Cia Part Ii Section I Chapter C - Topic 8: Conduct Assurance Engagements - Financial Audit Engagements & Compliance Audit

Front 1

While financial audits performed by external auditors focus on an organization's financial statements, financial audits by internal auditors do focus on what?

Back 1

internal controls'

Front 2

The objectives of which organizational processes should form the basis for the majority of internal controls?!

Back 2

financial reporting'

Front 3

In a financial audit engagement, the IA audits controls regarding their effectiveness that are surrounding which processes?

Back 3

processes supporting the development of the financial report'

Front 4

The critique of the contemporary accounting controls in the COSO 1987 report was that unethical behavior in organizations too often goes undetected because of which accounting procedures' feature?!

Back 4

too narrow focus on financial accounting only'

Front 5

Internal control is management's responsibility and requires the participation of which persons within the organization if it is to be effective?

Back 5

all persons'

Front 6

Nonfinancial ratios compare relationships between to business elements with which two features?!

Back 6

measurable and correlated'

Front 7

The objective of ratio analysis is to detect what kind of relationships between quantities?

Back 7

relationships unexpected by the IA'

Front 8

A drawback of financial ratio analysis is that is difficult to do what which financial statements of different organizations?

Back 8

to compare them'

Front 9

Common-size statements express all accounts balances as percentages of usually which aggregate balance?

Back 9

sales revenue (e.g. marketing expenses / sales revenue)'

Front 10

What kind of analysis is the conversion of all income statement items into percentages of sales revenues?

Back 10

vertical analysis'

Front 11

What are the 4 catagories of financial ratios?

Back 11

"- activity
- liquidity
- leverage
- profitability'

Front 12

"
Activity ratios are used to measure an organization's efficiency in turning what into sales or cash?

Back 12

balance sheet accounts'

Front 13

How is the inventory Turnover calculated?

Back 13

Cost of Goods / average inventory'

Front 14

Inventory Turnover does measure the number of what?

Back 14

the number of times during the year inventory is replaced'

Front 15

A lower Inventory Turnover indicates a greater or a lower efficiency?

Back 15

a lower efficiency'

Front 16

How is Days' Sales Outstanding calculated?

Back 16

(AR / Sales)*360 Days'

Front 17

Days' Sales Outstanding does measure the company's effectiveness in what?

Back 17

collecting AR'

Front 18

A lower Days' Sales Outstanding indicates a lower or a greater effectiveness in collecting AR?

Back 18

a greater effectiveness'

Front 19

How is Accounts Payable Turnover calculated?

Back 19

Purchases / Avg AP'

Front 20

How are the Purchases determined?

Back 20

Purchases = COGS + Ending Inventory - Starting Inventory'

Front 21

Accounts Payble Turnover does measure the number of times of what?

Back 21

the number of times the company generates its average of account payables in a year'

Front 22

As long as accounts are paid in a timely fashion, which Accounts Payable Turnover ratio is preferable; greater or lower?

Back 22

a lower'

Front 23

How is Fixed Assets Turnover calculated?

Back 23

Net Sales / Avg Net Fixed Assets'

Front 24

How are Net Sales calculated?

Back 24

Sales - Discount - Returns - Allowances'

Front 25

Fixed Asset Turnover does measure how efficient a company is using what to generate what?

Back 25

is using fixed assets to generate sales'

Front 26

Fixed Asset Turnover might be used to measure the effectiveness of significant investments in what?

Back 26

property, plant, equipment (PPE)'

Front 27

Which Fixed Asset Turnover does indicate a more efficient use of fixed assets to generate sales: a greater or a lower?

Back 27

a greater'

Front 28

How ist Total Assets Turnover calculated?

Back 28

Net Sales / Avg Total Assets'

Front 29

Fixed Assets Turnover does measure how efficent a company is using to generate what?

Back 29

is using its assets to generate sales'

Front 30

Which Total Asset sTurnover does indicate a more efficient use of assets to generate sales: a greater or a lower?

Back 30

a greater'

Front 31

Liquidity ratios measure an organization's solvency by comparing what to what?

Back 31

assets to liabilities'

Front 32

How is the Current Ratio calculated?

Back 32

Current Assets / Current Liabilities'

Front 33

The Current Ratio does measure an organization's potential for what?

Back 33

for paying down current liabilities'

Front 34

Which Current Ratio indicates a greater ability to repay short-term debt: a greater or a lower?

Back 34

a greater'

Front 35

How is the Quick Ratio calculated traditionally?

