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Auditing
systematic process of objectively obtaining and evaluating evidence regarding assertions
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Attestation
when a practicenter is engaged to issue a report on subject matter or an assetion that is the responsibility of another party
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Assurance
independnet professional services that improve the quality of information
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Audit risk
risk that the auditor may unknowingly fail to approprialy modify their opionion on statments that are materially misstated
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Risk of material misstatement
combination of inherent risk and control risk
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Detection risk
risk that the auditor will not detect a material misstatement. inversly related to RMM
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Audit risk model
AR = RMM * DR or AR = (IR * CR) * DR
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Conditions for fraud
incentive/pressure, opportunity, attitude/rationalization
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Planning materiality
Level of materiallity for the financial statements taken as a whole. The maximum amount by which the statements could be misstated and still not affect the decisions of users.
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Tolerable misstatement
The amount of planning materiality that is allocated to an account or class of transactions
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Audit phases
client acceptance/establish understanding, preliminary activities, plan, audit internal controls, audit business processes, complete the audit, evaluate results and issuer report.
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Process categories
revenue, purchaseing, human resource management, inventory management, financing
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Classes of transactions for the peirod assertions
occurrenc, completeness, authorization, accuracy, cutoff, classification
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Account balances at the end of the year assertions
existence, right & obligations, completeness, valuation & allocation
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Presentation and disclosure assertions
occurrence and rights & obligations, completeness, classification & understandability, accuracy & valuation
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General standards
adequate training & proficiency, maintain independence, due professional care
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Field work standards
adequately plan & supervise, obtain sufficient understanding of the the entity & its environment, obtain sufficient appropriate evidence
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Reporting standards
state in report whether the F/S are in accordance with GAAP, identify inconsistencies, state whether disclosures are adequate, express an opinion
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Vouching
Results to source, occurrence
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Tracing
Source to results, completeness
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Audit testing hierarchy
risk assessment, test of controls, substantive analytical procedures, test of details
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Internal control framework
control environment, entity's risk assessment process, information system, control activities, monitoring
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Top-down approach
identify entity-level controls, identify significant accounts & disclosures, understand the likely sources of misstatements, select controls to test
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Type 1 error
risk of incorrect rejection, risk of under reliance, risk of assessing control risk too high, efficiency
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Type 2 error
risk of incorrect acceptance, risk of overreliance, risk of assessing control risk too low, effectiveness
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Computed upper deviation rate
sample deviation + allowance for sampling risk
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Sample deviation rate
number of deviations / sample size
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Planned allowance for sampling risk
tolerable deviation - expected deviation
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Achieved allowance for sampling risk
upper deviation rate - actual deviation rate
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