Exhibit 103 2 subject matter information

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Chapter 11 / Exercise SP11-3
Accounting Information Systems
Dull/Gelinas
Expert Verified
Exhibit 10.3-2Subject Matter/InformationCharacteristicsSignificantNon-Routine TransactionsHigh inherent risk (likelihood and impact).Transactions that occur infrequently and are not subject to systematic processing.Unusual due to their size or nature (such as the acquisition of another entity).Require management intervention:To specify accounting treatment, andFor data collection and processing.Involve complex calculations or accounting principles.Nature of transactions makes it difficult for entity to implement effectiveinternal control over the risks.SignificantJudgmental MattersHigh inherent risk.Involve significant measurement uncertainty (such as the development ofaccounting estimates).Accounting principles involved may be subject to differing interpretation (suchas preparation of accounting estimates or application of revenue recognition). The required judgment by management may be subjective, complex, or requireassumptions about the effects of future events (such as judgments about fair value, valuation of inventory subject to rapid obsolescence, etc.).SignificantTransactionalRisksThere may be a small number of transactional risks relating to the majorbusiness processes (such as goods being shipped but not invoiced in a sales process) that would result in a material misstatement in the financial statements if not mitigated. Where these risks require special audit consideration, they would be regarded as significant risks. If there were no internal controls in place to mitigate such risks, they would also be reported to management as being a significant deficiency.FraudRevenue recognition. This is a presumed significant risk.Management override or bias in estimates, etc.Major related party transactions used to increase sales or purchases.Collusion with suppliers or customers such as price or bid rigging.Unrecorded or fictitious transactions.
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Accounting Information Systems
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Chapter 11 / Exercise SP11-3
Accounting Information Systems
Dull/Gelinas
Expert Verified
Guide to Using International Standards on Auditing in the Audits of Small- and Medium-Sized Entities Volume 2 —Practical Guidance12310.4 Responding to Significant Risks When a risk is classified as being “significant,” the auditor should respond as outlined below.Exhibit 10.4-1Audit StepsDescriptionEvaluate Internal Control Design &Implementation Over EachSignificant RiskHas management designed and implemented internal control that mitigates the significant risks? Consider the existence of direct controls such as control activities and indirect (pervasive) controls which may be included in the control environment, risk assessment, information systems, and monitoring elements. This information will be helpful in developing an effective audit response to the identified risks. Where significant non-routine or judgmental matters are not subject to routine internal control (such as a one-off or an annual event), the auditor would evaluate management’s awareness of the risks and the appropriateness of its response. For

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