Back 35

(Current Assets - Inventory)/ Current Liabilities'

Front 36

How is the Quick Ratio calculated alternatively?

Back 36

(Cash + Cash Equivalents + Receivables) / Current Liabilities'

Front 37

The Quick Ratio expresses the proportion of what kind of assets to liabilities?

Back 37

the proportion of the most liquid assets to liabilities'

Front 38

What could a stable current ratio and a declining quick ratio indicate?

Back 38

an increase in inventory'

Front 39

How is Net Working Capital calculated?

Back 39

Current Assets - Current Liabilities'

Front 40

Which Net Working Capital is indicated a higher short term liquidity: a greater or a lower?

Back 40

a greater'

Front 41

In contrast to liquidity ratios, leverage (or debt) ratios do measure what kind of solvency?

Back 41

long-term solvency'

Front 42

How is the Debt Ratio calculated?

Back 42

Total Liabilities / Total Assets'

Front 43

Which Debt Ratio does indicate a higher investment risk to investors: a higher or a lower?

Back 43

a higher'

Front 44

How is the Debt to Equity Ratio calculated?

Back 44

Total Liabilities / Total Equity'

Front 45

Which Debt to Equity Ratio does indicate a higher investment risk to investors: a higher or a lower?

Back 45

a higher'

Front 46

How ist Times Interest Earned Ratio calculated?

Back 46

Earnings Before Interest and Taxes (EBIT) / Interest Expense'

Front 47

Times Interest Earned Ratio does measure the ability to service what?

Back 47

liabilities'

Front 48

Which Times Interest Earned Ratio does indicate a greater ability to repay creditors?

Back 48

a higher'

Front 49

Profitability ratiso indicate ability to make a profit by comparing what to what?

Back 49

earnings to revenues'

Front 50

How are earnings generally calculated?

Back 50

revenues reduced by expenses'

Front 51

How is the Gross Profit Margin calculated?

Back 51

(Net Sales - COGS) / Net Sales'

Front 52

How is the Operating Profit Margin calculated?

Back 52

(Net Sales - COGS - Operating Expenses) / Net Sales'

Front 53

How is the Net Profit Margin calculated?

Back 53

Operating Profit - Interest - Taxes) / Net Sales'

Front 54

How is Return on Investment (ROI) calculated?

Back 54

Total Assets Turnover x Net Profit Margin'

Front 55

How is ROI called as well?

Back 55

DuPont formula'

Front 56

ROI does measure an operation's effectiveness in using what to generate profits?

Back 56

assets'

Front 57

In the ROI, efficiency in turning over assets may compensate for a relatively low what?

Back 57

low net profit margin'

Front 58

How is Return of Equity (ROE) calculated?

Back 58

Net Profits / Shareholders' Equity'

Front 59

How is Return on Capital calculated?

Back 59

ROE x (1 - Dbe to Capital)'

Front 60

In what kind of leveraged operations does ROE provide a more meaningful measure of success than ROE alone?

Back 60

in high leveraged operations'

Front 61

How are Earnings per Share calculated?

Back 61

Total Earnings / Number of Shares Outstanding'

Front 62

Earnings per Share do measure what of a company?

Back 62

a company's value'

Front 63

Compliance Audit

Back 63

'

Front 64

Compliance audits evaluate the adequacy and effectiveness of an organization's controls to ensure what?(3)!

Back 64

compliance with applicable laws, regulations, and the organization's own policies'

Front 65

What should compliance audits do with the compliance standards and procedures established by the organization to reduce the prospect of criminal conduct by employees and other agents?

Back 65

review and assess them'

Front 66

IAs should start an audit of the compliance process by developing a working knowledge of what that compliance professionals use to assess compliance?

Back 66

the framework'

Front 67

IAs should verify that compliance standards and procedures include written policies that clearly what kind of activities?

Back 67

required and prohibited'

Front 68

Studies show that hotlines for reporting suspect activities work best when they connect to an inhouse representative who is not a member of which department and when they are backed by what kind of policies?

Back 68

"- not a member of legel departmens
- backed by nonretaliation policies'

Front 69

"
Detecting a violation that was not prevented by the compliance program signals a need to do what?

Back 69

to review the program if it needs changing'

Front 70

Why should Environmental audits be conducted by a technically-oriented department under the direction of the internal auditing department?(2)

Back 70

"- EH&S has the technical expertise
- IA the necessary independence which the EH&S executive does not have as environmental compliance audit functions usually report to him'