AR Flashcards
What is a business process?
A series of activities that enable a company to meet one or more of its objectives
What is business risk
The threat that an action/event will adversely affect org’s ability to achieve its objectives
What is an accounting information system?
A struct used by orgs to collect, store and process financial accounting data
What are Entity-level controls?
Controls that help establish tone and culture of an org
What are the 5 components of internal control?
Control activities, risk assessment process, information systems, monitoring of controls, control envt (CRIME)
What are the objectives of Accounting Information Systems?
Prepping accurate FS to meet reporting requirements to share info with stakeholders and to prep internal management info for purpose of informing board and to aid in making strategic decisions
What are the 5 control activities?
Authorisation, Performance, Info processing, Physical, Segregation of Duties
What is an audit log?
Automatic log kept of activity that can be manually reviewed for unusual activity
What is programmed editing?
Computer programmed to anticipate types of entries in particular fields
What is a check digits control?
Decimal/alphanumeric digit added to number for detecting human error eg number at end of bar code
What are the limitations to control sys?
Relevancy, Cost, Collusion, Human error, Unusual transactions, Management override
What are the manual elements of an ITGC?
Access to programs and data, Program changes and developments, computer operations, continuity of operations (APOC)
What is Corporate Governance?
System by which companies are controlled and directed
What is agency risk?
Risk that agents’ self-interest deviates from that of the principal
What does the board of directors do?
Directs and controls business by setting corporate objectives and monitoring performance
What are 3 ways to reduce agency risk and some pitfalls of them?
- Use director’s remuneration packages as incentives (could encourage fraudulent financial reporting)
- Monitoring directors’ performance (risk that they don’t produce true FS)
- Hire external auditor
What are the roles in CoGo?
Shareholders (appoint directors and external auditor), directors, external auditor (provide objective opinions on FS & objective view on aspects of governance, risk and control frameworks), internal auditor (support directors in their responsibilities for ensuring good governance in place, provide check on financial aspects and controls of company)
What are the G20 Principles?
Ensuring basis for effective CoGo framework, The rights and equitable treatment of shareholders and key ownership funcs, Institutional investors, stock markets and other intermediaries, role of stakeholders in CoGo, disclosure and transparency, responsibilities of the board
What is the UK CoGo code (Bob Drives a CAR)?
Board leadership and company purpose, Division of responsibilities, Composition, succession and evaluation, Audit, risk and internal control, Remuneration
What are the key roles of the board?
Executive Director (run day-to-day), NEDs (on board but not involved in decision making), Chair (head of board and indpt), CEO (responsible for EDs and day-to-day running)
How many NEDs should be on each committee?
Min 3 on audit, majority of indpt NEDs for Nomination, Min 3 for Remuneration
Describe “Comply or Explain”
Compliance is expected but not always possible, if companies don’t comply they must explain why not
What are the steps of a Systems Development Life Cycle?
Business Analysis, Feasibility study, Systems Analysis, Design, Development, Testing, Implementation, Maintenance, Post-Implementation review, Enhancements
What are the 5 steps in designing an Accountancy Information System?
Break the process down into phases, consider objectives, decide on relevant documentation, consider WCGWs, design controls to address WCGWs
What are the phases of the sales cycle and their associated department?
Customer places order (sales), order fulfilled and despatched (warehouse), customer invoiced (finance), customer pays (finance), (if returning:) goods returned (warehouse), customer refunded (finance)
What are the steps of the Purchases cycle and their associated departments?
Place order (purchasing), receive goods (warehouse), receive invoice (finance), pay for goods (finance), (if returning:) return goods (warehouse), receive refund (finance)
What are the components of Access to programs and data?
Awareness of info security policies by staff, appropriate restriction of access to IT computing resources
What should be considered when looking at program changes and development?
Development, authorisation, testing, approval
What are the phases of the stock cycle and the departments in which they occur?
Receive goods (warehouse), stock movements (warehouse), stock holding (warehouse), stock valuation (finance), order fulfilled and accepted (warehouse)
What are the phases of the fixed asset cycle?
Identify need for asset, seek management or board approval, order asset, receive asset/transfer ownership, receive invoice, make payment
What are the types of documentation received at each stage of the Sales Cycle?
- Sales order, 2. GDN, 3. Sales invoice, 4. Remittance advice, 5. GRN, 6. Credit note
What are the documents for the Purchases cycle?
- Purchase requisition, 2. Purchase order, 3. GRN, 4. Invoice, 5. Remittance advice
What are the docs in the fixed asset cycle?
- Business plan, 2. Purchase requisition, 3. Purchase order, 4. Delivery advice, GRN or title deeds, 5. Invoice, 6. Remittance advice
What is an internal audit?
Independent, objective assurance activity designed to add value and improve an org’s operations
What are the key elements of an internal audit?
Indpt, objectively Measures and evaluates, takes place Within org, Integral part of framework of business controls, Service to all levels of org, looks at Effectiveness & efficiency. (I’M WISE)
What are the objectives of the Internal Audit Function?
