Chapter 10 Flashcards
Audit Procedures - Verbs
AEIOURC
Analytical procedures
Enquiry
Inspection
Observation
Recalculation
Reperformance
Confirmation
Audit Procedures - Assertions
VERP2C
Valuation
Existence
Rights & obligations
Presentation
Cut off
Completeness
Audit Evidence - Opening balances ISA 510
The auditor shall obtain sufficient appropriate audit evidence by:
- Closing balances correctly brought forward
- Appropriate accounting policies
- When new audit client:
- Reviewing the predecessor auditor’s working papers
- Performing specific audit procedures on the opening balances
Consider impact on auditor’s report where:
- Misstatements discovered
- Inability to obtain evidence
Audit Evidence - Using the Work of the Internal Audit ISA 610
External auditors can use tests done by the internal audit during the year but must confirm:
- Objectivity
- Technical competence/ experience
- They had unrestricted access
- Due professional care i.e. work was well planned, supervised and reviewed and evidence is sufficient and appropriate
- Some re-performance will be necessary
Audit Evidence - Audit of Estimates ISA 540
Procedures:
- Inherent risk of management bias therefore - re-perform
- Review consistency with accounting standard
- Enquire how management identify transactions requiring an estimate
- History of accuracy
- Review subsequent events
Audit Evidence - Audit of Related Parties ISA 550
Accounting standards require disclosure of transactions with related parties and disclosure of ultimate controlling party.
Procedures:
- Review prior years F/S
- Enquire to the directors of the existence of related parties
- Reviewing board minutes
- Review disclosures
- Letter of representations
Audit Evidence - Use of Expert ISA 620
If the auditor choses to rely on the expert they must consider:
- Competence & capabilities
- Experience
- Objectivity
- Scope & instructions given
- Approach, working papers and adequacy of conclusions
Audits of Group Financial Statements - ISA 600
Provides guidance to the auditor of a group where one or more of the components of that group are audited by other auditors.
The auditor of the parent of group
They are responsible for the audit of the parent company and the group financial statements.
However they may not be the auditor of all the components whose financial statements are consolidated.
Group Audit - Significance of component auditor
The group auditor must evaluate the significance of the components audited by others.
A component is significant when:
- It is of individual financial significance to the group, or
- Due to its specific nature or circumstances, is likely to include significant risks of material misstatement of group F/S.
Group Audit - Reliance of component auditor
Group Auditor will need to consider:
- Qualification
- Competence
- Scope of the audit
- Compliance with ethical requirements
- Resources
What does the group auditor send if the component is assessed as low materiality and risk?
The group auditor will send a questionnaire - they detail their approach, opinion on internal controls and modifications identified
What does the group auditor send if the component is assessed as high materiality and risk?
The group auditor should review the working papers of the component auditor
- Approach follows standards
- Sufficient & appropriate evidence obtained
- Appropriate conclusions drawn
Audit Evidence - Sufficient
Quality is enough to reduce audit risk to an acceptably low level.
Impacted by:
- Risk
- Judgement
- Results of IC testing
- Materiality of item
- Experience
- Results gained
Audit Evidence - Quality of evidence (Relevance)
Logical connection with assertion being considered.
For example if testing for NCA being overstated it would be inappropriate to sample a number of physical assets and trace them to the fixed asset as that’s a test for understatement.
