Workshop 4 - Risk Assessment Flashcards Preview

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Flashcards in Workshop 4 - Risk Assessment Deck (17):
1

What are the main stages of an audit?

1. Risk assessment phase
2. Risk response phase
3. Reporting phase

2

What do efficiency and effectiveness relate to when conducting an audit?

Efficiency = amount of time spent gathering audit evidence
Effectiveness = minimisation of audit risk.

3

What factors will an auditor consider in the risk assessment phase?

Understanding the client
Identification of related parties.
Fraud risk.
Going concern risk
Corporate governance
Understanding of internal controls
Understanding of IT environment
Significant accounts
Significant classes of transactions
Closing procedures

4

What does the risk response phase involve?

Detailed testing of controls, transactions and account balances

5

What does the reporting phase involve?

Drawing conclusions based upon the evidence gathered and arriving at an opinion regarding the truth and fairness of the financial report.

6

You should look to gain an understanding of the client at....?

Entity level
Industry level
Economic level

7

What should be assessed at the entity level for the client?

How they conduct their business/operations - customers, suppliers etc.
How they fund their business - sources and international transactions.
Relationships and reputation.

8

What should be looked at the client's industry level?

Client's position with competitors and ability to withstand downturns in the economy.
Regulations faced by the client.
Clients reputation

9

What factors affect an audit client at an economic level?

Changes in the economy
Changes in the interest rate
Currency fluctuations

10

Define fraud risk.

Intentional act to obtain unjust or illegal advantage using deception.

11

What creates an attitude of professional scepticism?

Maintaining an independent questioning mind
Thoroughly searching corroborating evidence to validate information provided by the client.
Not relying on past experience with the client.

12

Key flags to fraud?

High employee turnover
Finance personal refusing to take leave
Complex business structure
Unusual transactions
Weak internal controls

13

Describe the two kinds of fraud.

Financial fraud - intentionally misstating items or omitting key facts from the financial report.
Misappropriation of assets - theft.

14

Who is responsible for detecting and preventing fraud?

Those charged with governance of the client.

15

What is the role of an audit with respect to fraud?

Assess the risk of fraud
Assess the effectiveness of the client's attempts to prevent and detect fraud via their internal controls.

16

Why might a person commit a fraud?

Incentives and pressure
Rationalisation
Opportunity

17

What risks do IT cause?

1. Unauthorised access to computers, software and data
2. Errors in programs; lack of backup
3. Loss of data