AA mock correction Flashcards
State the key purposes of:
(a) an engagement quality review;
(a) Key purposes of engagement quality review:
Provide an independent check regarding the validity of the firm’s audit
opinion by:
– discussion of significant matters with the engagement partner review
of the financial statements and proposed auditor’s report.
– review of selected documentation relating to significant judgements.
– evaluation of conclusions reached.
Particularly where there are increased risks associated either with the:
– client (eg, a listed client or one where quality risks are high); or
– objectivity of the firm
State the key purposes of:
(b) monitoring (‘cold’ audit file review).
Key purposes of monitoring (cold review):
Represents a continuing part of the firm’s quality management procedures
Ensure that the firm’s policies and procedures are operating effectively
and are complied with
Assess the firm’s compliance with ISAs (UK) and ISQMs (UK)
Identify areas where changes to firm’s policies and procedures are needed
Identify where additional training is required
Assess the effectiveness of review procedures
The Jumping Bean Company runs a chain of Mexican restaurants. The
restaurants are in 26 locations around the country. Professional inventory counters
are used to count and value inventory at the year end. As external auditors, you
are considering whether you need to rely on the work of these professionals and if
so, whether you should.
Explain the factors you need to consider before using them and list the actions you
would take before placing reliance on their work.
1.1 To decide whether to use the experts, the auditor should:
review the engagement’s team knowledge and previous experience of this
type of inventory count and valuation.
assess the risk of misstatement based on the nature and complexity of the
inventory count and valuation.
review the quality and quantity of other available audit evidence.
If you decide to use the experts, you should:
discuss the matter with the management of Jumping Bean – their agreement
is important as you are going to be using experts engaged by them.
review appropriate documentation to ensure that the experts are appropriately
qualified.
review the experience and reputation of the experts to ensure that it is relevant
and at the appropriate level for this assignment.
form a view on the objectivity of the experts – you may consider that because
management are employing the experts their independence might be
impaired.
review the work plans of the experts and assess whether they are adequate
and how you might rely on their work and test its adequacy and accuracy. You
would inspect some of their previous work and results to help you make a final
decision and plan the coordination of your work and the experts’ work.
produce the final work plan incorporating the work of the experts as
appropriate based on your previous work and conclusions.
Charlie and Co, a firm of chartered accountants, has asked you to review its
internal procedures in relation to money laundering.
List the requirements for firms of chartered accountants in respect of money
laundering activities.
2 As a practising firm of accountants, Charlie and Co should:
undertake client identification procedures
maintain records of client identification procedures
appoint a Money Laundering Reporting Officer
establish reporting procedures
provide training to personnel in recognition and reporting
report suspicions to NCA
avoid tipping off the client
Your firm has been engaged by the directors of Davis Ltd (Davis) to review an
insurance claim for loss of profits that the directors have prepared following a fire
at one of Davis’s warehouses. The directors believe that an assurance report
provided by your firm will help to accelerate the processing of the claim.
Identify the points, specific to the review of the claim that your firm should include
in its engagement letter and explain why their inclusion is necessary
3 Points to include in an engagement letter and an explanation of why their inclusion
is necessary:
Responsibilities of the firm
– To review the claim
Responsibilities of Davis
– To prepare the claim
– To provide written representations and access to information
Limited level of assurance
– Expressed negatively
To avoid any misunderstanding and reduce expectations gap
Identify the intended users of the report
– Limit liability to unforeseen parties
Agreement to limit liability
– Reduce exposure to damages
Following a review of interim financial information for Partway Ltd, an independent
accountant’s unmodified report has been issued. The report includes the following:
A review of interim financial information consists of making enquiries, primarily
of persons responsible for financial and accounting matters, and applying
analytical and other review procedures.
Based on our review, nothing has come to our attention that causes us to
believe that the accompanying interim financial information does not give a
true and fair view of the financial position of Partway Ltd as at 30 April 2023
and of its financial performance and its cash flows for the six-month period
then ended in accordance with International Financial Reporting Standards…
Describe the level of assurance that has been provided by this statement and
explain how and why it differs from the level of assurance provided by an external
auditor’s report on annual financial statements.
4 Level of assurance provided by the review:
Limited/moderate assurance expressed negatively
The auditor is satisfied that the subject matter is plausible
How it differs from the annual audit:
An annual audit provides a high level of assurance expressed positively
(ie, in our opinion gives a true and fair view).
The auditor is satisfied that the subject matter conforms in all material respects
with suitable criteria.
Why the level of assurance differs:
The level of assurance is determined by the level of work undertaken.
The scope of a review is substantially less than that of an audit.
A review does not include audit procedures such as tests of control and tests
of detail.
General things to look for in risk/planning qs
Obtaining written representations from third parties
Enquiring with management
Checking media
Obtaining financials or reports of use
Make sure to expand!
Refer to audit assertions:
completeness, cut-off, occurrence, classification, valuation, accuracy, rights&obligations
6 threats
Self-Interest Threat
Self-Review Threat
Advocacy Threat
Familiarity Threat
Intimidation Threat
Management Threat
Conflict of interest
Issues are:
- Objectivity compromised
- Unable to act in best interests of all clients involved
- Confidentiality risk:
o Including perception of clients
Conflict of interest
Safeguards/actions to take:
Safeguards/actions to take:
* Inform clients affected
* Obtain their consent in writing
* Separate audit teams
* Confidentiality agreements (auditors to sign)
* Clear guidelines/policy on security
* Information barriers
o Physical separation (where possible), secure data filing
* Ethics partner involvement/authorisation
How to approach planning questions (procedures) (3)
How, what and why
* How:
* State the action, i.e. inspect, discuss, observe, obtain, physically verify,
reconcile, calculate etc
* Avoid saying ‘check …’ over and over again
* check is what you need to do, but it doesn’t say how it will be done
* What:
* Your source of evidence, i.e. document (and specify exactly which type –
invoice, delivery note, contract), management, asset, etc
* Why
* Financial statement assertion (completeness, existence, valuation, cut off,
occurrence, rights and obligations, presentation)
* See examples of generally used procedures doc
How to approach planning questions (justifying risk)
Set headings up first
* Work way through scenario, adding points under relevant headings as you come
across them
* Use as much of scenario as possible
* If figures are provided, use them - simple % changes, ratios
* Consider whether risk is of under/over statement - if it could be either just say
misstatement
* Consider potential limitations in scope
* Answers often have ‘General’ section - only couple of marks but if you see something
that is general then note it down, likely to be an ‘easy’ mark or two
Internal control deficiency questions
For consequences
- Think about impact on business (not just the audit)
- Some standard examples
o Financial loss (consider impact on profit and cashflows)
o Reputational damage
o Loss of business/relationship (specify who with)
o Incorrect accounting records
▪ At this point it would be ok to mention potential for misstatement of FS
Internal control deficiency questions
For recommendations
For recommendations
* Anything that applies to all – use a general heading
o Formal policies and procedures
o Communicate/train staff
o Monitor compliance
o Disciplinary procedures for non-compliance
* If recommendation is to start doing what is currently not being done, try and expand:
o Make senior person responsible?
o Ensure authorisation of completion
Audit v assurance
Statutory audit:
Reasonable assurance
Can be verified (to a greater degree)
Can reduce risk to a low level
Positively worded audit opinion
‘In our opinion, true and fair view…’
V
Assurance engagement- re forecasts
Limited/moderate level of assurance
Based on assumptions about future (therefore
uncertainty involved)
Reduce risk to a level acceptable given the
circumstances
Negatively worded conclusion/opinion
‘Nothing has come to our attention to suggest
that…’
