Audit and Assurance Chapter 6 Flashcards
What are working papers?
are the documentation prepared by and for, or obtained and retained by, the auditor in connection with the performance of the audit.
What details must the working papers contain?
- Name or initials of the auditor who prepared them
- date the working paper was prepared
- area of the audit being worked on
- identifying characteristics of the item/matters being tested
- period end of the financial statements being audited
How much does an auditor need to document?
The ISA suggests that the auditor should write down enough that an experienced audit who has no experience of the particular client could follow and understand what has been done.
How long should working papers be kept?
for at least 6 years from the end of the accounting period to which they relate.
How has technology impacted audits?
- Less physical documents, now stored electronically allowing greater opportunities for remote access via cloud-based applications.
- communication is via email/meetings over the net. It is likely to be more immediate and cost-effective now because of reliable remote conferencing software.
What are the reporting tasks that an auditor has to complete?
- ensuring that all material and significant errors, deficiencies, or other variations from standard are reported internally within the firm.
- ensuring that such findings are reported to those charged with governance within the entity
- ensuring that the shareholders are given the most appropriate audit report that reflects the auditor’s experience
How should auditors deal with misstatements identified during the audit?
Must contain a record of all identified misstatements (except those which are trivial).
As part of the completion procedures, the auditors must evaluate the effect of these identified misstatements on the audit and the effect of uncorrected misstatements on the financial statements.
What is a deficiency in internal control?
is when a control is designed, implemented or operated in such a way that is unable to prevent, or detect and correct, misstatements in the financial statements on a timely basis, or a necessary control is missing.
Who should the auditors communicate deficiencies in internal control to?
- should communicate in writing the significant deficiencies to those charged with governance on a timely basis.
- should communicate to management unless it would be inappropriate to communicate directly to management in the circumstances.
- other deficiencies in internal control identified during the audit that has not been communicated to management by other parties and that, in the auditor’s professional judgments, are of sufficient importance to merit management’s attention.
How should an auditor communicate significant deficiencies in internal control?
a) a description of the deficiences and an explanation of their potential effects.
b) sufficient information to enable TCWG and management to understand the context of the communication. In particular the auditor should explain
i) the purpose of the audits was for the auditor to express an opinion on the financial statements
ii) the audit included consideration of internal control relevant to the preparation of financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control.
iii) the matters being reported are limited to those deficiencies that the auditor has identified during the audit and that the auditor has concluded are of sufficient importance to merit being reported to TCWG.
What is the primary objective of an audit?
To express the opinion on the truth and fairness of the financial statements.
What does an ‘emphasis of matter’ paragraph describe?
It draws users’ attention to issues within the financial statements that they need to see in order to understand them properly.
E.g. significant uncertainties relating to future outcomes of exceptional litigation or regulatory action.
Where should the emphasis of matter paragraph be added to?
should be added after the opinion paragraph, using the heading ‘Emphasis of Matter’, including full details of the matter and the location within the financial statements that explain the issue further.
When should the use of emphasis of matter be used?
must only occur if the matter in question has already been adequately treated and disclosed in the financial statements and the auditor is in agreement with this.
What are the three types of modified opinions that the auditor can issue?
Qualified opinion.
An adverse opinion.
A disclaimer of opinion.
