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Assurance Flashcards

1
Q

Identify threats to independence

A
  • Self Interest ->benefiting from financial or other interest in client
  • Self review
  • Advocacy ->firm/ person promotes a clients position to the point that objectivity may be impaired
  • Familiarity -> Close relationship with client, may become too sympathetic of clients interests
  • Intimidation
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2
Q

Audit planning steps

A
  • If engagement not accepted yet, consider acceptance issues
  • Consider whether there are any threats to independence
  • Assess risk of material misstatement at OFSL
  • Set materiality
  • Explain overall audit approach
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3
Q

Differences between audit/ review/ compilation

A
  • Cost
  • Level of assurance (none, limited, reasonable)
  • Planning (Audit - need to document and test internal controls to determine if they can be relied upon; review - obtain understanding of the entity and environment; compilation - obtain knowledge of entity’s business, accounting system and basis of accounting)
  • Applicable standards (ASPE,IFRS, ASNPO for audit and review; compilations not required to comply but basis of accounting must be agreed upon)
  • Type of work (procedures) - Audit - physical inspection, observation, confirmation, reperformance, examination; review- inquiry and analytical procedures; compilation - compile in accordance with selected basis of accounting
  • Independence - audit/ review required to be independent of the entity; not specifically required in compilation
  • Management responsibilities - All - management is responsible for ultimate prep and presentation of FS; Audit/ review - specifically responsible for for same with chosen framework and developing maintaining internal controls to ensure statements are free from material misstatement
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4
Q

Materiality - percentages?

A

Net income - 3-7%

Use alternatives if there is a net loss or income is not relevant (NPO)
- Revenues/ expenses/ assets - 1-3%
- Equity 3-5%

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5
Q

How do you determine what base and percentage of materiality to use?

A

Based on USER’s needs of the financials and sensitivity to misstatements

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6
Q

What is performance materiality and how is the percentage determined?

A

Auditor focused - used to ensure that total of all uncorrected misstatements is below materiality
Should reflect the amount of RISK
50-90%

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7
Q

Factors impacting approach

A

CONTROL based
- systems not functioning properly during year - may be >1 system with one reliable and one not
- New system installed in the year - may have reliance for part of the year, need to test new system and conversion
- Management integrity concerns - less reliance on management representations

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8
Q

What approach to use on a first time audit?

A

First - document control environment and test controls to determine fi they can be relied upon
- If no deficiencies - combined approach
- If known deficiencies - substantive approach

Must perform procedures on opening balances

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9
Q

What do you need to get from the prior auditor on a first time engagement?

A
  1. Obtain information about opening balances (need to gain assurance - consider key risk areas)
  2. The working papers, audit report, FS
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10
Q

Audit assertions for Balance Sheet and what they test

A

Pre-CCA

Presentation - Whether the account balance disclosed or shown on the FS appropriately

Rights and obligations - Whether the company actually owns the right to the asset or is actually responsible for the obligation of the liability

Existence - Whether the account balance recorded actually exists

Completeness - Whether the account balance includes all items that should be recorded

Classification - whether the account balance is recorded in the right area of the FS

Accuracy & Valuation - Whether the amount of the account balance is recorded correctly

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11
Q

Audit assertions for the Income statement and what they test

A

COP-CCA

Completeness - Whether the transactions/ components that have occurred have been recorded

Occurrence - Whether the transaction recorded actually happened

Presentation - Whether the transaction is disclosed or shown on the FS appropriately

Classification - Whether the transaction is recorded in the right area of the FS

Cut off - Whether the transaction is recorded in the proper period

Accuracy - Whether the amount of the transaction is recorded correctly

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12
Q

Audit misstatements
- Steps?

A
  1. identify issue:
    -> Explicit trigger ex) discuss impact on the audit report of finding accounting errors
    -> Implicit trigger ex) audit is complete and you are reviewing the work performed
  2. Compare unadjusted errors to materiality level to determine whether misstatements are material
  3. Conclude whether material and if material, explain impact:
    - Management needs to adjust FS to obtain unqualified audit opinion
    - If management wont adjust, modified audit opinion
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13
Q

Types of opinions?

A
  • Unmodified - misstatements are immaterial (individually and in aggregate)
  • Qualified opinion - Misstatements are material but not pervasive OR auditor unable to gain sufficient audit evidence to make an opinion, but possible effects could be material but not pervasive
  • Adverse opinion - misstatements are both material and pervasive to the FS
  • Disclaimer of opinion - auditor unable to obtain sufficient audit evidence to make an opinion, and concludes that effects could be both material and pervasive
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14
Q

Describe an ‘emphasis of matter paragraph’ and where to find in handbook

Examples?

