Audit Risk And Response Questions Flashcards
Professional skepticism
Having a questioning mind, being alert to situations that leading upto mm, subjecting audit evidence to critical assessment instead of taking it at face value
Professional judgement
Using relevant, training and skills to make an informed decision on the appropriate course of action to be taken for the engagement
Procedures for perpetual inventory counts
- Agree totals of inventory listing to count results using CAATs
- Attend at least one perp inventory count to ensure accuracy
- Review schedule to ensure all inventory lines were counted
- Review coorections made, amount of corr, reason for corr and authorisation
Substantive procedures for directors bonus payments
- Cast the schedule of director bonus payment to disclosure in fs
- Review board meeting to ensure disclosure discussed
- Ensure disclosure is in compliance
- Review cashbook to check any unusual payments to directors
- Agree payroll records to bank statement
- Compare bonuses to prior period and expectations
Going concern procedures
- Check cf forecast and cashbook
- Check reasonableness ofgoing concern
- Obtain written representation from directors about going concern
- Ensure required disclosure to fs accoding to ifrs
- Review board minutes for financing difficulties
- Any covenants breached
- Correspondence with lawyers about any litigations
- Review post year sales to check reasonableness of cf forecast
Discuss with mngmt about cash flow issues
Auditors responsibility in preventing and detecting fraud
- Obtain reasonable assurance
- Obtain sufficient appropriate evidence
- Implementing response
- Respond appropriately to suspected or identified fraud
- Maintain professional skepticism
- Discuss with audit engagement team
Review engagement
Includes practitioner reviewing financial data and performing procedures to ensure financial data is in accordance with fr framework
Not as extensive as external audit
Limited assurance
2 levels of assurance
External audit: high not absolute level called as reasonable assurance that fs are presented fairly that it is free from mm
Review engagement: limited assurance. Sufficient evidence that the subject matter is plausible. Nothing came to attention that fs contains mm
Importance of assessing risk during planning stage
- Obtain an understanding of
- Focus more on important areas
- Skilled personnel and resources
- Create audit strategy and detailed plan
Audit risk and components
Risk that an auditor expresses an inappropriate opinion when fs are mm
1. Cr
2. Ir
3. Dr
Additional procedures to be done by auditor when outsourced
- Obtain understanding of services provided by oc
- Assess design and implement ic of payroll
- Review documentation done by client
- Visit and perform toc on oc
- If not possible then ask type 1 or type 2 report
Materiality and performance materiality
- Material if it affetcts the economic decision of users. Depends on size, risk of business. Based on judgement of auditor. It can be revised during the course of the audit
- Performance materiality: set at lower that materiality to reduce risk that the aggregate of undetected errors are more that materiality
Preconditions of audit
Before accepting the engagement, preconditions of audit must be present:
1. Application of relevant fr framework exits
2. Written representation from management that it understands its responsibilities of the following
Pre of fs should be presented fairly accurately to fr framework
Ic deemed necessary to prepare fs without mm
To provide all relevant info and unrestricted access to personnel
Areas included in audit strategy
- Audit risk
- Nature, timing of communication:
Audit timetable, review, audit team meeting - Significant matters
Materiality, skepticism and judgement - Characterestics of engagement
Applicable fr framework, caat
5,nature, timing and extent of resources
Budgeting, selection of audit team