To provide reasonable assurance over adequacy and effectiveness of risk management and control sys
Who does the IAF report to?
Audit committee
What are all the different toes of audit that IAF can perform?
Financial, Systems, Management, Value for Money, Contract, Operational, Post-implementation, investigations, inspection and quality control, follow-up, culture, ESG
What are the aspects of an effective IAF?
Internal audit Process, role of Audit committee, Resource and competence, Independence, position and Status of internal audit, internal auditing Standards (PARISS)
What are the ways to ensure independence of internal audit?
IAF reports directly to audit committee, internal audit plan approved by audit committee, having audit committee appoint IA manager, remunerating IA staff to support independence, ensuring IA staff aren’t involved in operational areas
What is an assurance engagement?
An engagement in which a practitioner aims to obtain sufficient appropriate evidence in order to express conclusion designed to enhance degree of confidence of the intended users about the subject matter info
What are the 5 elements of an assurance engagement?
Suitable Criteria, appropriate Underlying subject, Three-party relationship, sufficient Evidence, assurance Report (CUTER)
What are the 2 levels of assurance?
Reasonable (high but not absolute), limited (level of risk higher than reasonable, no evidence subject matter is materially misstated, less rigorous, negative)
What are the types of risk to be considered before acceptance of an audit?
Commercial (financial and reputational), professional (ethical and legal)
What are the main acceptance procedures?
Identify users and nature of agreement, assess stability, assess integrity, evaluate firm’s ability to take on engagement, perform client ID procedures, agree basis for performance, communicate with previous auditor (if applicable)
What are the stages of an audit process?
Acceptance, planning, systems and controls analysis, substantive testing, completion.
Risk assessment and engagement and client management occur throughout
What types of company are exempt from external audit?
Small companies (turnover less than £10.2 million, £5.1 million balance sheet, 50 employees), small charitable companies, dormant companies
How many shareholders to veto audit exemption?
10%
What is the role of an auditor?
To express an opinion on whether the FS give a true and fair view to the shareholder
What is the expectations gap?
Difference between understanding public has about audit and actual audit
What is the main way to bridge the expectations gap?
Audit report
Who can be a statutory auditor?
CA 2006 requires profession to control eligibility to audit
To become an auditor you must be…
Qualified (meet min entry requirements, 3 years practical experience, pass exams, RQB)
Supervised (by member of RSB)
Registered (2 years post qualified experience, CPD, insurance)
What must an auditor form an opinion over that have been reported by exception?
Returns have been received by branches not visited by the auditor, Accounts agree with records, Proper accounting records have been kept, Info and explanations necessary for the purposes of the audit have been received, Directors’ emoluments and other benefits disclosures are complete (RAPID)
What are the auditor’s rights according to CA 2006?
Right to receive info, rights in relation to resolutions and meetings
What are the 3 principal offences set out in the POCA?
Concealing/transferring proceeds of criminal conduct, arrangements to facilitate acquisition, retention or use of criminal property, Acquiring, using or possessing criminal property
What do the ML regulations policies and procedures specifically set out?
Risk assessment and controls, customer due diligence, registration and supervision
What must be done to establish negligence?
Proof that the accountant owed a duty of care to the claimant
What 3 factors are considered when establishing a duty of care?
Loss arising was reasonably foreseeable, close and direct relationship existed, imposition of duty of care was fair, just and reasonable
What are three ways to manage auditor liability?
Formalise basis of engagement contract, identify risk profile of potential clients, ensure sound audit approach was followed
What are the 3 most common defences against negligence claims?
Contributory negligence (claimant contributed), volenti non fit injuria (can be proved claimant consented to a risk) , ex turpi causa (claimant committed illegal act)
List the key cases and their relation to negligence
Camaro vs Dickman and Others: duty of care to third parties (proximity), duty of care to shareholders
AWA vs Daniels: duty of care to audit clients
Hadley Byrne vs Heller & Partners: special relationship
Barclays vs Grant Thornton: special relationship between auditor and 3rd party with disclaimer
Re Kingston Cotton Mill: reasonable person test
Moore Stephens vs Stone & Rolls: Ex turpi causa
What are the 5 fundamental principles of ICAS Code of Ethics?
Confidentiality, Objectivity, Professional behaviour, Integrity, Professional competence (COPIP)
What are the main threats to audit independence?
Management, Advocacy, Self-interest, Self-review, Intimidation, Familiarity (MASSIF)
What does the role of the FRC include?
Acting as Competent Authority for auditing in the UK and setting standards and monitoring quality
Setting UK and Ireland accounting standards
Monitoring UK CoGo code, UK Stewardship code and standards for actuarial work
Monitoring and taking action to promote quality of corporate reporting
Operating some indpt disciplinary arrangements for accountants
What does the FRC issue?
FRS, ISAs, Ethical Statement, Practice Notes, Bulletins, ISQMs 1&2, ISRE (UK) 2410, SIRs, standards for providing assurance on client assets to FCA