A

CAS 706 ‘Emphasis of matter paragraphs and other matter paragraphs’

Provides additional information about an appropriately presented issue, due to its IMPORTANCE FOR THE USERS UNDERSTANDING of the FINANCIAL STATEMENTS

Used when the auditor would not be required to modify the opinion as a result of the matter and when the matter has not been determined to be a key audit matter.

Examples:
- An uncertainty relating to the future outcome of exceptional litigation or regulatory action
- A significant subsequent event
- Application of a new accounting standard that has material effect on the FS
- A catastrophe that has/ had significant effect on FS

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15
Q

Describe ‘other matter paragraph’ and where to find in handbook

Examples?

A

CAS 706 ‘Emphasis of matter paragraphs and other matter paragraphs’

Provides additional information about a matter other than those presented or disclosed that is RELEVANT TO THE USERS UNDERSTANDING of the AUDITORS REPORT

  • Component auditor has a modified opinion
  • Change in audit opinion
  • Reporting on compliance
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16
Q

Describe ‘Material uncertainty related to going concern paragraph’ and where to find in handbook

A

CAS 570 Going Concern

Provides information on material uncertainty as disclosed in financial statement

If adequate disclosure about the material uncertainty is made in the FS, can express unmodified opinion but include this paragraph

If adequate disclosure is not made in the FS, express a qualified or adverse opinion

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17
Q

Describe ‘Key Audit Matters paragraph’ and where to find it in the handbook

Examples?

A

CAS 701 ‘Communicating key audit matters in the independent auditors report’

Provides additional information on matters significant to the audit and how they were addressed in the audit

3 things listed in CAS to consider:
1.Higher significant risks
2. Auditor judgements
3. Impact from significant transactions

  • Revenue recognition
  • Instances Fraud
  • Impairment of assets
  • Provisions and contingent liabilities
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18
Q

Auditors report
- What are the 5 things listed?

A

Opinion
Basis for opinion
Managements responsibilities
Auditor’s responsibilities
Audit firm, auditor address, date of auditors report

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19
Q

General overall required inquiries related to a review

A
  • Accounting estimates
  • Related parties and transactions
  • Significant, unusual or complex transactions or significant changes
  • Existence of fraud, illegal acts or non compliance with laws and regulations
  • Subsequent events
  • Going conern
  • Material commitments, contractual obligations or contingencies
  • Material non- monetary transactions
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20
Q

Thought process when determining report options

A
  1. Consider user needs:
    - Level of assurance required
    - Cost considerations
    - Financial vs non financial
    - Historical vs future oriented
  2. Explain nature of engagement for each valid option
  3. Recommend report option
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21
Q

Special reports
- What are 3 reports that are related to financial info other than financial statements?

A
  • CAS 805 ‘Special considerations - audits of single financial statements and specific elements, accounts or items of a financial statement’
  • CSRS 2400 ‘Engagements to review historical financial statements’
  • CSRS 4400 ‘Agreed upon procedures engagements’
22
Q

Special reports
- What is a report for non financial information?

A

CSAE 3000 ‘Attestation Engagements other than audits or reviews of historical financial information’
CSAE 3001 ‘Direct engagements’

23
Q

Special reports
- What is a report for compliance?

A
  • CSAE 3530 ‘Attestation engagements to report on compliance’
  • CSAE 3531 ‘Direct engagements to report on compliance’
24
Q

Special reports
- What is a report for application of accounting principles?

A

7600 ‘Reports on the application of accounting principles’

25
Q

Special reports
- What are 2 reports for financial forecasts or projections?

A
  • Aug-16 ‘Compilation of a financial forecast or projection’
  • AuG-6 ‘Examination of a financial forecast or projection included in a prospectus or other public offering document’
26
Q

Special reports
- What are 2 reports for internal controls?

A
  • CSAE 3416 ‘Reporting on controls at a service organization relevant to users entities internal control over financial reporting’
  • CSRS 4400 ‘Agreed upon procedures engagements’
27
Q

Special reports
- What is a report for offering documents?

A

7150 ‘auditors consent to use of a report of the auditor included in an offering document’

28
Q

Special reports
- What is a report for Interim Financial Statements?

A

7060 ‘Auditor review of interim financial statements’

29
Q

Special Reports for Financial Info other than F/S
- Explain the CAS 805 (audit) report
‘Special considerations - audits of single financial statements and specific elements, accounts or items of a financial statement’
- Where to find in handbook>

A
  • Used to audit single financial statements, or specific elements, accounts or items within a FS
  • Provides reasonable assurance
  • audit procedures performed would be those of inspection, observation, confirmation, recalculation, re-performance and analytics
  • A specific materiality would be used (likely lower than materiality used for audit engagement)
  • Often the costliest of options due to the level of procedures required to reach ‘reasonable assurance’
    Handbook:
  • Assurance -> Canadian auditing standards
30
Q

Special Reports for Financial Info other than F/S
- Explain the CSRE 2400 (review) report
CSRS 2400 ‘Engagements to review historical financial statements’
- Where to find in handbook?

