AAA Flashcards
Assertions and Useful Verbs
SFP (VC CREP):
- Valution
- Completeness
- Classification
- Rights + obligations
- Existence
- Presentation
SOPL (COC CAP):
- Completeness
- Occurence
- Classification
- Cut off
- Accuracy
- Presentation
Useful Verbs (AEIOURC):
Analyical procedures
Enquire
Inspect
Observe
Recalucate
Reperform
Confirm
How to report money laundering
- Transaction raises suspicion -> report to MLRO
- MLRO decided whether to esclate to NCA
- Frim must not tip off client
Reduce liability to firm - ISQM 1
Link to audit failures, ethical dilemmas, and regulatory issues in case studies.
Use the GRM-MONITOR structure when analyzing deficiencies in a firm’s quality management.
Types of audit opinions
- Unmodified -> best outcome, not material mistatements
- Qualified -> Some concerns, but FS fairly presented
- Adverse -> material mistatements that are pervasive
- ** Disclaimer of opinion** -> auditor can not express an opinion due to lack of sufficient evidence
What are the key responsibilities of an audit committee?
Reviewing internal controls, financial reporting, internal audit, and external auditor relationships.
What are the auditor’s responsibilities under NOCLAR?
Identify non-compliance, obtain understanding, discuss with management, consider further action, report if necessary.
What are the three conditions required for a third party to sue an auditor for negligence?
(1) Duty of care existed, (2) Duty was breached, (3) Financial loss occurred.
What are the two main types of audit risks?
Financial Statement Level Risks (affect the entire financials) and Assertion Level Risks (affect specific items).
What are the two categories of laws and regulations auditors must consider?
Direct Impact (affect FS items, e.g., tax laws) and Indirect Impact (regulatory breaches, e.g., environmental laws).
What type of opinion is issued in a limited assurance engagement?
Negative Assurance – “Nothing has come to our attention that suggests material misstatement.”
What are the five steps of revenue recognition under IFRS 15?
A:
(1) Identify the contract,
(2) Identify performance obligations,
(3) Determine transaction price,
(4) Allocate price to obligations,
(5) Recognize revenue when performance obligations are met.
How should lessees account for leases under IFRS 16?
: Recognize right-of-use asset and lease liability for all leases (except short-term/low-value).
How is the recoverable amount of an asset determined?
Higher of (1) Fair Value Less Costs to Sell, (2) Value in Use.
What key documents should auditors request when auditing the disposal of a subsidiary?
Sale agreement, board minutes, financial statements at disposal date, tax computations.
What are the key audit procedures for assessing going concern?
Reviewing cash flow forecasts, loan agreements, management plans, and post-balance sheet events.
Name five key audit assertions for financial statement items.
Existence, Completeness, Valuation, Rights & Obligations, Presentation & Disclosure.
What are the six main audit procedures?
Inspection, Inquiry, Observation, Recalculation, Confirmation, Analytical Procedures.
What is the difference between tests of controls and substantive procedures?
Tests of Controls check if internal controls are operating effectively.
Substantive Procedures check if transactions and balances are free from misstatements.
What are the two types of sampling methods used in audits?
Statistical sampling (random, probability-based) and Non-statistical sampling (judgment-based selection).
What are the two types of subsequent events?
(1) Adjusting events – those affecting conditions existing at the balance sheet date (e.g., settlement of a lawsuit).
(2) Non-adjusting events – those arising after year-end (e.g., fire destroying a warehouse).
What are the two types of fraud relevant to auditors?
(1) Fraudulent financial reporting (e.g., overstating revenue).
(2) Misappropriation of assets (e.g., theft of inventory).
What should auditors do when misstatements are found?
Evaluate whether they are material, discuss with management, and request corrections.
What are the four key paragraphs in an unmodified auditor’s report?
Opinion, Basis for Opinion, Responsibilities of Management, Auditor’s Responsibilities.
What is the purpose of an Emphasis of Matter paragraph?
To highlight significant disclosures (e.g., going concern uncertainty) but without modifying the opinion.
What’s the difference between a provision and a contingent liability?
Provision – Recorded in FS (e.g., legal claims likely to be lost).
Contingent Liability – Disclosed only if probable but not certain.
