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AA > Assurance and Audit > Flashcards

Assurance and Audit Flashcards

1
Q

For a reasonable type of assurance what is;
1. Assurance level
2. Opinion/conclusion
3. An example

A
  1. High
  2. Positive opinion
  3. Audit of financial information
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2
Q

For a limited type of assurance what is;
1. Assurance level
2. Opinion/conclusion
3. An example

A
  1. Moderate
  2. Negative
  3. Review of financial information
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3
Q

ISA 200 objectives of an audit

A

Obtain reasonable assurance about whether the financial statements are free form material misstatements.
Report on financial statements
Communicate with those charged with governance

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4
Q

What’s the audit threshold

A

Exempt:
No more than 50 employees
Turnover does not exceed 10.2 m
Gross assets total does not exceed 5.1 m

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5
Q

What companies must have an audit even if they meet the rules of an exception

A

Plcs
Insurance companies and banks
Where shareholders owning over 10% ask for an audit

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6
Q

Benefits of an audit

A

Independent scrutiny of the business
Additional assurance
A growing business will need an audit eventually
Subsidiary benefits

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7
Q

Name the following for Statutory audit
1. Report to
2. Scope determined by
3. Reporting
4. Level of assurance
5. Circulation of report

A
  1. Shareholders
  2. Companies act 2006, ISAs and other audit regulation
  3. Express opinion of financial statements and other matters
  4. Reasonable
  5. In public domain once filed
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8
Q

Name the following for assurance reports
1. Report to
2. Scope determined by
3. Reporting
4. Level of assurance
5. Circulation of report

A
  1. Management
  2. Terms of agreement and relevant ISAEs and ISREs
  3. Report on conclusion depending on the nature of work
  4. Usually limited
  5. Likely to be restricted
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9
Q

Management responsibilities

A

Managing the business (to achieve company objectives, assessing business risks)
Fulfilling duties under companies act 2006 (safeguarding of company assets, proper accounting records, compliance with laws)

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10
Q

Auditor responsibilities

A

Form an opinion on the financial statements (true and fair, properly prepared, directors report consistent with FS)
Identify material misstatements whether caused by error, fraud or noncompliance

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11
Q

5 fraud procedures (isa 240)

A
  1. Perform a fraud risk assessment
  2. Exercise professional scepticism
  3. Discuss fraud among the engagement team
  4. Respond appropriately to the assessed level of fraud risk
  5. Consider the implications for other areas of the audit
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12
Q

Reporting suspected fraud to
1. Management
2. Those charged with governance
3. Shareholders
4. third parties

A
  1. All cases except below
  2. If management are suspected of fraud
  3. If fraud causes a material misstatement or uncertainty in FS
  4. If there is a duty or right to disclose
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13
Q

3 non compliance procedures (isa 250)

A
  1. Perform a risk assessment
  2. Obtain evidence about compliance
  3. If noncompliance suspected, document and discuss with management
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14
Q

Reporting non compliance to;
1. Internal (management)
2. Those charged with governance
3. Shareholders
4. Third parties

A
  1. All other cases except below
  2. If management suspected of involvement in non-compliance
  3. If non compliance causes a material misstatement of uncertainty in FS
  4. If there is a duty or right to disclose
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15
Q

What should anti-bribery policies focus on? (Bribery act 2010)

A
  • top level culture in which bribery is unacceptable
  • risk assessment
  • due diligence procedures taking a risk based approach
  • communication to staff including training
  • monitoring and review
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16
Q

Implications of the Sarbanes-Oxley act 2002 on
1. Management
2. Auditors

A
  1. COE and CFO must attest veracity if the FS
  2. Greater disclosure of the amendments made to the FS
  3. Stricter enforcement of independence rules
  4. Public company accounting over sight (PCAOB) can inspect audit files of us listed companies
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17
Q

7 steps of related party transactions (isa 550)

A
  1. Obtain list of all related parties from management
  2. Carry out detailed tests of transactions and balances
  3. Reviewing minutes of meetings of shareholders and directors
  4. Reviewing bank confirmation letters for evidence of guarantor relationships
  5. Reviewing investment transactions (to identify related parties)
  6. Confirm the correct diclosures have been made in the FS
  7. Obtain written management representation that all related parties have been disclosed
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18
Q

Money laundering responsibilities

A
  1. Report actual or suspected money laundering to the firms money laundering nominated offer
  2. Money laundering nominated officer reports to national crime agency (NCA) if required
  3. Avoid tipping off the client
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19
Q

What’s the laws under GDPR and Data protection act?

