4: Planning engagements Flashcards
What are the suggested materiality ranges for 3 sections
Revenue 0.5-1%
PBT 5-10%
Gross assets 1-2%
3 matters that might be material by nature
£1 that turns a profit into loss
£1 that changes company threshold eg small to medium
Automatically material like directors and related parties
Current ratio
Current assets : Current liabilities
Quick ratio
Receivables + current investments + cash : liabilities
Gearing ratio
Net debt / Equity
Interest cover
Profit before interest payable / Interest payable
Net asset turnover
Revenue / Capital employed
Inventory turnover
Cost of sales / Inventories
Trade receivables collection period
Trade receivables × 365 / Revenue
Trade payables payment period
Trade payables x 365 / Credit purchases
Return on capital employed
Profit before interest and tax / Equity + net debt
Return on shareholders’ funds
Net profit for the period / Share capital + reserves
Gross profit percentage
Gross profit x 100 / Revenue
Cost of sales percentage
Cost of sales x 100 / Revenue
Operating cost percentage
(Operating costs/ overheads x 100) / Revenue
Net margin/ operating margin
(Profit before interest and tax x 100) / Revenue
Audit risk formula
= (inherent risk x control risk) x Detection risk
5 inherent risk factors
complexity
subjectivity
change
uncertainty
susceptibility to misstatement due to management bias or fraud
(ISA 315)
5 limitations of internal controls
Cost > benefit
Routing/non-routine transactions
Human error
Management override or circumvention by collusion
Change in procedures
2 criteria for significant risk
it has an inherent risk assessment close to the upper end of the spectrum of inherent risk due to likelihood and or impact
OR
is required to be treated as a significant risk by another ISA (IK)
4 Vs or big data
Volume
Velocity
Variety
Veracity
6 aspects of cyber controls
Prevention
Detection
Deterrence
Recovery procedures
Correction procedures
Threat avoidance
