Flashcards
Audit 2 Midterm prep
Cards in this deck (31)
- 1What does "auditable" mean for statistic sampling test?A Confidence interval that is less than or equal to materiality in size
- 2How do we find confidence level?AR=IRxCRxDR,
CL=1-DR - 3What is planned audit risk?AR
- 4When there is an error found, how do you evaluate sample results?Use # of errors to determine R value, use n from previous sample planning stage, and solve for p. If p<=materiality, accept.
If not, reject - 5Define Auditability of informationThere is sufficient appropriate evidence for a high assurance, well calibrated Reasonable Range, and either
1) RR less than or equal MM
2) appropriate note disclosure equivalent to high assurance well calibrated RR - 6Differentiate between compliance and fair presentation reporting frameworkCompliance Reporting: requires adherence with reporting requirements
Fair Presentation reporting: allows
-departing from reporting requirements or
-disclosing beyond reporting requirements
*IF doing so meets needs of users - 7What does it mean when there is an anomaly in the sample?We dont use that error to project on the rest of the population- exclude in deviation rate
*remember to exclude it from sample size too! - 8Characterize the null hypothesis for negative approach to hypothesis testingThere exists a material misstatement in the total amount recorded for the
accounting population (e.g., accounts receivable file). - 9Characterize the null hypothesis for positive approach to hypothesis testingThere exists no misstatement in the amount recorded for the accounting
population. - 10Tainting formula(BV-AV)/BV
- 11What is IPInductive Probability: Probability that conclusion is true, given the premises are true
*but says nothing of actual conclusion itself - 12What is EPEpistemic Probability:
The probability that a statement is true - 13EP Conclusion FormulaEP of Conclusion=IP of argument x EP of premise1 x EP of premise 2
- 14Define principles based reasoning// top down reasoningUsing higher level principles to achieve the objectives of the standards, whenever conflicts arise between two circumstances
- 15Examples of principle based reasoning/ top down reasoning1. ASPE conceptual framework
2. Ontario Rules of Professional Conduct - 165 Major changes in New Audit Report1. opinion is at beginning not end
2. Key matters paragraph includes all problems encountered in audit
3. More details on auditor responsibilities, esp. going concern assessment
4. Corp governance and mgmt responsibilities, especially regarding effective internal control and going concern decisions
5. Engagement partner takes personal responsibility w sig - 17Name the 5 major New Audit Report headings1. Opinion
2. Basis for opinion
3. Key Audit Matters
4. Responsibilities of mgmt and those charged with governance
5. Partner takes responsibility - 18Essential difference bw combined approach audit planning strategy and substantive approach?Substantive Approach: more reliance on YE procedures related to BS accounts
Combined approach: more reliance on business, transactions and test of controls during year
Both must assess RMM=IRxCR - 19What is the fundamental objective of CPA? Which is most basic of 5 principles under CPA rules of profes conduct?To serve the public interest
Professional Behaviour in order to do so.
Most fundamental characteristic of auditor is independence so to meet objective of serving public interest in assurance engagements - 20Attest vs Direct reporting engagementsAttest engagements: assertions normally in written form: ie F/S or legislation
Direct Reporting Engagements: assertions implied, no statement assurer can refer to
*backwards, direct is not direct - 21Four criteria for assurance engagement1. 3rd party accountability: to whom is report addressed? is asserter making an assertion?
2. Assertion written or implied?
3. suitable criteria mentioned? ie GAAP
4. what is level of assurance? high or medium *look for words - 22What is the level of assurance expressed in words for -high -mediumhigh: reasonable, opinion, exam
medium: based on my review, nothing has come to my attention, plausible... - 23What is the confidence interval?The distance between 0-->achieved p
aka the reasonable range - 24Why is the confidence interval a good reasonable range?Because it provides high assurance on the range of possible error rates
- 25In MUS, how can the auditor control effectiveness risk?Control effectiveness risk by controlling the Confidence Level
- 26In MUS, how can the auditor control efficiency risk?The auditor can control computing minimal number of samples (n) @k=0, and choosing one larger than minimum
- 27In the MUS model, which variable represent materiality? which variable represents assurance?n=R/p
p represents materiality, wherein when p inc, n dec
assurance is represented by the confidence level, within R - 28Define sufficiency and appropriatenessSufficiency: enough evidence drawn from minimum sample size, or higher for required confidence and materiality
Appropriateness: relevance and reliability, assertions determine which evidence is relevant - 29How does exceeding materiality levels affect audit opinion modifications?performance materiality: except for opinion modification
overall materiality: averse opinion - 30What is a direct reporting engagement?implicit assertions
not explicitly stated by accountable party
ie internal control reports - 31—
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- Audit 2 Flashcards on Audit 2 Midterm prep, created by A H on 06/02/2018.
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