Alternative%20Risk%20Models%20%28October%205%202011%29

Alternative%20Risk%20Models%20%28October%205%202011%29 -...

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Alternative Risk Models: The 21 st Century Public Company Audit Tim Bauer ACCY 405 October 5, 2011 Today’s slides are based on Bell, Peecher & Solomon. 2005. The 21 st Century Public Company Audit .
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Announcements Group Talk schedule for Module II: October 17 th , October 19 th , October 24 th , and  October 26th Professional Lyceum on October 6 th   Chris Lu, CEO Deloitte (China) Stephen Van Arsdell, CEO Deloitte (USA)
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Announcements Preliminary  Instructions for Individual Writing  Assignment: Due October 31 Prepare a field memo for your accounting firm that provides  guidance on auditing “Level 3” fair value measurements See SFAS 157 or ASC 820 Memo format; 6 pages (double-spaced); research required More information & more guidance is coming soon
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Today’s Objectives Think more about risks and materiality New ways to think about: Audit Risk Models Threats to Auditor Conclusions about Evidence
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Judgment: What is Material? A material difference is a difference that could affect the  decisions of the reasonable decision maker  using the  financial statement information.
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Judgment: Material to Whom? Depends on decision makers and decision criteria: Can be asymmetric: What is material to the company (hitting a benchmark)  may be immaterial to an investor or vice versa. Can depend on reason for deviation: Materiality may be different for fraud  compared to errors.
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Group Activity Changing Risk Conditions
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Qualitative Materiality Factors Some small misstatements that may be material: (1) Fraud (2) Violations of debt covenants (3) Missing earnings targets (4) Hitting incentive goals
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Risk Assessment Risk of assertions  materially  departing from established  criteria.  Risk is necessary for assurance to be valuable Often use broad categories (High, Medium, Low). Injects subjectivity.
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Assessing Risk Understanding an organization’s environment and risks. How do these risks affect the financial statements? What is inherent risk? Understanding Enterprise Risk Management (ERM) and  Internal Control Over Financial Reporting (ICFR). What is control risk? Preliminary Analytical Procedures. Expectations and observations.
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Quality Risk Assessments Given their goals, clients react or fail to react to business risks These reactions (or failures) affect clients in multi-dimensional ways:
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This note was uploaded on 11/17/2011 for the course ACCY 405 taught by Professor D during the Winter '11 term at University of Illinois at Urbana–Champaign.

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Alternative%20Risk%20Models%20%28October%205%202011%29 -...

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