1. Design deficiency
    if a necessary control is missing or not properly designed
  2. Business Risk
    • the risk that the client will fail to achieve its objectives
    • related to:
    • (1) relability of financial reporting
    • (2) effectiveness and efficiency of operation and
    • (3) compliance with laws and regulations
  3. Preliminary judgment about materiality
    the maximum amount by which the auditor believes the statements could be misstated and still not affect the decisions of reasonable users
  4. Inherent risk
    a measure of the auditor's assessment of the likelihood that there are material misstatements in an account balance before considering the effectiveness of internal control
  5. planned detection risk
    the risk that audit evidence for a segment will fail to detect misstatements exceeding tolerable misstatement
  6. Audit assurance (also called overall assurance or level of assurance)
    a complement to acceptable audit risk; an acceptable audit risk of 2 percent is the same as audit assurance of 98 percent
  7. Acceptable audit risk
    a measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued  --  what I'm willing to accept that there is a chance may be misstated
  8. Tolerable misstatement
    the materiality allocated to any given account balance; used in audit planning
  9. Control risk
    measures the audito'r assessment of the likelihood that misstatements exceeding a tolerable amount in a segment will be prevented or detected on a timely basis by the client's internal controls
  10. Materiality
    • FASB Concept Statement 2 -
    • the magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgement of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement
  11. Reperform
    auditor's independent test of client accounting procedures or controls that were originally done as part of the entity's accounting and internal control system
  12. 1. Classes of transactions and events for the period under audit
    2. Account balances at period end
    3. Presenttion and disclosure
    Three categories of assertions
  13. 1. Set preliminary judgment about materiality
    2. Allocate preliminary judgment about materiality to segments
    3. Estimate total misstatement in segment
    4. Estimate the combined misstatement
    5. Compare combined estimate with preliminary or revised judgment about materiality
    Steps in applying materiality
  14. 1. Control environment
    2. Risk assessement
    3. Control activities
    4. Information and communication
    5. Monitoring
    Components of control environment
Card Set