4: Process: Evidence and Reporting

Question 1

What are three steps in the process of actually doing an audit?

Answer 1

1. Obtain evidence
2. Evaluate results
3. Concluding and reporting

Question 2

What are the two things that evidence you obtain must be?

Answer 2

1. Sufficient (quantity). Depends on:
   - risk
   - materiality
   - level of assurance to be given
2. Appropriate (quality)
   - reliable
   - relevant

Question 3

What makes evidence reliable and relevant?

Answer 3

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

Question 4

What are the 6 FSAs about transactions?

Answer 4

Completeness
Classification
Presentation
Accuracy

Occurance
Cut-Off

Question 5

What are the 6 FSAs about balances?

Answer 5

Completeness
Classification
Presentation
Accuracy, Valuation and Allocation
Existence
Rights and Obligations

Question 6

FSA: Occurrence (transactions)?

Answer 6

Transactions that have been recorded have occurred and pertain to the entity

Question 7

FSA: Completeness (transactions)?

Answer 7

All transactions that should have been recorded have been recorded

Question 8

FSA: Accuracy (transactions)?

Answer 8

Amounts have been recorded appropriately

Question 9

FSA: Cut-off (transactions)?

Answer 9

Transactions have been recorded in the correct accounting period

Question 10

FSA: Classification (transactions)?

Answer 10

Transactions have been recorded in the proper accounts

Question 11

FSA: Presentation (transactions)?

Answer 11

Transactions and events are appropriately aggregated and clearly described, and related disclosures are relevant and understandable

Question 12

FSA: Existence (balances)?

Answer 12

Assets, liabilities and equity interest exist

Question 13

FSA: Rights and obligations (balances)?

Answer 13

The entity owns the assets, and the liabilities are the obligations of the entity

Question 14

FSA: Completeness (balances)?

Answer 14

All assets, liabilities and equity interests that should have been recorded have been recorded

Question 15

FSA: Accuracy, valuation and allocation (balances)

Answer 15

Assets, liabilities and equity interests are included in the financial stations at appropriate amounts

Question 16

FSA: Classification (balances)

Answer 16

Assets, liabilities and equity interests have been recorded in the proper accounts

Question 17

FSA: Presentation (balances)?

Answer 17

Assets, liabilities and equity interests are appropriately aggregated and clearly described, and relate disclosures are relevant and understandable

Question 18

What is an FSA?

Answer 18

The assertions made by management that are embodied in the financial statements

Question 19

What are Tests of Controls and when are they used?

Answer 19

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

Question 20

What is substantive testing?

Answer 20

Tests the numbers in the financial statement

Procedures: Test of Details and Analytical procedures

Must always carry substantive testing out on material items

Question 21

What are the options in terms of Tests of Controls or Substantive Testing?

Answer 21

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

Question 22

How should the auditor evaluate their results?

Answer 22

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

Question 23

What are the opinions of the auditors that must always and may be stated?

Answer 23

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!!!!!

Question 24

What must be included in Auditor’s Report according to ISA 700?

Answer 24

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

Question 25

What is also necessary in an audit report under the UK Corporate Governance Code?

Answer 25

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

Question 26

What must be included in a non-audit assurance?

Answer 26

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