Chapter Five

Factors that affect inherent risk include the nature of the:

Client, Client's Environment, & Account

Common methods for auditors to determine related parties include:

Conflict-of-interest statements; Inquires of management; Reviewing SEC filings

The possibility of material misstatement of an assertion before consideration of the client's internal control is called (Blank) risk.

Inherent

Significant audit findings or issues that need to be documented include:

Issues related to accounting estimates; Selection of appropriate accounting principles; Accounting for complex and unusual transactions

In-Charge Partner

Review of entire set of working papers to determine audit was performed in accordance with GAAS and provide support for audit report

Horizontal Analysis:

Review of the client financial statement amount over time.

Manager:

Review of work done by staff and senior auditors near the end of the audit to make sure papers "tie together."

Test of Disclosure:

Test of property, plant, and equipment

Test of Class Transaction:

Tests of inventory purchases to determine if properly accounted for

As audit papers are prepared, auditors use several symbols or (Blank) (Blank) to identify specific steps in the work performed.

Tick Marks

True or False: Auditors are not required to use analytical procedures as substantive procedures to provide evidence about financial statement assertions.

True

Most effective audit procedures are performed by auditors at:

Year-end

For the audit risk model, auditors must restrict this risk through the performance of substantive procedures.

Detection

The objective analytical procedures (Blank) is to help the auditors identify items that indicate a heightened risk of material misstatement of the financial statements.

Performed at the risk assessment stage

Much of the information contained in the (Blank) file is gathered during the course of the first audit of a client's records.

Permanent

For related party transactions, auditors should be most concerned about obtaining evidence regarding:

Presentation and disclosure

Second Partner Review

Quality review to provide assurance that the CPA firm's in-house quality control policies have been complied with

In evaluating the appropriateness of audit evidence, auditors consider its:

Relevance and Reliability

Which of the following relates to the circumstances in which evidence is obtained?

Reliability

Comparing the price on an invoice to that on an approved price list is an example of the audit procedure of:

Reperformance

The type of audit procedures performed by auditors to obtain audit evidence include:

Substantive procedures; Risk assessment procedures; Tests of controls

To audit fair value estimates, auditors can use all of the following approaches:

Test management's process; Independently develop an estimate to compare to management; Hire a valuation specialist

Throughout the audit, auditors accumulate non-trivial misstatements identified and propose appropriate (Blank) journal entries.

Adjusting

Memoranda of the planning process and significant discussions with management are considered:

Administrative working papers

In performing audit procedures, auditors must make sure the procedures cover:

All material and relevant assertions

Evaluations of financial statement information by a study of relationships among financial and non-financial data is the basis of (Blank) procedures

Analytical

External confirmations are normally used to gather evidence for all of the following accounts EXCEPT:

Building

The audit risk model is a function of:

Control Risk, Detection Risk, and Inherent Risk.

The working papers that pertain solely to this year's audit are called the (Blank) files.

Current

Recalculations:

Are used to prove the accuracy of client calculations such as earnings per share; Include making certain that accounting records agree with the financial statements

The working papers for a particular engagement are included in the:

Audit file

The examination of big data to uncover hidden patterns, unknown correlations, market trends, and other useful business applications is called:

Data Analytics

Auditors gather evidence to restrict this risk to the appropriate level.

Detection

Audit evidence in paper or electronic form that is obtained through inspection of records is referred to as (Blank) evidence

Documentary

Auditing standards require auditors to perform analytical procedures:

During the risk assessment stage; Near the conclusion of the audut

Test of controls are designed to test the operating (Blank) of controls in preventing or detecting material misstatements.

Effectiveness

The reliability of customer sales and invoices created by the client and held internally depends on:

Effectiveness of internal control

Auditors are required to:

Ensure accounting estimates are properly accounted for and disclosed; Evaluate the reasonableness of accounting estimates

Factors that can influence the level of audit documentation detail include:

Extent of judgement involved; Nature of auditing procedures; Risk of misstatement

Management makes assertions for financial statements regarding all of the following except:

Fairness of the audit opinion

The audit risk model is AR=

IR x CR x DR

The record of the audit procedures performed, relevant audit evidence obtained, and the conclusions the auditors reach is called audit documentation or:

Working Papers

The backbone of the working papers is the (Blank), which is the key schedule that controls and summarizes all supporting papers.

Working trial balance

Cross Sectional:

Comparison with similar firms (ex. Industry) at a point in time.

Under the (Blank) assertion, all assets, liabilities, equity interests, and transactions that should have been recorded have been recorded.

Completeness

Inherent risk is generally highest for (Blank) transactions because they involve management judgements or assumptions.

Estimation

Confirmations are generally effective at providing evidence for the (Blank) assertion.

Existence

Separate summary or (Blank) (Blank) (also call group sheets) are set up to combine general ledger accounts.

Lead Schedules

The use of statistical models to quantify the auditors' expectation about a financial statement amount or ratio is called:

Regression Analysis

At the conclusion of the audit, the CPAs obtain a written (Blank) (Blank) from client officers that includes several specific items, such as the fact that all known liabilities are reflected in the financial statements.

Representation Letter

Senior:

Review the work performed by staff assistant to make sure audit procedures performed properly and conclusions are clearly expressed

Sufficient audit evidence is affected by:

Risk of misstatement and reliability of evidence

The nature of (Blank) transactions restricts inherent risk, although controls must be implemented to assure proper recording.

Routine

When developing expectations for analytical procedures:

Separate relationships may be computed for each division or product line; Dollar amounts, quantities, ratios, or percentages may be used; Prior year financial statements may be used

Detection risk is restricted through the performance of:

Substantive Procedures

Data analytics:

May assist in the assessment of risk of material misstatement; Results in a more detailed understanding of the client; May involve testing entire populations instead of samples

During an audit, client oral inquiries:

May be made of both officers and employees

More/ Less Evidence Needed

More: Greater the risk of misstatement, The lower quality of the evidence obtained Less: Lower the risk if misstatement, The higher quality of the evidence obtained

Auditing standards require that audit documentation provide evidence:

Of the auditor's basis for concluding on the achievement of the audit's overall objectives; That the audit was planned and performed in accordance with GAAS

The comparison of relationships between two or more financial statement accounts is called:

Ratio Analysis

An individual or company that has a certain expertise in a field of knowledge other than accounting and auditing is called a:

Specialist

Audit documentation should identify all of the following:

The dates audit work was performed; Auditors reviewed the work; Auditors who performed the work

Test of Account Balance:

Confirmation of accounts receivable balance

The risk that a material misstatement could occur in a relevant assertion and not be detected on a timely basis by the client's internal control is called (Blank) risk.

Control

True or False: Inspection of assets is the best way to determine ownership, valuation, and condition of the assets.

False

Audit evidence gathered from oral or written inquiries made by the auditor can include:

Written representations from company personnel; Written representations from outside parties; Oral representations from company personnel