A424: Final Exam Review Session

The Big Picture

Big picture questions:

1.  Can you number the boxes in the approximate order that they would be addressed?

2.  If any one box were blank could you fill in the missing information?

3.  Look at the details within each box. Can you relate it to the SCAD project and the sales and collection cycle? What needs to be done or decided? What factors affect the decisions?

4.  Which boxes are optional and under what circumstances?

5.  Does the above represent one cycle or the entire audit?

6.  Once you complete all the actions (boxes) above what comes next?

7.  Which decision regards the auditor’s concerns about his/her own personal risk in conducting the audit?

8.  Which boxes relate to information/evidence about the client?

9.  Which boxes require the use of auditor’s judgment?

10. Audit procedures are based on what types of evidence?

Project Decision Points:

Phase 1: / Key Factors / Impact/Purpose
Assess Inherent risk / AAR, PDR, ADR
Assess Business risk / AAR, PDR, ADR
Decide Acceptable Audit Risk / PDR, ADR
Identify potential problem areas / ·  Analytical procedures
·  Inherent risks
·  Business risks
·  Reasons for the audit / PDR
Set preliminary judgment / Tolerable misstatement, overall opinion
Decide tolerable misstatement / Sample size, opinion on account balance
Identify problems with the accounting system / ·  Practical knowledge / Improve client’s system for next year
Phase 2 (Sales and Collection):
Initial assessment of control risk / Internal control sample size, non-public test controls or not
Recommend changes to IC design / Improve client’s system for next year
Identify TRAOs tested / Identify weaknesses in system
Specify tolerable exception rates / Internal control analysis and setting sample size
Set sample selection methods and sample sizes / Gather sufficient and competent evidence to assess Control Risk
Analyze internal control effectiveness / CR
Final assessment of control risk / ADR
Recommend improvements to IC execution / Improve system for next year
Phase 3 (Sales and Collection):
Assess Achieved Detection Risk / ARIA
Set sample size for confirmations / Gather sufficient and competent evidence
Statistically analyze confirmation results / Assess fair presentation of account balance
Decide on the overall fair presentation of net Accounts Receivable / Combine with other areas to determine fair presentation of financial statements
Phase 4:
Problem solving / Final decision on appropriate opinion about financial statements (all areas must be considered)
Communication / Comply with federal regulations and improve client’s system for next year

Opinion Decision Tree: