ACC 406 Exam 2 with verified detailed answers ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Tolerable Difference - correct answer✔✔1. How much evidence do we want? ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
-> More evidence = less tolerable difference
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
2. Can be expressed in money or percentages
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Preliminary Analytical Procedures - correct answer✔✔Used to assist the auditor to better ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
understand the business and to plan the nature, timing, and extent of audit procedures ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Substantive Analytical Procedures - correct answer✔✔Used to obtain evidential matter ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
about particular assertions related to account balances or classes of transactions
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Final Analytical Procedures - correct answer✔✔Used as an overall review of the financial
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
information in the final review stage of the audit ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Limitations of an Entity's Internal Control - correct answer✔✔1. Override of Internal ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Control by Management ||\\//|| ||\\//||
2. Human Errors or Mistakes
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3. Collusion
||\\//||
-> Is it really incompatible, even if it violates the ARC framework?
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Using the Conceptual Tools to Audit a Cycle - correct answer✔✔Phase 3
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
1. Formalize acceptable audit risk, establish materiality, determine tolerable misstatement
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
-> Perform planning analytical procedures and assess IR (by account/assertion)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
-> Assess preliminary IR (by acct./assert.)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
-> Identify key controls (by acct./assert.)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
, Phase 4 ||\\//||
1. Test controls where control risk is set at less than 100% (i.e., other than High) using
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
ROID
-> With results, reassess CR (by acct./assert.)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Phase 5 ||\\//||
1. If using the reliance strategy, reevaluate the nature, timing, and extent of substantive tests
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
-> Sample and perform substantive tests (SAP, TD) using MIRADCOPS
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
What are some entity-level controls? - correct answer✔✔1. Pervasive controls
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2. Control environment
||\\//|| ||\\//||
-> Tone at the top, policies and procedures, codes of conduct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
3. The company's risk assessment process
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
4. Centralized process controls
||\\//|| ||\\//|| ||\\//||
-> e.g., IT general controls
||\\//|| ||\\//|| ||\\//|| ||\\//||
5. Monitoring
||\\//||
-> e.g., Internal audit or audit committee
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
6. Period end reporting
||\\//|| ||\\//|| ||\\//||
-> e.g., Policies, reconciliations, top-side journal entries
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Deficiencies - correct answer✔✔What's the difference between design and operating ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
deficiencies?
1. Design and Implementation
||\\//|| ||\\//|| ||\\//||
-> A control necessary to meet the control objective is missing
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
-> An existing control is not properly designed
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Tolerable Difference - correct answer✔✔1. How much evidence do we want? ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
-> More evidence = less tolerable difference
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
2. Can be expressed in money or percentages
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Preliminary Analytical Procedures - correct answer✔✔Used to assist the auditor to better ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
understand the business and to plan the nature, timing, and extent of audit procedures ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Substantive Analytical Procedures - correct answer✔✔Used to obtain evidential matter ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
about particular assertions related to account balances or classes of transactions
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Final Analytical Procedures - correct answer✔✔Used as an overall review of the financial
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
information in the final review stage of the audit ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Limitations of an Entity's Internal Control - correct answer✔✔1. Override of Internal ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Control by Management ||\\//|| ||\\//||
2. Human Errors or Mistakes
||\\//|| ||\\//|| ||\\//|| ||\\//||
3. Collusion
||\\//||
-> Is it really incompatible, even if it violates the ARC framework?
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Using the Conceptual Tools to Audit a Cycle - correct answer✔✔Phase 3
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
1. Formalize acceptable audit risk, establish materiality, determine tolerable misstatement
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
-> Perform planning analytical procedures and assess IR (by account/assertion)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
-> Assess preliminary IR (by acct./assert.)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
-> Identify key controls (by acct./assert.)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
, Phase 4 ||\\//||
1. Test controls where control risk is set at less than 100% (i.e., other than High) using
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
ROID
-> With results, reassess CR (by acct./assert.)
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Phase 5 ||\\//||
1. If using the reliance strategy, reevaluate the nature, timing, and extent of substantive tests
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
-> Sample and perform substantive tests (SAP, TD) using MIRADCOPS
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
What are some entity-level controls? - correct answer✔✔1. Pervasive controls
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
2. Control environment
||\\//|| ||\\//||
-> Tone at the top, policies and procedures, codes of conduct
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
3. The company's risk assessment process
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
4. Centralized process controls
||\\//|| ||\\//|| ||\\//||
-> e.g., IT general controls
||\\//|| ||\\//|| ||\\//|| ||\\//||
5. Monitoring
||\\//||
-> e.g., Internal audit or audit committee
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
6. Period end reporting
||\\//|| ||\\//|| ||\\//||
-> e.g., Policies, reconciliations, top-side journal entries
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
Deficiencies - correct answer✔✔What's the difference between design and operating ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
deficiencies?
1. Design and Implementation
||\\//|| ||\\//|| ||\\//||
-> A control necessary to meet the control objective is missing
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
-> An existing control is not properly designed
||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//|| ||\\//||
