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Chapter 3. Management Fraud and Audit Risk. stages of an audit. Obtain (or retain) engagement CH 2 Engagement planning SoFW #1 CH 3-4 Risk assessment (int cont) SoFW #2 CH 5 Substantive Procedures SoFW #3 reporting R S CH 12. Alyssia.
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Chapter 3 Management Fraud and Audit Risk
stages of an audit Obtain (or retain) engagement CH 2 Engagement planning SoFW #1 CH 3-4 Risk assessment (int cont) SoFW #2 CH 5 Substantive Procedures SoFW #3 reporting R S CH 12
Alyssia What is the definition of Audit Risk
Nick What is the definition of Control Risk
Jason G What is the definition of Detection Risk
Chris Mc What are the elements of the “Audit Risk Model”? What is the Audit Risk Model ?
Engagement planning the Audit Risk Model AR = IR * CR * DR page 82 in our class let IR = 1.00 AR = CR * DR
Engagement planning the Audit Risk Model let IR = HIGH AR = CR * DR Matrix on Page 84 We are only going to look at the diagonal
Engagement planning the Audit Risk Model Risk of Material Misstatement RMM = combines IR and CR
Tracy Describe the relationship between Control Risk and the required level of Detection Risk? The mathematical relationship
Darryn What are the two basic audit approaches?
Engagement planning the Audit Risk Model Diagonal of Matrix on Page 84 let IR = HIGH or 1.00 AR = IR* CR * DR We will focus on these as approaches
Engagement planning AR = IR* CR * DR Reduced level of Control Risk Primarily Substantive
Jason C Which Component(s) of Audit Risk is the auditor unable to reduce? Which Component(s) of Audit Risk can the auditor reduce?
Craig Describe a Significant Class of Transactions ? Describe a Transaction Cycle? page 95
Class of Transactions Accounts receivable xxx.xx Sales xxx.xx Revenue & Collection Cycle Accounts receivable xxx.xx Sales xxx.xx Cash xxx.xx Accounts receivable xxx.xx
David Under which Audit Approach are we required to Understand the Internal Controls?
Rachel Why are we required to obtain an understanding of the internal controls when we are taking the primarily substantive approach ?
planning phase we are required to obtain an understanding of the Internal Control Structure under both Audit Approaches The auditor must obtain a sufficient understanding of the entity, its environment, including its internal control, to assess the risk of materialmisstatement and to design the nature, timing, and extent of the audit procedures
Jesun Under which Audit Approach are we required to evaluate the design of the internal controls and assess the risk of material misstatement? remember RMM = IR*CR
stages of an audit Obtain (or retain) engagement CH 2 Engagement planning SoFW #1 CH 3-4 Risk assessment (int cont) SoFW #2 CH 5 Substantive Procdures SoFW #3 reporting R S CH 12
Patrick Under which Audit Approach are we required to TEST the effectiveness of the Internal Controls?
Rob F Under which audit approach are we required to obtain sufficient appropriate evidence?
we are required to obtain sufficient appropriate evidence under both audit approaches The auditor must obtain sufficient appropriate audit evidence through audit procedures to afford a reasonable basis for an opinion
Kathleen If CR = Low, what does that tell us about the allowable level of DR …. ? If CR = High, what does that tell us about the required level of DR …. ?
Randy If we assess CR = Low, will we need to TEST the effectiveness of the Internal Controls?
Sunny If we want to assess Control Risk as Low, what will the evidence provided by our audit procedures need to demonstrate?
Lisa If we assess CR = Max, will we need to TEST the effectiveness of the Internal Controls?
Tony If the allowable level of DR = High, what does that tell us about Control Risk …. ? If the required level of DR = Low, what does that tell us about Control Risk …. ?
Song If the required level of DR = Low, will we need to perform extensive Substantive Tests?
Kyle If we plan the audit to result in Low Detection Risk, what will the evidence provided by our audit procedures need to demonstrate?
Sarah If the required level of DR = MAX, will we need to perform extensive Substantive Tests?
Cesar In your statistics class, why does a larger sample increase your level of confidence? How does evidence reduce risk?
Ben What is the definition of Materiality
Keith Given the definition of Audit Risk what is the relationship between materiality and Audit Risk?