Audit Terms
What do Auditors need to have?
1. Professional Judgement
2. Professional Skepticism
3. Due Care
What does an auditor give a company's management to recommend improvements on internal controls?
Management letter
What is the audit risk formula?
AR = IR * CR * DR
For vertical analysis, what are the base values for the income statement and balance sheet?
Income Statement: Sales
Balance Sheet: Total Assets
If revenues are overstated, what assertion has not be followed?
Occurrence
What is going concern?
Company will operate into the future.
Assets will be used an depreciate
Liabilities will be paid
What are the two types of controls?
1. Detection
3. Prevention
If inherent risk and control risk are high then detection risk is?
An auditor determines that a company does not have the current assets to pay of its current liabilities. What risk does this entail?
Going concern risk
What type of evidence is the least reliable?
Bonus Points: Be specific!
Internally generated
Verbal evidence from the client
What are the types of Audit opinions?
1. Unqualified (Clean)
2. Qualified
3. Adverse
1. Unmodified
2. Modified
Name the techniques for testing controls
1. Inquiry
2. Observation
3. Inspection
4. Re-performance
5. Re-Calculation
If inherent risk is high and control risk is low, what kind of testing will be done?
Minimal substantive testing and major control testing
What ratio is used to calculate who owns more of a company? What is the equation?
Debt-to-equity
Total Liabilities / Total Equity
Who sends a legal lletter?
The client
What are the 4 (technically 5) types of audits?
1. F/S Audit
2. Compliance Audit
3. Performance Audit
4. Comprehensive Audit
5. Internal Audit
What objective and assertion is an internal control meeting when they make sure that entrees are recorded in the correct time period?
Timely & Completeness (Cut-Off)
Materiality is based on what 2 factors?
Quantitative and Qualitative
If a company overstates Sales, what accounts might also be overstated?
A/R or Cash
Cost of Goods Sold
What are the 2 types of forms and auditor can sent to a third party for confirmations?
Negative form: reply ONLY if
information is incorrect
Positive form: reply in all
circumstances
What are the phases of an audit?
1. Risk assessment
2. Risk response
3. Reporting results
Name the main control activities (What I have is based of the slides)
1. Authorization controls
2. Account reconciliations
3. Physical Controls
4. Segregation of incompatible duties
5. HR
You are the auditor of Global Enterprises Ltd., a large multinational public company that operates in multiple sectors, including technology, energy, and finance. The company has numerous stakeholders, including institutional investors, regulatory bodies across different countries, and creditors. Global Enterprises is involved in highly sophisticated transactions, including international contracts, mergers, and acquisitions. It employs a wide range of accounting policies and has an extensive internal control framework to manage the complexity and volume of transactions. While there has been no history of fraud, the company has a rigorous system of internal controls in place, backed by regular internal audits and compliance checks to ensure transparency and regulatory adherence.
AR = 5%
IR = 70% - 90%
CR = 20% - 35%
DR = 16% - 36%
What types of ratios would a bank want an auditor to calculate?
1. Current
2. Quick
3. Debt-to-equity
4. Times interest earned
John is a accounting manager at Rose Garden Co. and year end is approaching. The company isn't looking good so he decides to mess with the F/S. He records sales that aren't going to leave the office till next fiscal year, enters some expense as assets, understates revenues, and decides not to disclose related party transactions. What assertions have been violated?
Next fiscal year sales - Cut-off
Expenses as assets - Classification
Understating revenues - Completeness
Related Parties - Presentation