Audit Flashcards
What is the purpose of trend analysis?
The compare current period data with prior periods to detect changes and assess their reasonableness.
What is the purpose of ratio analysis?
To evaluate relationships between different financial statement items.
What is the purpose of Variance analysis?
Identify and investigate differences between expected and actual results.
What is the purpose of reasonableness testing?
Assess whether financial statement items appear reasonably based on other related data
What is the purpose of benchmarking?
To compare the clients financial performance to industry standards or peers
What is the purpose of cross-sectional analysis?
To compare financial data across business units.
What does national law include in regards to audit?
- Which companies are required to have an audit.
- Who can and cannot carry out an audit.
- Auditor appointment, resignation and removal.
- The rights and duties of the auditor.
Who appoints an auditor?
Members, directors and secretary of state.
What are the auditors rights during appointment?
- Access to the companies books and records at any reasonable time.
- To receive information and explanations necessary for the audit.
- To receive notice of and attend any general meeting of members of the company.
- To be heard at such meetings on matters of concern to the auditor.
- To receive copies of any written resolutions of the company.
What are the rights of the auditor on resignation?
- To request a general meeting of the company to explain the circumstances of resignation.
- To require the company to circulate the notice of circumstances relating to the resignation.
What are some general principle the assurance provider must follow?
- Comply with ethical requirements.
- Apply professional scepticism and judgement.
- Perform acceptance and continuance procedures to ensure only work of acceptable risk is accepted.
- Agree the terms of engagement.
- Comply with quality management standards.
- Obtain sufficient and appropriate evidence.
- Consider the effect of subsequent events on the subject matter.
- Form a conclusion expressing either limited or reasonable assurance as appropriate.
- Document the evidence to provide a record of basis for the assurance report.
What is the purpose of an audit?
To enhance the degree of confidence of intended users in financial statements.
What are the three objectives of the auditor?
- Obtain reasonable assurance about whether financial statements are free from material misstatement. Either due to error or fraud.
- Express an opinion whether financial statements are prepared, in all material aspects, in accordance with an applicable financial reporting framework.
- Report on the financial statements and communicate in accordance with the auditors findings.
Why is an external audit necessary?
Directors manage the company on behalf of shareholders who want to maximise profit. Directors have incentives to manipulate financial statements and show different performance levels. Independent reviews are therefore necessary.
What is the objective of reviewing financial statements?
Perform inquiry and analytical procedures to determine if financial statements have been prepared in all material aspects in accordance with the applicable financial reporting framework.
