Bus 409 Midterm 1 Exam with 100% correct answers 2022

Management's 5 Assertions: - ANSWER-Existence or Occurrence Completeness Rights and Obligations Valuation or Allocation Presentation and Disclosure Audit risk equation - ANSWER-AR = IR x CR x DR Inherent risk (audit risk model) - ANSWER-internal controls will detect and prevent on a timely basis susceptibility of an assetions to a misstatement - due to error or fraud that could be material before consideration of internal controls Audit Risk (audit risk model) - ANSWER-issue unmodified when it is later determined there was a risk of a material misstatement before consideration of ICFR (modify to actual definition) Example of allocation (management assertions) - ANSWER-footnote disclosure of raw materials, WIP, and finished goods. Example of evaluation (management assertions) - ANSWER-disclosure lifo fifo (inventory method) Deep-pocket theory - ANSWER-suing another party based on perceived ability of that party to pay damages. Joint and several liability - ANSWER-Apportions losses among all defendants who have an ability to pay for damages, regardless of level of fault. Proportionate liability - ANSWER-Payment by an individual defendant based on the degree of fault of the individual. Common Law - ANSWER-liability concepts developed through prior court decisions based on negligence, gross negligence, or fraud Contract Law - ANSWER-Liability occurred where there is a breach of contract Statutory Law - ANSWER-legislative acts declaring, commanding, or prohibiting something - such as Securities Act, Sarbanes -Oxley Act, Dodd-Frank Act Breach of contract - ANSWER-failure to perform a contractual duty that has not been excused. for audit firms, parties to a contract include clients and designated 3rd party beneficiaries Negligence - ANSWER-failure to exercise reasonable care, thereby causing harm to another or to property Gross negligence - ANSWER-Failure to use even minimal care, or evidence of activities that show a reckless disregard for truth, or reckless behavior. Fraud - ANSWER-INTENTIONAL concealment or misrepresentation of a material fact (by the auditor). intending to deceive another. Scienter Must Be Proved - ANSWER-Knowledge on part of person making representations, at the time they are made, that they are false. Foreseen users - ANSWER-In