ACC 406 Revised Update Quizzes | 100% Correct
Complete Solutions
Which audit procedures are required?
-Risk Assessment/Preliminary (identify misstatement risks, understand the business, plan the
nature, timing and extent of audit procedures)
-Final overall review of audited and adjusted financial statements/ask "does everything make
sense?"
How to set tolerable difference
= or < tolerable misstatement (it will be lower if there is more risk or if you're relying on this
analytical procedure more; the less tolerant you are, the more evidence & testing you will have to
do)
Substantive strategy
Don't rely on controls (CR = 1)
Reliance strategy
Rely in part on controls to reduce substantive testing (CR < 1)
What does precision relate to?
Quality
What factors influence precision?
-Disaggregation
-Plausibility & Predictability of relationship being studied
, -Data reliability
-Type of analytical procedure used to form expectation
Types of analytical procedures
-Trend analysis (look at trends in account or in a combo of accounts)
-Ratio analysis (What's happening in x ratio?)
-Reasonableness tests (most precise & gives most assurance)
Substantive analytical procedures can be used to test all assertions except for what?
Rights & Obligations
Steps to doing a substantive test
1. Come up with an expectation
2. Find tolerable difference
3. Compare our expectation to recorded balance
What do we do if difference between expectation & recorded amount is greater than our
tolerable difference?
-Do more testing/tell management to fix account
-Corroborate: Did management's explanation actually take place?
-Quantify: Does the explanation management gave us actually justify the quantitative difference
b/t our expectation and the recorded amount?
When developing an expectation, you should always...
DISAGGREGATE!!!
Complete Solutions
Which audit procedures are required?
-Risk Assessment/Preliminary (identify misstatement risks, understand the business, plan the
nature, timing and extent of audit procedures)
-Final overall review of audited and adjusted financial statements/ask "does everything make
sense?"
How to set tolerable difference
= or < tolerable misstatement (it will be lower if there is more risk or if you're relying on this
analytical procedure more; the less tolerant you are, the more evidence & testing you will have to
do)
Substantive strategy
Don't rely on controls (CR = 1)
Reliance strategy
Rely in part on controls to reduce substantive testing (CR < 1)
What does precision relate to?
Quality
What factors influence precision?
-Disaggregation
-Plausibility & Predictability of relationship being studied
, -Data reliability
-Type of analytical procedure used to form expectation
Types of analytical procedures
-Trend analysis (look at trends in account or in a combo of accounts)
-Ratio analysis (What's happening in x ratio?)
-Reasonableness tests (most precise & gives most assurance)
Substantive analytical procedures can be used to test all assertions except for what?
Rights & Obligations
Steps to doing a substantive test
1. Come up with an expectation
2. Find tolerable difference
3. Compare our expectation to recorded balance
What do we do if difference between expectation & recorded amount is greater than our
tolerable difference?
-Do more testing/tell management to fix account
-Corroborate: Did management's explanation actually take place?
-Quantify: Does the explanation management gave us actually justify the quantitative difference
b/t our expectation and the recorded amount?
When developing an expectation, you should always...
DISAGGREGATE!!!