A

Similar to CAS 805 but review level

  • Provides limited assurance
  • Nature of procedures would be limited to analytical and inquiry
  • A specific materiality would be used (lower than materiality used for audit engagement)
  • would be less costly than an audit level report
    Handbook:
    -Assurance -> Other Canadian standards -> related services
31
Q

Special Reports for Financial Info other than F/S & reports for internal controls
- Explain the CSRS 4400 (no opinion) report
CSRS 4400 ‘Agreed upon procedures engagements’
- Where to find in handbook?

A
  • Would perform specific procedures as requested and report on the results of those procedures
  • No assurance provided in the report
  • Lowest cost
  • No opinion or conclusion is provided on this report
    Handbook:
    -Assurance -> Other Canadian standards -> related services
32
Q

Special Reports for Non Financial Information
- Explain the CSAE 3000/3001 (audit or review) report
CSAE 3000 ‘Attestation Engagements other than audits or reviews of historical financial information’
CSAE 3001 ‘Direct engagements’
- Where to find in handbook?

A
  • Reporting on items other than FS or other historical financial information
  • Must identify or develop criteria to assess the information that are relevant, reliable, neutral, understandable, and complete
  • Direct - reports on results of testing the specific criteria
  • Attest - reports on validity of another party’s test of the criteria
    *Attest is higher level of assurance
    Handbook:
  • Assurance -> Other Canadian standards -> General assurance
33
Q

Special reports for compliance
- Explain the CSAE 3530/3531 (audit or review)
CSAE 3530 ‘Attestation engagements to report on compliance’
CSAE 3531 ‘Direct engagements to report on compliance’
- Where to find in handbook?

A
  • Reporting on entity’s compliance with specified requirements. Can be a portion of or entirety of agreement, legislation etc.
  • Must identify or develop criteria to assess compliance
  • Direct - report on whether the entity complied
  • Attest - report on whether managements statement of entity’s compliance is fairly stated
    *Attest is higher level of assurance
    Handbook:
  • Assurance -> Other Canadian standards -> General assurance
34
Q

Special reports for application of accounting principles
- Explain the HB 7600 (audit) report
7600 ‘Reports on the application of accounting principles’
- Where to find in handbook?

A
  • Provides written report or oral advice on application of accounting principles to specific transaction, or impact of a specific transaction on opinion to be rendered on FS
  • Cannot be hypothetical transaction
    Handbook:
  • Assurance -> Other Canadian standards -> Specialized areas
35
Q

Special reports for financial forecasts or projections
- Explain the Aug-16 (no opinion) report
Aug-16 ‘Compilation of a financial forecast or projection’
- Where to find in handbook?

A
  • Compilation - limited to preparing the forecast or projection based on information provided by management
  • Inquire as to how management developed assumptions
  • Determine whether management assumptions are appropriate for the circumstances and there are no obvious omissions and inconsistencies
  • Limited procedures consisting primarily of inquiry related to the information and considering whether the financial forecast or projection is prepared in accordance with GAAP
    Handbook:
  • Assurance -> Assurance and related services guidelines
    *CANNOT provide assurance on future
36
Q

Special reports for financial forecasts or projections
- Explain the Aug-6 (opinion) report
AuG-6 ‘Examination of a financial forecast or projection included in a prospectus or other public offering document’
- Where to find in handbook?

A

-Whether assumptions suitably supported and consistent with plans of entity; forecasts reflects assumptions
- For forecasts included in prospectus or other public offering documents
- Disclaimer that actual results may vary materially from forecast
Handbook:
- Assurance -> Assurance and related services guidelines
*CANNOT provide assurance on future

37
Q

Special reports for internal controls
- Explain the CSAE 3416 (opinion)
CSAE 3416 ‘Reporting on controls at a service organization relevant to users entities internal control over financial reporting’
- Where to find in handbook?

A
  • Controls at a service organization
  • Must relate to internal control over financial reporting
  • Provides reasonable assurance
  • Type 1 - at a specific date; opinion on design of controls only
  • Type 2 - throughout specified period; opinion on design and effectiveness during period
    Handbook:
  • Assurance -> Other Canadian standards -> General assurance
38
Q

Special reports for offering documents
- Explain HB 7150
7150 ‘auditors consent to use of a report of the auditor included in an offering document’
- Where to find in handbook?

A
  • Auditors consent to use of auditors report in offering document
  • Review for material inconsistencies and accurate reproduction
  • Perform procedures over intervening period events (between date of issuance of report and inclusion in offering document)
    Handbook:
  • Assurance -> Other Canadian standards -> Specialized areas
39
Q

Special reports for interim FS
- Explain the HB 7060 (review) report
7060 ‘Auditor review of interim financial statements’
- Where to find in handbook?

