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AA > Audit Procedures > Flashcards

Audit Procedures Flashcards

1
Q

sensitivity analysis

A

looks at how different values of an independent variable affect a dependent variable e.g. what factors affect profit and how can they be measured

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2
Q

how should internal audit work be evaluated?

A
  • assess the internal audit function to see if it seems appropriate
  • are they adequately trained and proficient?
  • are assistants adequately supervised, reviewed and document?
  • is there sufficient evidence
  • are conclusions appropriate
  • are reports consistent
  • are any issues properly disclosed and resolved
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3
Q

how would related party transactions be addressed?

A
  • Identify full list of related parties
  • Review minutes of meetings of shareholders and directors
  • Make enquiries with directors and staff during audit
  • Obtain written representations on completeness of disclosure
  • Review loan agreements for guarantors
  • Review transactions between the two parties to ensure arm’s length basis
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4
Q

how to handle suspected fraud?

A
  • look for evidence of deficiencies in the system
  • increase professional scepticism
  • evaluate and test controls
  • increase substantive work
  • investigate any apparent override/circumvention
    -consider impact on other areas
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5
Q

how can data analytics be used in journals testing?

A
  • year on year comparisons
  • number of manual input vs system generated journals
  • who and when journals are posted
  • identifying fraud risks
  • unusual double entries
  • identifying transactions that do not occur regularly
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6
Q

what are the negative impacts of data analytics?

A
  • cost
  • dependent on underlying data quality
  • training is necessary
  • ensuring the security of client and audit data
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7
Q

examples of data analytics routine

A
  • comparing the last time an item was bought with it was sold
  • inventory ageing
  • receivables and payables ageing
  • analysis of revenue and gross margins trends
  • analysing how transactions are processed
  • depreciation recalculations
  • analysis of capital expenditure vs repairs & maintenance
  • three way matching of revenue and expenditure
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8
Q

how can data analytics be used?

A
  • analyse all transactions in a population and identify any outliers for further examination
  • reperform calculations relevant to the financial statements
  • match transactions as they pass through a processing cycle
  • assist in segregation of duties testing
  • compare entity data to externally obtained data
  • manipulate data to assess the impact of different assumptions
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9
Q

key stages to audit planning

A
  1. assess whether controls can be relied on
  2. this will affect the amount of substantive testing (tests of detail and analytical procedures) conducted
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10
Q

what does ISA 330 say about relying on controls?

A
  • they must be tested
  • they must obtain evidence it is effective and in operation throughout the period under review
  • approach must be adapted in accordance with the nature of the control and the risk it is mitigating
  • must be confirming a relevant financial statement assertion
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11
Q

which substantive procedures are compulsory?

A
  • Agreeing the financial statements to the underlying accounting records
  • Examining material journal entries
  • Examining other adjustments made in preparing financial statements
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12
Q

when are analytical procedures used?

A

for large volumes of predictable transactions

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13
Q

when are tests of details used?

A

to gain information about account balances and for verifying existence and valuation

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14
Q

procedures for bad debts

A
  • Calculate trade receivables days and identify any trends
  • Inspect correspondence with customers for evidence of disputes or bad debts
  • Inspect board minutes
  • Review aged trade receivables analysis to identify overdue amounts
  • Assess the reasonableness of the allowance for receivables by reference to other forms of supporting evidence
  • Obtain a written representation from management confirming the adequacy of the allowance for receivables
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15
Q

how should the internal audit function be assessed?

A

Objectivity - who do they report to and do conflicting responsibilities/restrictions exist?
Competence - do they have the adequate resources, technical training and proficiency to conduct the internal audit?
Systematic and disciplined approach - is the internal audit properly planned, supervised, reviewed and documented?

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16
Q

what impact does relying on the work of the internal audit department have?

A
  • accurate system documentation means controls need only be confirmed using ‘walk-through tests’, saving time
  • if controls are satisfactorily tested by internal audits, they can be tested less
  • this will reduce substantive procedures and sample sizes
17
Q

how is an auditor’s point estimate developed?

A
  • using a different model than the one used by management
  • using management’s model but developing alternative assumptions or data
  • using the auditor’s own method
  • using an expert
  • consideration of other comparable conditions
18
Q

how are accounting estimates audited?

A

ISA 540
- obtain evidence from subsequent events
- test how management made its estimate
- develop an auditor’s point estimate

19
Q

what is considered when management’s estimates are made?

A
  • the method chosen by management
  • any significant assumptions made by management
  • the data used in the estimate
  • how management has selected a point estimate and has approached the existence of estimation uncertainty
20
Q

how would you ensure a company can meets it debts as they fall due?

A
  • obtain a written statement confirming that the company is a going concern
  • review profit and cash flow forecasts
  • request a statement of borrowing facilities to be included in the bank confirmation letter.
  • review the day to day utilisation of the overdraft facility and proximity to the current limit
  • obtain loan confirmations and that payments are being met
21
Q

what does gross profit margin tell you?

A
  • how much profit per sale
  • a high profit margin is good
  • means you are selling for a higher price then you are making the product
22
Q

what are the ranges of materiality based on profit before tax?

A

5%

23
Q

what are the ranges of materiality based on gross profit?

A

0.5%-1%

24
Q

what are the ranges of materiality based on revenue?

A

0.5%-1%

25
Q

what are the ranges of materiality based on total assets?

A

1%-2%

26
Q

what are the ranges of materiality based on net assets?

A

2%-5%

27
Q

what are the ranges of materiality based on profit after tax?

A

5%-10%

28
Q

what are the limitations of analytical procedures?

A
  • substantial knowledge of the business is required for the results to be meaningful
  • they can be performed mechanically
  • relevant information may not be available
  • consistency of results may conceal a material error
29
Q

what are the benefits of analytical procedures?

A
  • identifies items for attention that detailed tests may miss
  • uses information outside account records
  • allows comparison of data from different sources
30
Q

what are the key purposes of obtaining written representations?

A

ISA 580
- They are a source of audit evidence
- They provide evidence that management has fulfilled its responsibilities with respect to the financial statements
- Failure to provide indicates a lack of management integrity

31
Q

what is the purpose of quality management procedures?

A
  • Provides assurance the work of the firm complies with professional standards, applicable regulatory and legal requirements
  • Compliance with the firm’s own procedures for managing quality risks
  • Assurance reports are appropriate in the circumstances
  • Protects the auditor
  • Serves the public interest
32
Q

what are the four Task Force on Climate-related Financial Disclosures?

A

Governance
Strategy
Risk Management
Metrics and Targets

33
Q

what should be included in the engagement letters for matters which are not statutory audits?

A
  • Emphasis on the engagement not being an audit
  • Scope of work will be primarily analytical procedures and enquiry
  • Calculations will be reviewed based on management’s assumptions
  • Forecasts and assumptions will not be prepared by the firm
34
Q

how do auditors express their opinion on the directors’ report?

A
  • if consistent with FS, no modification “the director’s report is consistent with FS”
  • if misstatement, included in ‘Other Information’ section or in ‘Opinions on other matters prescribed by the Companies Act 2006”

AA (5 decks)

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