Chapter 1: Basics Flashcards

1
Q

Elements of assurance engagement (5)

A
  1. 3 party relationship
  2. Subject matter
  3. Suitable criteria
  4. Evidence
  5. Assurance report
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2
Q

3 party relationship (3)

A
  • Practitioner (audit firm)
  • Responsible Party (directors and management)
  • Intended users (shareholders)
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3
Q

Subject matter (3)

A
  • Data such as F/S
  • prepared by responsible party
  • for practitioner to evaluate
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4
Q

Suitable criteria (3)

A
  • Rules against which the subject matter is evaluated
  • in order to reach an opinion
  • AFRF
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5
Q

Evidence (3)

A
  • Information (Sufficient & Appropriate) used by the practitioner
  • in arriving at the conclusion
  • on which their opinion is based
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6
Q

Assurance report (3)

A
  • Report with practitioner’s option
  • Issued to intended users
  • after evidence collection
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7
Q

Advantages of statutory audits (5)

A
  1. Increases credibility of F/S
  2. Confirms mgmt to have performed their statutory duties correctly
  3. Assurance to mgmt to have complied with non-statutory requirements
  4. Provides feedback on effectiveness of internal controls.
  5. Internal controls = weak/inadequate, auditor will give recommendations for improvement. (reduce risk and improve performance)
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8
Q

Inherent limitations of an Audit (7)

A
  1. High cost
  2. Disruption to the staff of the company
  3. Subject matter could be based on estimates > subjective opinion > truth and fairness uncertain
  4. Frauds deliberately misrepresent info and conceal the truth
  5. Use of sample testing
  6. Client’s system are going to have some degree of limitations regardless of being really strong
  7. Audit evidence = persuasive rather than conclusive
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9
Q

Stewardship (4)

A
  • Directors have stewardship role of a company
  • They look after its assets
  • manage them on behalf of shareholders
  • Act as agent of shareholders
  • legal duty to act in best interests of the principal (sh)
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10
Q

Accountability (4)

A
  • Directors as agents of SH are accountable to SH
  • To show accountability
  • by preparing annual F/S
  • presented to SH for their approval
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11
Q

(true and fair view presentation) (3+2)

A
  1. True = free from error
  2. Fair = no undue bias in F/S or way they are presented
  3. True and fair = judgement being given that
    - F/S can be relied upon
    - prepared properly in acc. with appropriate AFRF
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12
Q

MGMT responsibility relating to audit (5+3)

A
  1. Prevention/detection of fraud
  2. Preparation of F/S
  3. Design and implementation of effective internal controls
  4. Providing auditor with
    - access to info for prep of F/S
    - additional info relating to audit
    - unrestricted access to person whatever he requires to perform audit
  5. Providing written representations to the auditor at the end of the audit.
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13
Q

Professional Skepticism (5)

A

Maintaining Professional Skepticism throughout the audit is necessary to reduce the risk of:

  1. Overlooking unusual transaction
  2. Over generalizing when drawing conclusion from audit observation
  3. Using inappropriate assumptions in determining the nature, timing and extent of audit
    procedures and evaluating result thereof
  4. Critical assessment of audit evidence
  5. identification of material misstatement
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14
Q

Professional judgement meaning (4)

A
  • a professional accountant making informed decisions
  • about courses of actions that are appropriate in the circumstances during audit engagement
  • in context of auditing, accounting, and ethical standards
  • by applying relevant training knowledge, and experience
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15
Q

Uses of Professional Judgement (5)

A

Necessary for decisions relating to:

  • Materiality and audit risk
  • Nature, timing and extent of audit procedures used to obtain audit evidence
  • Evaluate whether sufficient appropriate audit evidence has been obtained
  • Evaluation of management judgement in applying appropriate financial reporting framework
  • Drawing conclusion based on audit evidence obtained. For e.g. assessing the
    reasonableness of the estimates by the management
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16
Q

Reasonable assurance (4)

A
  • High but not absolute level of assurance
  • provided by practitioner’s conclusion
  • expressed in a positive form
  • usually expressed in statutory audits
17
Q

Limited assurance (4)

A
  • Moderate level of assurance
  • provided by practitioner’s conclusion
  • expressed in a negative form
  • usually expressed in review engagements