A
  • Purpose to assist audit committee in discharging its responsibilities with respect to interim FS issued under securities legislation
  • Limited assurance - whether any material modification should be made for those statements to be in accordance with applicable financial reporting framework
  • Must gain an understanding of the entity and its environment, including internal control
  • Must read interim MD&A and ensure consistency with interim FS
    Handbook:
  • Assurance -> Other Canadian standards -> Specialized areas
40
Q

Client acceptance or continuance
- steps?

A
  1. Identifying and assessing the engagement risks
    -> Integrity of owners/ management
    -> Is engagement team competent and have necessary capabilities, including time and resources
    -> Is there independence
    -> Significant matters arose since last engagement (if not a first time engagement)
  2. Establishing the engagement preconditions
    -> Determine if financial reporting framework is appropriate
    -> Obtain agreement of management that it acknowledges and understands its responsibility
41
Q

First time review approach
- What 3 things are needed for a marking guide?

A
  • Focused primarily on inquiry and analytical procedures
  • Not required to understand internal controls, but required to obtain an understanding of the company and it’s environment and applicable reporting framework
  • obtain sufficient appropriate evidence on opening balances to determine if misstatements that would materially affect the current periods financials
42
Q

CAS 610 - Internal Auditor
- Using work of internal auditors requires the external auditor evaluate what 3 things?

A
  1. The extent to which the internal audit functions’ status and relevant policies and procedures support the OBJECTIVITY of the internal auditors
  2. The level of COMPETENCE of the internal audit function
  3. Whether the internal audit function applies a SYSTEMATIC APPROACH, including quality control
43
Q

CAS 620 - Auditors Expert
- What all does this section cover?

A
  • Determining the need for an auditor’s expert
  • Determining the competence, capabilities and objectivity of the auditor’s expert
  • Evaluating the adequacy of the auditors experts work
44
Q

When using an internal auditor or an auditor’s expert, does any of the auditors responsibility get shared with these other auditors?

A

No
The external auditor has sole responsibility for audit opinion expressed, and that responsibility is not reduced by the external auditors use of the work of an internal audit function or auditor expert

45
Q

When asked for consent to include an auditors audit report in a disclosure document, this means that the auditor will be associated with the document.
- What CAS could you refer to?
- What to consider under this CAS?

A
  • CAS 720 The auditors responsibilities relating to other information

Shall read the information and consider:
- whether there is a material inconsistency between the other information and the financial statements
- whether there is a material inconsistency between the other information and the knowledge obtained in the audit

If inconsistencies are found:
- Discuss with management and if necessary, perform other procedures to conclude whether:
- > a material misstatement of the other information exists
-> a material misstatement of the FS exists; or
-> the auditors understanding of the entity and its environment needs to be updated

Follow each of these within the standard to determine next steps

46
Q

In preparing a policy for a company (ex- conflict of interest policy), what are 4 things that should be included?

A
  • Definition of (conflict of interest)
  • Examples of (conflict of interest)
  • Procedures to follow
  • Consequences if not followed
47
Q

Auditor responsibilities in regards to fraud:

A
  • Identify and assess risks due to fraud
  • To obtain sufficient audit evidence regarding these risks
  • to respond appropriately to fraud or suspected fraud
48
Q

Once fraud has been identified and brought to the attention of the auditor, there are additional responsibilities that exist.
- Where would I find these?
- What auditor responsibilities should be discussed?

A

CAS 240 - Auditor responsibilities relating to fraud in an audit of FS

Will need to determine relevance to the case. There are multiple auditor responsibilities relating to fraud. 3 discussed would be good. Top choices:
- Professional skepticism
- Written management representations
- Communicate to those charged with governance

49
Q

What does a case mean when it asks for specific matters to be included?

A

Think emphasis of matter and other matter paragraphs

50
Q

Auditor objectives related to going concern

A
  • To obtain sufficient audit evidence regarding the appropriateness of managements use of the going concern assumption
  • To conclude, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entities ability to continue
  • To determine the implications
51
Q

When events are identified that questions the going concern assumption, what should the auditor do?

A
  • Request management perform an assessment
  • Request written representation from management regarding it’s plan for action
  • Evaluate managements plan of action
    -> Evaluate reliability of data

Conclude:
- the going concern assumption is appropriate
- the going concern assumption is appropriate but material uncertainty exists
- the going concern assumption is not appropriate

52
Q

Due diligence - focus procedures on: (3)

A
  • Existence, ownership and valuation of assets
  • Completeness of liabilities
  • Sustainability of earnings

ALSO:
- Consider impact of materiality
- Focus on high risk areas

Assurance (1 decks)

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