ACC 531 Exam 2 questions and answers Graded A+
Audit risk = - ✅✅RMM x DR = IR x CR x DR
Five types of risk - ✅✅Inherent Risk
Control Risk
Detection Risk
Audit Risk
Business Risk
How DR is determined (formula): - ✅✅DR = AR/(IR x CR)
High RMM, results in ___________ allowable DR and ____________
substantiative testing. - ✅✅lower; more
Low RMM, results in ___________ allowable DR and ____________
substantiative testing. - ✅✅higher; less
Fraud triangle definition - ✅✅three conditions present when fraud occurs
Components of the fraud triangle - ✅✅Incentive/pressure: Meet targets;
personal financial need.
Opportunity: weak controls; MGT override.
Rationalization: "Everyone does it"; entitlement
, Two types of fraud relevant to F/S audit - ✅✅Fraudulent Financial Reporting
(FFR): intentional misstatement to deceive others
Misappropriation of assets (MA): theft, fictitious transactions
Error v. fraud - ✅✅unintentional v. intentional
Indicators of potential fraud - ✅✅dangling debit/credit
COSO definition of internal control - ✅✅a process, effected by an entity's
board of directors, management, and other personnel, designed to provide
reasonable assurance regarding the achievement of objectives relating to
operations, reporting, and compliance.
Three objectives of internal control - ✅✅reliability of financial reporting;
efficiency of operations; compliance with laws
Inherent limitations of internal controls - ✅✅human error, collusion. MGT
override
SOX Section 302 - ✅✅CEO/CFO certify accuracy of F/S and disclosure control
(quarterly and annual)
SOX Section 404(a) - ✅✅MGT assesses and reports on effectiveness of ICFR
(annual)
Audit risk = - ✅✅RMM x DR = IR x CR x DR
Five types of risk - ✅✅Inherent Risk
Control Risk
Detection Risk
Audit Risk
Business Risk
How DR is determined (formula): - ✅✅DR = AR/(IR x CR)
High RMM, results in ___________ allowable DR and ____________
substantiative testing. - ✅✅lower; more
Low RMM, results in ___________ allowable DR and ____________
substantiative testing. - ✅✅higher; less
Fraud triangle definition - ✅✅three conditions present when fraud occurs
Components of the fraud triangle - ✅✅Incentive/pressure: Meet targets;
personal financial need.
Opportunity: weak controls; MGT override.
Rationalization: "Everyone does it"; entitlement
, Two types of fraud relevant to F/S audit - ✅✅Fraudulent Financial Reporting
(FFR): intentional misstatement to deceive others
Misappropriation of assets (MA): theft, fictitious transactions
Error v. fraud - ✅✅unintentional v. intentional
Indicators of potential fraud - ✅✅dangling debit/credit
COSO definition of internal control - ✅✅a process, effected by an entity's
board of directors, management, and other personnel, designed to provide
reasonable assurance regarding the achievement of objectives relating to
operations, reporting, and compliance.
Three objectives of internal control - ✅✅reliability of financial reporting;
efficiency of operations; compliance with laws
Inherent limitations of internal controls - ✅✅human error, collusion. MGT
override
SOX Section 302 - ✅✅CEO/CFO certify accuracy of F/S and disclosure control
(quarterly and annual)
SOX Section 404(a) - ✅✅MGT assesses and reports on effectiveness of ICFR
(annual)
