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Audit A1S1 Summaries Flashcards

1
Q

What is the auditor’s primary role?

A

Verify the truth of bookkeeping, remain independent (NBI), and communicate opinions on financial statements.

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2
Q

List the duties of an auditor.

A
  • Investigate annual financial statements
  • Ensure compliance with accounting records and Companies Act requirements
  • Obtain necessary information for audit purposes
  • Confirm financial statements align with accounting records and reflect the company’s financial position fairly
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3
Q

Who are the parties involved in the auditing process?

A

Management, shareholders, and auditors.

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4
Q

Define an audit.

A

A systematic process of collecting and evaluating evidence about management’s assertions on economic operations, following laid-down criteria (e.g., IFRS), with results communicated in writing.

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5
Q

What are the key elements of an audit?

A
  • Systematic process (planning, evidence collection, evaluation, reporting)
  • Objective evaluation (no bias)
  • Communication of results to users (investors, shareholders, government)
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6
Q

What is the objective of an audit?

A

Express an opinion on whether financial statements are free from material misstatements and fairly represent the company’s financial position and performance.

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7
Q

True or False: An audit guarantees future business feasibility.

A

False

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8
Q

What is the role of the IRBA?

A

Registers auditors, sets ethics standards, and inspects audit work.

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9
Q

What does SAICA promote?

A

Professional standards for Chartered Accountants (CAs).

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10
Q

What types of services do auditors provide?

A
  • Assurance Engagements: Audits (reasonable assurance) and reviews (limited assurance)
  • Non-Assurance Engagements: Compilations, tax consulting, agreed-upon procedures
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11
Q

Differentiate between external and internal auditors.

A
  • External Auditor: Independent, appointed by shareholders, reports on financial statements
  • Internal Auditor: Employee/outsourced, evaluates internal controls, reports to management/audit committee
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12
Q

What are the responsibilities of directors under the Companies Act?

A
  • Maintain accounting records
  • Prepare annual financial statements (AFS) within 6 months of year-end
  • Public companies must appoint an auditor
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13
Q

What are an auditor’s rights?

A
  • Access to all records
  • Annual appointment at AGM
  • Rotation every 5 years (Section 92)
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14
Q

What is the Public Interest Score (PIS)?

A

Determines audit/review requirements based on employee count, turnover, liabilities, and stakeholders.

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15
Q

Define truth and fairness in the context of auditing.

A

Financial statements are verifiable and free from collusion.

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16
Q

What does independence mean for an auditor?

A

No conflict of interest between auditor and management.

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17
Q

What are the stages of the audit process?

A
  • Pre-Engagement: Client investigation, skill assessment, terms agreement
  • Planning: Understand business, assess risks, develop audit strategy
  • Obtaining Evidence: Test controls, perform substantive procedures
  • Evaluation & Reporting: Review evidence, conclude opinion, issue audit report
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18
Q

What is the purpose of internal control systems according to the COSO model?

A

Provide reasonable assurance for financial reporting, operational efficiency, and compliance.

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19
Q

List the components of internal control systems.

A
  • Control Environment: Governance and ethical tone
  • Risk Assessment: Identify and address financial risks
  • Information System: Record and report transactions
  • Control Activities (SCRAM)
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20
Q

What does SCRAM stand for in internal control activities?

A
  • Segregation of Duties
  • Access Control
  • Independent Review
  • Documentation
  • Authorisation
  • Monitoring
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21
Q

What is an audit trail?

A

Stages include initiating, executing, recording, processing, and reporting transactions.

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22
Q

Fill in the blank: The objective of validity in internal control is to ensure that transactions are _______.

A

[authorized, documented, and occurred in the period]

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23
Q

What are the key cycles in business operations?

A
  • Acquisitions & Payments
  • Revenue & Receipts
  • Inventory & Production
  • Payroll & Financing
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24
Q

What is the focus of the revenue and receipts cycle?

A

Ensuring validity, completeness, and accuracy of transactions while mitigating risks like fraud or misstatements.

