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AAA > Assumed knowledge > Flashcards

Assumed knowledge Flashcards

1
Q

what are the elements of an assurance engagement

A

Elements (CREST)

 Criteria of subject 
Report 
Evidence (sufficient appropriate evidence) 
Subject matter 
Three parties
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2
Q

What is the objective of the external audit of a limited company?

A

The objective of the external audit of a limited company is to provide assurance on the credibility of the financial statements by reporting in “true and fair” terms.

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3
Q

‘true and fair’

what does true mean

A

to be true it must comply with acc standards and any relevant legislations

Factual and conforms with reality

includes data being correctly transferred from records to statements

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4
Q

‘true and fair’

what does fair mean

A

info is clear, impartial and unbiased

reflects the commercial substance of the transactions of the entity

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5
Q

what does engagement letter contain

A

Objective and scope of the audit

Management’s responsibilities

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6
Q

.

A

.

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7
Q

.

A

.

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8
Q

what is audit risk

A

Audit risk =

Detection risk x Risk of Material misstatement (Inherent risk x Control risk)

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9
Q

what does audit strategy contain

A

The audit strategy sets the scope, timing and direction of the audit.

scope
timing
direction

Materiality, audit risk and internal control all relate to the direction of the audit.

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10
Q

what does audit plan contain

A

audit team
materiality
performance materiality
designing audit procedures

It helps the auditors to devote appropriate attention to important areas of the financial statements

It provides assurance to the auditor that the risk of a material misstatement in the financial statements will be reduced

It helps the auditor to properly organise and manage the audit engagement, so that it is performed in an effective manner

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11
Q

what are the elements of ISQC- Quality control

A

Leadership
HR
Engagement performance (direction, supervision, review)
Monitoring

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12
Q

what are company law you must be aware of

A 
Company Law
	Audit requirements
	Auditor's rights
	Auditor's duties
	Appointment
	Removal
	Resignation
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13
Q

what are sampling methods

A 
Sampling Method
		Non Statistical
			haphazard selection 
			block selection
		Statistical
			random selection 
			systematic selection monetary unit 
  			sampling
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14
Q

what are some automated tools and techniques

A

Automated tools an techniques
Test data
Audit Software
Data analytical tools

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15
Q

name 2 types of audit procedures

A

1) Test of detail

2) substantive testing

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16
Q

what is test of detail

A 
Test of control
	CAAT- Test Data
	Review / Observe / Inspect
	Objecting for each test
		something good happening
		to stop something bad from happening
17
Q

what is substantive testing

A 
Substantive testing
	Test of detail
		Verifying individual transactions and balances
	Analytical procedures
		CAAT- Audit Software
		e.g. ratios
		involve analysing relationships between information to identify unusual fluctuations which may indicate possible misstatement.
		Compare recalculate Agree
18
Q

what does substantiate mean?

name the assertions for 1) transactions and events and 2) account balances

list the procedures/Tests

list the evidence sources

A

provide evidence to support or prove the truth of.

1) Transactions and event (SOP/L)
1 Completeness 2 Occurrence 3 Cut off 4
Accuracy 5 Presentation 6 Classification

2) Account balances (SOFP)
1 Existence 2 Rights and obligations 3
Completeness 4 Valuation/Accuracy & Allocation 5
Classification 6 Presentation

procedures: AEIOU

evidence sources (DADA3

Documents (invoices, GDNs, order forms, bank statements etc.)

Assets (which can be inspected to verify existence, and to assess value)

Directors (and other members of client’s staff, who can confirm things in written representations)

Accounting System (asset register, inventory list, cashbook, ledgers, sales day book etc.)

3rd Parties (lawyers, surveyors, bank, customers, suppliers etc., all useful independent people who can verify things in writing about the client)

19
Q

when is analytical procedures mandatory

A

Planning stage (Preliminary analytical review – risk assessment (required by ISA 315)

Final review stage (Final analytical review (required by ISA 520)

20
Q

what is substantive analytical review (voluntary)

A

Substantive analytical procedures

Analytical procedures are used as substantive procedures when the auditor considers that the use of analytical procedures can be more effective or efficient than tests of details in reducing the risk of material misstatements at the assertion level to an acceptably low level.