A
  1. Anyone processing data has to make sure that is is correctly protected
  2. Individuals can access their data and how it is processed
  3. Personal data can only be held with permission or by law
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20
Q

What does the auditor need to do if climate change impacts entity

A
  1. Consider risk of material misstatement for the climate related risks
  2. Understand how climate related risks affect their responsibilities
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21
Q

What standards are applicable to;
1. all engagements
2. Additional guidance

A
  1. Ethical standards
    Risk assessment
    Terms of engagement
    ISQMs
  2. Companies act 2006
    ISAs
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22
Q

Roles of the international auditing and assurance standards board (IAASB)

A
  • subsidiary or IFAC
  • develop international standards (issues ISAs, ISQMs and other standards)
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23
Q

Role of the financial reporting council (FRC)

A
  • supervises accountancy related issues in the UK
  • issues ISAs (UK)
  • Also issues other standards and guidance (ethical standard, practice notes, bulletins)
  • occasionally brief paper on key audit issues
  • investigates matters of misconduct and has disciplinary powers against audit firms
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24
Q

Outline the EU directive and regulations 2014 provisions

A
  • improve quality if audit and reporting
  • mandatory retendering for audits (10 years) and auditor rotation (20 years)
  • ban on providing non-audit services to public interest entities
  • cap on fees for non-audit services
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25
Q

What is the topic of the briefing paper issued by FRC on professional scepticism

A

It recognises the difficulty in exercising scepticism when the culture of audit firms encourages close working relationships with clients

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26
Q

Outline some new considerations for FRC in relation to auditing standards

A

-big data
- the future of audit
- joint audits
- climate change and sustainability
- technological advances

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27
Q

What are the fundamental ethical principles?

A
  • integrity
  • objectivity
  • professional competence and due care
  • confidentiality
  • professional behaviour
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28
Q

What are the threats to objectivity and independence

A
  • self-Interest threat
  • self review threat
  • advocacy threat
  • familiarity threat
  • intimidation threat
  • management threat
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29
Q

Def: integrity

A

To be straightforward and honest in all professional and business relationships.

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30
Q

What non audit services are prohibited for PIE clients that are also audit clients

A
  • tax services
  • playing any part in decision making
  • bookkeeping/ preparing FS
  • payroll services
    -design / implementation of internal controls or risk management procedures
  • valuation services
  • legal services
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31
Q

What’s the duty of confidentiality mean

A

Auditors should not;
- disclose client information unless there is a right or duty to
- should take all reasonable steps to preserve confidentiality
- should not use confidential information for personal advantage

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32
Q

What are appropriate safeguards if a firm works for two clients whose interests are in conflict

A
  • separate teams
  • information barriers
  • confidentiality agreements signed by employees and partners
  • review if the application of safeguards by an independent partner
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33
Q

Social media benefits

A
  • sharing experiences
  • creating engagement
  • easing awareness
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34
Q

Social media negatives

A
  • confidentiality breaches
    Criticism
    Lack of integrity / professional behaviour
    Offensive posts
    Illegal acts
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35
Q

Consequences of poor quality management of an audit firm

A

Icaew
- fines
- disciplinary action
- withdrawal of the firms with oration to carry out audits
Other
- being sued for negligence
- collapse of the assurance firm
- loss of reputation, clients and key staff
- companies act 2006 act offence

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36
Q

Components of a system of quality management

A
  • the firms risk assessment process
  • governance and leadership
  • relevant ethical requirements
  • acceptance and continuance
  • engagement performance
  • resources
  • information and communication
  • monitoring and remediation
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37
Q

Components of engagement quality review

A
  • understanding the nature and circumstances of the engagement
  • discussion of significant matters / judgments with engagement partner
  • review of selected audit documentation relating to significant matters
  • evaluate the partners assessment of ethical independence
  • evaluate consultations on difficult / contentious matters
38
Q

For a cold review outline;
1. The purpose
2. When
3. Which clients

A
  1. To assess whether the firms policies and procedures were implemented during an engagement and to identify any deficiencies
  2. After the auditor report has been signed
  3. A selection of completed audit files
39
Q

What should be taken into account when setting the engagement fee, as alined with code of ethics?