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25
What is a three-way match in the invoice recording process?
Matching the supplier invoice with the purchase order and goods received note.
26
What are the key controls in cash receipts?
* Daily deposits → Completeness * Bank reconciliations → Accuracy
27
What are the critical documents in the purchases and payments cycle?
* Purchase Requisition * Purchase Order (PO) * Goods Received Note (GRN) * Supplier Invoice * Cheque Requisition * Credit Note
28
True or False: The public sector is governed by PFMA.
True
29
What is the mnemonic for the purchases and payments cycle?
O-G-I-P-R (Order, Goods, Invoice, Payment, Returns)
30
What is the first step in the Revenue and Receipts Cycle?
Order Acceptance & Credit Approval ## Footnote This initiates the process with the customer placing an order.
31
What does the credit manager check during order acceptance?
Creditworthiness and price match ## Footnote New customers need a credit application; existing customers have an available credit limit.
32
What are the three copies sent after an order is approved?
* Warehouse (to prepare goods) * Accounting (for invoicing) * Customer (confirmation) ## Footnote These copies ensure all parties are informed and prepared.
33
What is a key control for ensuring completeness in order acceptance?
Pre-numbered orders ## Footnote This helps track all orders systematically.
34
What is the second step in the Revenue and Receipts Cycle?
Dispatch Goods ## Footnote This step involves the physical delivery of goods to the customer.
35
What is checked before the goods are dispatched?
Quantity and quality ## Footnote This ensures that the goods meet the customer's order requirements.
36
What document serves as proof of receipt for the customer?
Signed delivery note ## Footnote The customer signs this document upon receiving the goods.
37
What is the third step in the Revenue and Receipts Cycle?
Invoicing ## Footnote This involves creating a sales invoice based on the delivery note and original order.
38
What documents does the invoicing clerk use to create a sales invoice?
* Signed delivery note * Original order form ## Footnote These documents ensure accuracy in the invoicing process.
39
What is a key control for ensuring accuracy in invoicing?
Cross-check invoice with delivery note ## Footnote This helps verify that the invoice reflects the delivered goods.
40
What is the fourth step in the Revenue and Receipts Cycle?
Cash Receipts ## Footnote This step involves processing payments received from customers.
41
What is issued when a customer makes a payment?
Pre-numbered receipt ## Footnote This receipt is signed by the cashier to acknowledge the payment.
42
What is a key control for ensuring completeness in cash receipts?
Daily deposits ## Footnote This ensures all cash and cheques received are accounted for.
43
What is the fifth step in the Revenue and Receipts Cycle?
Returns & Allowances ## Footnote This step involves processing customer returns and issuing credit notes.
44
What is issued when a customer returns goods?
Credit note ## Footnote This document must be pre-numbered and authorized by a manager.
45
What are the updates made when goods are returned?
* Inventory records updated * Debtors’ ledger updated ## Footnote These updates reflect the return of goods to stock and adjust the customer balance.
46
What is the sixth step in the Revenue and Receipts Cycle?
Bad Debt Management ## Footnote This step involves handling uncollectible debts.
47
How is the provision for bad debts calculated?
Using aging report ## Footnote For example, it may be calculated as 5% of overdue debts.
48
What is necessary for writing off uncollectible debts?
Committee approval ## Footnote This ensures that the decision is reviewed and validated.
49
What is a key control for ensuring validity in bad debt management?
Independent review ## Footnote This helps confirm the appropriateness of the provisions and write-offs.
50
What is the first step in the Purchase Order Initiation process?
Purchase Requisition ## Footnote Prepared by production/store manager, includes item description, quantity, and date.
51
Who prepares the Purchase Order (PO)?
Purchasing clerk ## Footnote The PO is pre-numbered and requires approval from the purchasing manager.
52
What is required for high-value orders exceeding R25k?
Financial manager approval ## Footnote This is an additional control for significant purchases.
53
What are the copies sent with a Purchase Order?
* Supplier * Accounting * Warehouse * Receiving dept ## Footnote Each copy serves a specific purpose in the purchasing cycle.
54
What is the purpose of the Goods Received Note (GRN)?
To document the goods received ## Footnote Prepared by receiving clerks and includes a quality, quantity, and description check.
55
What does QQD stand for in the context of goods receipt?
Quality, Quantity, Description ## Footnote This check ensures accuracy in received goods.
56
What are the key controls in the Goods Receipt process?
* Accuracy: QQD check * Segregation: Receiving ≠ purchasing ## Footnote This helps prevent errors and fraud.
57
What is the Three-Way Match?
Supplier invoice ↔ PO ↔ GRN ## Footnote This ensures that the invoice matches the order and receipt.
58
What is posted to the purchases journal?
Supplier invoice ## Footnote The creditors' clerk is responsible for this posting.
59
What must be reconciled monthly as part of the Invoice Recording process?
* Creditors’ ledger vs. control account * Bank statement vs. cash book ## Footnote These reconciliations help ensure accuracy in financial records.
60
What is the purpose of the Cheque Requisition?
To initiate payment processing ## Footnote It is prepared by payment clerk A and must be approved by senior management.
61
What is a key control in the Payment Processing step?
Dual authorization for cheques ## Footnote This control helps prevent unauthorized payments.
62
What document is issued when goods are returned?
Credit note ## Footnote The credit note must be pre-numbered and manager-approved.
63
What are the key documents in the Order Initiation step?
* Purchase Requisition * Purchase Order ## Footnote These documents are crucial for tracking and managing purchases.
64
What governs the Public Sector procurement process?
PFMA ## Footnote This law prevents fruitless expenditure and mandates procurement via tenders.
65
What is a significant risk associated with fictitious suppliers?
Unapproved supplier list ## Footnote This risk can be mitigated by maintaining an approved supplier list.
66
How can duplicate payments be prevented?
* 'PAID' stamp * Three-way match ## Footnote These controls help ensure that payments are only made once.
67
What mnemonic can help remember the steps in the Purchases and Payments Cycle?
O-G-I-P-R ## Footnote Stands for Order, Goods, Invoice, Payment, Returns.

Audit 288 (2 decks)

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