21
Q

what is Final analytical review (required by ISA 520)

A

Analytical procedures are performed as an overall review of the financial statements at the end of the audit to assess whether they are consistent with the auditor’s understanding of the entity.

Final analytical procedures are not conducted to obtain additional substantive assurance. If irregularities are found, risk assessment should be performed again to consider any additional audit procedures are necessary.

22
Q

what is preliminary analytical review i.e. risk assessment (required by ISA 315)

and What are the uses of analytical procedures during the PLANNING stage of the audit?

A

Preliminary analytical reviews are performed to
* obtain an understanding of the business and its environment (eg financial performance relative to prior years and relevant industry and comparison groups),

  • to help assess the risk of material misstatement in order to determine the nature, timing and extent of audit procedures, ie to help the auditor develop the audit strategy and programme.

2nd Q

To identify the risks of material misstatement

To identifying unusual transactions and events

23
Q

Regarding the use of the work of a specialist

is the auditor required to perform substantive procedures to verify the specialist’s assumptions and findings?

and identify what statements concerning the auditor’s use of the work of a specialist is true

A

The auditor is NOT required to perform substantive procedures to verify the specialist’s assumptions and findings

The auditor may choose to perform substantive procedures to verify the specialist’s findings if the specialist is related to the client, but the auditor is NOT REQUIRED to do so.

the following statements is concerning the auditor’s use of the work of a specialist is true

The specialist should understand the auditor’s use of the specialist’s findings

The client should understand the nature of the work to be performed by the specialist

The auditor should obtain an understanding of the methods and assumptions used by the specialist

24
Q

In which scenario would an auditor be most likely to increase tests of controls?

A

When a client’s IT system is extensively integrated throughout the company’s accounting system, evidence for a substantive audit test may not be available and the auditor will need to place greater reliance on tests of internal controls related to the IT system.

25
Q

In order to gather sufficient, appropriate evidence, the auditor may make use of external confirmations. These may take the form of being a positive or negative request.

what are they?

A

A positive confirmation always asks respondents to reply to the auditor indicating whether or not they agree with the information provided.

A negative confirmation also asks the customer to agree with the information provided but respond only if they do not agree (i.e. there is a problem)

26
Q

What are the components of a good internal control

A

Internal control components (CRIME)- what makes a good system

1) "C"ontrol activities (APIPS) activities within a 
 	system that will avoid risk of fraud and error
	Authorisation
	Performance review
	information processing
		IT Controls/Activities]
			Application controls
			General controls
	Physical controls
	Segregation of duties
2) "R"isk assessment process of the entity
3) "I" nformation system including the related 
 	business processes, relevant to financial reporting 
 	and communication

4) "M"onitoring of controls
	by internal auditors

5) Control "E"nvironment (3AAA)
	Attitudes
	Actions
	Awareness
27
Q

.

A

.

28
Q

For which of the matters would a written representation NOT be suitable as audit evidence?

A

When accounting records are unavailable, it is not appropriate to obtain a written representation. Such an inability to obtain sufficient and appropriate audit evidence should, if material, result in a modified audit opinion.

e.g. That the payroll charge for three months of the year during which the accounting records were unavailable is correctly stated

29
Q

Regarding subsequent events, auditor have responsibility to what?

A

Auditors do not have a responsibility to perform procedures to identify subsequent events after the date of the auditor’s report

30
Q

Subsequent events procedures should be performed between the date of the financial statements and which date?

A

The date the financial statements are issued

31
Q

what are the Components of completion stage

A 
Components of completion stage
.
1) Subsequent event review
2) Going concern review
3) Mang representation obtained
4) Final analytical review
5) Review procedures
6) evaluation of misstatements
.
7) Consideration of firms continued independence (Ethics)

8) Second partner reiew (Links to quality control procedures)

AAA (3 decks)

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