4: Process: Evidence and Reporting Flashcards
What are three steps in the process of actually doing an audit?
- Obtain evidence
- Evaluate results
- Concluding and reporting
What are the two things that evidence you obtain must be?
- Sufficient (quantity). Depends on:
- risk
- materiality
- level of assurance to be given - Appropriate (quality)
- reliable
- relevant
What makes evidence reliable and relevant?
RELIABLE
Source (in order of reliability)
- auditor generated
- third party
- client
Format (in order or reliability)
- original/written
- copy
- oral
RELEVANT
Proves one or more of the financial statement assertions
What are the 6 FSAs about transactions?
Completeness
Classification
Presentation
Accuracy
Occurance
Cut-Off
What are the 6 FSAs about balances?
Completeness
Classification
Presentation
Accuracy, Valuation and Allocation
Existence
Rights and Obligations
FSA: Occurrence (transactions)?
Transactions that have been recorded have occurred and pertain to the entity
FSA: Completeness (transactions)?
All transactions that should have been recorded have been recorded
FSA: Accuracy (transactions)?
Amounts have been recorded appropriately
FSA: Cut-off (transactions)?
Transactions have been recorded in the correct accounting period
FSA: Classification (transactions)?
Transactions have been recorded in the proper accounts
FSA: Presentation (transactions)?
Transactions and events are appropriately aggregated and clearly described, and related disclosures are relevant and understandable
FSA: Existence (balances)?
Assets, liabilities and equity interest exist
FSA: Rights and obligations (balances)?
The entity owns the assets, and the liabilities are the obligations of the entity
FSA: Completeness (balances)?
All assets, liabilities and equity interests that should have been recorded have been recorded
FSA: Accuracy, valuation and allocation (balances)
Assets, liabilities and equity interests are included in the financial stations at appropriate amounts
FSA: Classification (balances)
Assets, liabilities and equity interests have been recorded in the proper accounts
FSA: Presentation (balances)?
Assets, liabilities and equity interests are appropriately aggregated and clearly described, and relate disclosures are relevant and understandable
What is an FSA?
The assertions made by management that are embodied in the financial statements
What are Tests of Controls and when are they used?
Test the system that gets the numbers into the financial statements
Procedures including enquiry, observation and re performance, and data analytics
Appropriate if control risk is low and using tests controls is a an efficient means of gathering evidence (lots of transactions)
Cannot just do tests of controls - due to inherent limitations
What is substantive testing?
Tests the numbers in the financial statement
Procedures: Test of Details and Analytical procedures
Must always carry substantive testing out on material items
What are the options in terms of Tests of Controls or Substantive Testing?
Do walkthrough tests for internal controls first
If internal controls are effective, do some tests of controls. If controls are still effective, can do limited substantive testing.
If the internal controls are ineffective at any point, full substantive testing must be used
How should the auditor evaluate their results?
Relevant
- should be evidence to support all of the FSAs for a given account balance
Reliable
- consider if any matters have come to light that cast doubt on the reliability of evidence
- doubt over management integrity, discrepancies between evidence sources
Sufficient
- if evidence is not sufficient, attempt to find further evidence, consider the implication for the audit opinion
What are the opinions of the auditors that must always and may be stated?
Express opinions - always stated
- statements give true and fair view
- statements properly prepared in accordance with CA/standards
- on other matters: info contained in reports is consistent with statements
Implied opinions - only required if a material problem arises:
- returns adequate for the audit have not been received
- accounts are not in agreement with underlying records
- proper accounting records not kept
- info and explanations were not received
- director’s remuneration disclosures required by law were not made
RAPID!!!!!
What must be included in Auditor’s Report according to ISA 700?
Title
Addressee
Auditor’s opinion on the financial statements
Basis for opinion
Going concern section
Key audit matters (listed companies)
Other info
Management responsibilities
Auditor responsibilities
Explanation of the extent to which the audit was capable of detecting irregularities ie. fraud
Opinion on other matters ie. are reports consistent with statements
Matters required by CA2006
Name and signature of engagement partner
Auditor’s address
Date of report
What is also necessary in an audit report under the UK Corporate Governance Code?
Additional explanations:
- assessment of risks of material misstatement
- application of materiality
- overview of scope of the audit
These features are an attempt to narrow the expectations gap
What must be included in a non-audit assurance?
Title
Addressee
Identification and description of subject matter
Identification of criteria
Any inherent limitations which exist
Any restrictions upon purpose/user
Statement identifying responsible party
Work in accordance with [standards]
Summary of work performed
Conclusion
Date
Name of firm/practitioner
