Business Cycles
Up and down of the GDP- Gross Domestic Product (total value added in an economy).
refers to the expansion and contraction of economic activity over time.
Prime interest rate
rate that commercial banks charge their most creditworthy borrowers.
What are the types of unemployment and what are they due to?
Cyclical- Due to flux in the business cycle (recession vs expansion)
Frictional- Due to workers in between jobs or just entering the workforce
Seasonal- Sue to changes of season (ex/ snowplowing only needed in winter)
Structural- Due to changes in tech and required skill sets
What is an expansionary monetary policy and what would limit it’s impact?
When central banks attempt to influence the direction of the economy by creating excess bank reserves with the intent of expanding the money supply.
To do so the fed reserve would:
1. reduce the discount rate
2. decrease reserve requirements
3. purchase federal securities
This can be undermined if the banks decide not to make more loans with all this new money, due to it not being a beneficial time for interest during a tough market period, or if consumers decide to save more.
