Audit Issues

Question 1

4 step process

Answer 1

RAMP
1) risk
2) approach
3) materiality
4) procedures

Question 2

1) Risk

Answer 2

• identify case facts (factors increases and decreasing risk)
• explain why the case fact is a risk
• conclude

Question 3

2) Approach

Answer 3

• substantive or combined
• identify case factors (grocery store with cash control weakness)
• analyze case facts (grocery store has large amount of small transactions which would mean combined would be more efficient but combined cannot be taken as there is a control weakness)
• conclude (substantive procedures will be used due to control weakness, however combined can be used on accounts unrelated to the control weakness)

Question 4

3) Materiality

Answer 4

• users and objectives
• based is chosen on user objectives
• based is often normalized NIBT, however, is loss position the base is revenue and if NFPO the base is expenses
• PM is based on RMM and should not exceed OM
• SM based on user needs and is used if they are concerned about a specific account
• If SM is calculated, SPM should also be calculated for auditors

Question 5

4) Procedures

Answer 5

• identify specific account risks and explain why it is a risk (FR issues identify that revenue recognized too early so the risk is that revenue is overstated)
• design the audit procedure: obtain documentation that supports the balance you are looking for (A/R detail or revenue listing), and preform tests on the documentation by comparing (recalculate, compare to invoices)
• RAP: risk, assertion and account, procedure