Audit

random audit shit

inherent risk

the susceptibility of an assertion about a number to a material misstatement before controls are considered

control risk

the risk that a client’s internal controls don’t catch material misstatements

low

when we are relying on the controls what is control risk set at

high

when we are not relying on the controls what is control risk set at

risk of controls failing

what is control risk

detection risk

the risk that the auditor will not detect a material misstatement that exists in an assertion

detection risk

what risk is a function of the effectiveness of audit procedures and how they are applied

low

more assurance is required from substantive testing when we have what level of detection risk

high

less assurance is required from substantive testing when we have what level of detection risk

inverse

what type of relationship exists between audit risk and materiality

risk of incorrect acceptance & risk of incorrect rejection

what are the two sampling risks in substantive testing

risk of incorrect acceptance

risk that the sample supports the conclusion that the recorded balance is not materially misstated when, in fact, it is

risk of incorrect rejection

risk that the sample supports the conclusion that the recorded account balance is materially misstated when, in fact, it is not

risk of assessing control risk too low

risk that the assessed level of control risk based on the sample is less than the true risk

risk of assessing control risk too high

risk that the assessed level of control risk based on the sample is greater than the true risk

misstatement at a lower rate

deviation from pertinent controls at a given rate ordinarily result in

too high and incorrect rejection

what sampling risks relate to an inefficient audit

too low and incorrect acceptance

what sampling risks relate to an ineffective auditin

internal controls

what does attribute sampling relate to

inverse relationship

with attribute sampling: what kind of relationship does the risk of assessing control risk too low have with sample size

inverse relationship

with attribute sampling: what kind of relationship does tolerable deviation rate have with sample size

direct relationship

with attribute sampling: what kind of relationship does the expected deviation rate have with the sample size

analytical

comparing is what type of procedure

mean-per-unit estimation

uses the average value of the items in the sample to estimate the true population value

ratio estimation

uses the ratio of the audited values of items to their book value to project the true population value

difference estimation

uses the average difference between the audited values of items and their book value to project the actual population value

expected misstatement, standard deviation, assessed level of risk, tolerable misstatement, acceptable level of risk

what five things help to determine sample size with variable sampling

risk of assessing control risk too low, tolerable deviation rate, expected deviation rate

what three things help to determine sample size with attribute sampling

substantive testing

what does variable sampling relate to

direct relationship

with variable sampling: what kind of relationship does the expected misstatement have with the sample size

direct relationship

with variable sampling; what kind of relationship does the standard deviation have with the sample size

direct relationship

with variable sampling: what kind of relationship does the assessed level of risk have with the sample size

inverse relationship

with variable sampling: what type of relationship does the tolerable misstatement have with the sample size

inverse relationship

with variable sampling: what type of relationship does the acceptable level of risk have with sample size

tolerable misstatement / reliability factor

what is the formula for the PPS sampling interval

divide the total number of dollars in the population into uniform groups of $ or intervals

what do you need to do first with PPS sampling

expansionary → peak → contractionary → trough → recovery

what is the order of business cycles

expansionary period

rising profits, strong growth, rising demand, rising prices, low unemployment

peak

profits are highest, firms face capacity constraints

contractionary phase

falling economic activity, slowing growth, reduced demand, declining profits, high unemployment

trough

low point of economic activity, lowest profits, excess capacity, firms losing money