A

Personnel, time, risk, complexity and expenses

40
Q

What are the considerations of accepting appointment as an auditor

A
  • risk analysis
  • ethical barriers
  • practical issues (resources and competence)
  • legal issues (was the appointment in accordance with companies act 2006)
41
Q

What circumstances result in the following group appointing the auditors
1. The directors
2. The shareholders
3. The Secretary of State

A
  1. To fill a vacancy (first appointment or as a result of the retirement of an auditor)
  2. By passing an ordinary resolution
  3. When no auditor has been appointed in time
42
Q

Duty and rights of an auditor that has been sacked

A

Duty
- prepare and submit a statement of circumstances tie the company’s registered office

Rights
- prepare written representation to be circulated to the meme era
- receive notice of, attend and speak at the meet where the appointment is considered

43
Q

Duty and rights of an auditor that hands in their resignation

A

Duty
- prepare and submit a statement of circumstances tie the company’s registered office

Rights
- prepare written representation to be circulated to the meme era
- right to request, attend and speak at an EGM

44
Q

What should the engagement letter cover?

A
  • the objective and scope of the audit of FS
  • management responsibilities
  • auditor responsibilities
  • form and content of reports and communication of audit
  • auditors right to access record documents and information required
  • the expectation that bay management will provide written representation
45
Q

When does an engagement letter need to be sent

A
  • Start of an engagement
  • because the terms need to be revised
  • if the client needs to be reminded
46
Q

What should be covered in the terms on an engagement for other assurance work

A
  • work that will be carried out
  • form and content of any report
47
Q

Reasons for planning

A
  • enables the auditor to devote attention to important areas
  • identify and resolve potential problems
  • Organise the audit to ensure it performs in an efficient and effective way
  • select staff of appropriate competence
  • direct and supervise team members
  • coordinate work to experts
48
Q

Materiality threshold by;
1. Profit before tax
2. Gross profit
3. Revenue
4. Total assets
5. Net assets
6. Profit after tax

A
  1. 5%
  2. 0.5 - 1%
  3. 0.5 - 1%
  4. 1 - 2%
  5. 2 -5%
  6. 5-10%
49
Q

Material by nature examples

A
  • matters relating to directors of related party transactions
  • small amounts that impact on critical points (change a profit into loss, net assets into net liabilities, any turn or a threshold)
50
Q

Limitation of analytical procedures

A
  1. They require a sound knowledge or experience of the entity. (Will be limited in the first year)
  2. High level procedure (requires staff of an appropriate level)
  3. Depends upon reliability of the source data
51
Q

How to perform analytical procedures

A
  • gain understanding
  • develop expectation
  • compare actual with expectation
  • investigate any unexpected variance
52
Q

Outline some sources if information for a risk assessment required by isa 315 and 330
1. External
2. Audit firm
3. Client

A
  1. Credit reference
    Companies house searches
    Industry regulators
  2. Previous years working appears
    Knowledge of last years team / partner
    The firms industry specialist
  3. Discussions
    Board minutes
    Observation
53
Q

What does audit risk equal in the audit risk model

A

= inherent risk x control risk x detection risk

54
Q

Def: inherent risk

A

The susceptibility of an assertion about a class of transactions, account balance or disclosure to a misstatement that could be material, either individually or when aggregated with other misstatements

55
Q

Def: control risk

A

The risk that a misstantemtn is not prevented, detected or corrected by the entity’s controls

56
Q

Def: detection risk

A

The risk that a the procedures performed by the auditor do not detect the misstatement that exists and could be material

57
Q

Def: significant risk

A

When the assessment of inherent risk is close to the upper end of the spectrum of inherent risk

58
Q

Outline some examples of significant risk

A
  • transactions that involve subjectively
  • accounting estimates that have high amount of uncertainty
  • complexity in data collection and processing
  • account balances that involve complex calculations
  • accounting principles that may be subject to differing interpretations
59
Q

Def: business risk

A

The risk that could adversely affect the entity’s ability to achieve its objectives and execute its strategies

60
Q

Outline some responses to the over risk

A
  • emphasis the need to maintain professional scepticism
  • assign extra or more experienced staff
  • use experts
  • change the nature, timing and extent of the procedures
  • incorporate more unpredictability into the audit
  • change the audit strategy
61
Q

What work should be carried out when the auditor places reliance in others work

A
  1. General assessment (are they competent and independent)
  2. Specific assessment (is the work suitable to be relied on)

This is because the auditor has the sole responsibility to form an opinion on the truth and fairness of FS

62
Q

What needs to be carried out when using the work of internal auditors (isa 610)

A
  1. Assess the internal audit function (objectivity, competence)
  2. Assess the specific work that may be relied upon (was the work planned performed and reviewed appropriately)
  3. The auditor should test and conclude on the adequacy of the work
63
Q

Outline some audit considerations if the entity has outsourced some functions (isa 402)

A
  • obtain an understanding of the services outsourced
  • consider access to the source of evidence
  • assess the risks arising
  • review any assurance reports prepared
64
Q

