procedures will not detect a misstatement that exist in an account balance or class of transactions that could be material‚ individually or when aggregated with misstatements in other balances or classes. For example‚ the use of a limited sampling for the selection of transactions. Auditors should increase the number of sampling to reduce the detection risk. INHERENT RISK Inherent risk is the susceptibility of an account balance or class of transactions to material misstatement‚ individually or when
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is no responsibility for understatements. b. There are two reasons for permitting the sum of tolerable misstatements to exceed overall materiality. First‚ it is unlikely that all accounts will be misstated by the full amount of tolerable misstatement. Second‚ some accounts are likely to be overstated while others are likely to be understated‚ resulting in net misstatement that is likely to be less than overall materiality. c. This results because of the estimate of sampling
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financial reporting and corporate disclosure responsibilities. Table 1 summarizes the key events surrounding the IPO. Table 1: Key events surrounding Danier’s prospectus and IPO Date May 6‚ 1998 May 16‚ 1998 May 20‚ 1998 June 4‚ 1998 June 27‚ 1998 Event Danier Leather files prospectus with the Ontario Securities Commission (OSC). Prospectus includes a financial projection for Q4 and fiscal year ending June 27‚ 1998. It also includes a standard disclaimer about forecasts – that actual results could
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Promoters‚ as defined in Twycross v Grant (1877) 2 CPD 469‚ are persons who involved in the incorporation of a company. And the common law has extended the scope of “promoter” further in Tracy v Mandalay Pty Ltd (1953) 88 CLR 215. In this case‚ the High Court held that the promoters are not just these persons who take an active part in the formation process‚ but also these who profits from the operation of the company with a passive role. Applying this doctrine to the case study‚ Alicia can
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company’s internal control and we believe they are excellent. Therefore‚ the team has decided to use the Probability-proportionate-to-size sampling theory‚ (PPS). We have used PPS to find the evidence required to prove there has been no materially misstatement in Key West Company’s accounts receivable accounts. The financial cycle is the cycles of business transactions‚ which involve the processing of financial activity including cash inflows‚ outflows‚ dividends‚ stocks‚ and long term debt agreements
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*risk can not be eliminated because not all of evidence being examine. Inherent Risk is a measure of the auditor’s assessment of the likelihood that there are material misstatements in account balance before considering the effectiveness of internal control. If the auditor concludes that there is a high likelihood of material misstatement in A/R due to changing of economic conditions‚ the auditor concludes that inherent risk for A/R is high. Planning an Audit and Designing an Audit Approach I. Accept
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CAS 315: Identifying and assessing the risks of material misstatement through understanding the entity and its environment Scope: This Canadian Auditing Standard (CAS) deals with the auditor’s responsibility to identify and assess the risks of material misstatement in the financial statements‚ through understanding the entity and its environment‚ including the entity’s internal control. Effective Date: Effective for audits of F/S for periods ending on or after December 14‚ 2010. Objective:
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concept and auditors do not make legal determinations of whether fraud has occurred. Rather‚ the auditor’s interest specifically relates to acts that result in a material misstatement of the financial statements. The primary factor that distinguishes fraud from error is whether the underlying action that results in the misstatement of the
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approval of period-ending journal entries‚ detective control - discover misstatements monthly misstatements and corrective control – remedy the situation (maintain key copies of transaction and transaction files for corrections) Functions are complementary to achieve the same objective‚ redundant – same financial statement assertion Compensating – reduces the risk that an existing /potential control weakness will result in misstatement Internal control of an organization is viewed including 5 components
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Tutorial 3 – Ch 9 Malaysia edition 9-26 a. The direct projection of error = (misstatements/amount) sampled x population value. ($10‚000/$1‚000‚000) x $2‚500‚000 = $25‚000 b. No‚ the overall financial statements are not acceptable. Including the projected error for inventory‚ the total overstatement errors are $58‚000‚ which exceeds materiality of $50‚000. c. The auditor should either propose an audit adjustment so that the unadjusted statement amount is less than materiality‚ and/or
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