Objectives of audits of group FS

A
  • communicate clearly with the comments auditors (subsidiaries)
  • obtain sufficient evidence to express an opinion on the group financial statements
65
Q

How to achieve the objectives of an audit of the group FS

A
  • consider if the group auditor can obtain sufficient audit evidence
  • obtain an understanding of the group
  • obtain understanding of the component auditor’s independence.
  • set group materiality that is higher then component materiality
66
Q

What should the auditor do once misstatements are identified

A
  • inform management
  • reassess materiality
  • determine whether I corrected misstatements are material
  • obtain written confirmation that the misstatements are immaterial
67
Q

Procedures for opening balances (isa 510)

A
  • agree b/f figured to last years FS
  • assess accounting policies applied to opening balances
  • perform on of the following
    Review previous auditors work
    Perform specific procedures on opening balances
68
Q

What actions should be taken for comparative information (isa 710)

A
  • the auditor must obtain sufficient evidence that the comparatives are true and fair
  • If a misstatement remains present and unchanged the auditor should consider modifying their opinion of the audit
69
Q

How should the FS be prepared if the entity is no longer a going concern

A

Break up / liquidation basis
- only current assets and liabilities
- assets valued at recoverable amount
- provisions for new costs e.g. redundancies

70
Q

If evidence of condition is found to exist at the date of the FS, will it
1. Qualify as an adjusting event
2. What is the implication of the FS

A
  1. Yes
  2. FS should be adjusted
71
Q

If evidence of condition is found to exist after the date of the FS, will it
1. Qualify as an adjusting event
2. What is the implication of the FS

A
  1. No
  2. The event should be disclosed in the FS
72
Q

What should an auditor do if management refuse to amend the FS after an adjusting event

A
  • seek legal advice
  • use right to speak at AGM
  • consider resignation
73
Q

What should be communicated with those charged with governance (isa 260)

A
  • the responsibility of the auditor
  • an overview of the planned scope and timing of the audit
  • significant findings
  • for listed clients there should be additional independence reassurnaces
74
Q

How to communicate deficiencies in internal control

A
  • a covering letter
  • a table with a list of the deficiencies and their respective consequences and recommendations
75
Q

What are the outcomes of an modified report but unmodified opinion on FS?

A

Emphasis of matter
Other matter

76
Q

What are the outcomes of a modified report and modified opinion

A

Qualified
Adverse
Disclaimer

77
Q

What are the components outline in an unmodified report

A
  • auditors opinion
  • Implied opinion (under companies act 2006)
  • Uk corporate governance code requirements
78
Q

What should be included in an emphasis of matter paragraph

A
  • highlight the matter which has been properly disclosed
  • state that the audit opinion has not been modified
79
Q

What should be included in an other matter paragraph

A

-highlight the matter not included in the FS

80
Q

What is a qualified opinion

A

When the FS are materially misstated or an inability to obtain sufficient evidence. However it is material and not pervasive

81
Q

What is an adverse opinion

A

When the FS is misstated and it is found to be material and pervasive

82
Q

What is a disclaimer of opinion

A

When there is an inability to obtain sufficient appropriate audit evidence that is material and pervasive

83
Q

What are the requirements for auditors in relation to the directors report

A

Identify any inconsistencies and if they remain unresolved then amend the auditors report

84
Q

What are the threshold for a charity to have an audit

A

Gross income over 1 m
Or gross assets over 3.26 m and gross income over 250,000

85
Q

What is the requirement for a charity that has a gross income between 25,000 and 1 m

A

An independent verification of the FS

86
Q

What are the requirements for a charity that has an income less then 25,000

A

Send a copy of accounts to the charity commission

87
Q

What additions to the scope are included for public sector audits

A
  • regularity (legal transactions)
  • propriety (ethical transactions)
  • value for money (was this the best way to spend public money)
88
Q

What are the procedures of an examination of prospective financial information (isa 3400)

A
  • consider management competence
  • assess reasonableness of assumptions
  • check accuracy
  • if forecasts have already elapsed then compare that to historical information
  • seek written management information
89
Q

What are the procedures for a review of the FS

A
  • enquire with management
  • analytical and other review procedures
  • seek written management representation
90
Q

What are the levels of assurance that auditors can give in greenhouse gas statements (ghgs)

A

Reasonable - an opinion on whether the statement has been prepared correctly

Limited- conclusion on if anything has come to the auditors attention that may indicate has not been prepared correctly

91
Q

What’s the standard markup?

A

60%
Revenue could be understated if this is not the case

AA (3 decks)

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