Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

AA - Audit and Assurance > Chapter 11 > Flashcards

Chapter 11 Flashcards

1
Q

What are subsequent events?

A

requires the auditor to obtain sufficient appropriate evidence that subsequent events occurring between the date of FS and the date of the auditor’s report have been appropriately accounted.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the 2 subsequent events?

A

Adjusting events
Non-adjusting events

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What happens with an adjusting event?

A
  • if material, change this year’s numbers
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What happens with a non-adjusting event?

A
  • if material, include a disclosure note
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is an adjusting event?

A

an event after the year end which gives evidence over conditions that existed at the year end

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is an example of an adjusting event?

A

liquidation of a year end receivable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is a non-adjusting event?

A

an event after the year end wholly relating to conditions that occurred after the year end

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is an example of a non-adjusting event?

A

post year end fire destroys inventory

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

If a non-adjusting event impacts the going concern assumption what occurs?

A

the event becomes an adjusting event as the going concern basis of preparation may no longer be appropriate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the auditor’s responsibilities from the year-end date to when the auditor’s report signed?

A

Active duty:
perform procedures to ensure subsequent events have been accounted for appropriately

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the auditor’s responsibilities from when the auditor’s report is signed and the financial statements are issued?

A

passive duty:
No obligation to perform procedures but must take action if they become aware of events which would cause a modified opinion

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Between the date of the financial statements and the date of the auditor’s report (active duty phase) what must be done?

A
  • the auditor must perform audit procedures to ensure the client has complied with correct accounting treatment.
  • if material adjusting events are not adjusted, or non-material are not disclosed ask management to amend in the FS
  • a written representation from management should be obtained stating that all events requiring adjustment or disclosure have been adjusted or disclosed.
  • if management refuse to amend FS audit opinion modified with either a qualified or adverse opinion
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Is the auditor obligated to perform audit procedures after the auditor’s report?

A

no, however if they become aware of a fact which would cause them to issue a modified opinion, they muts taek action

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

If the auditor needs to modify their opinion after report has been signed what is the procedure?

A
  • discuss with management and consider if the FS require amendment
  • request management to make amendments
  • perform audit procedures on amendments
  • issue a new auditor’s report
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

If management does not amend the FS and the auditor’s report has not yet been issued to the client what can the auditor do?

A

modify the opinion

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

If the auditor’s report has been provided to the client, the auditor will do what?

A

notify management and those charged with governance not to issue the FS before amendments are made

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

If the client issues the FS despite being requested not to by the auditor what will the auditor do?

A

take action to prevent reliance on the auditor’s report

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

If the directors recall the FS and make the amendments what will the auditor perform?

A

should perform audit procedures on the amendments to ensure they have been put through correctly.
Auditor will issue a new auditor’s report including an emphasis of matter para to draw attention to the fact the FS and auditor’s report have been reissued

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is the going concern assumption?

A

the assumption that the entity will continue in business for the foreseeable future. The foreseeable future is a minimum of 12 months from the date of the FS

20
Q

FS are prepared on the basis that the reporting entity is what?

A

is a going concern

21
Q

A company should prepare its FS on a going concern basis unless what?

A

management intends to liquidate the entity or to cease trading or the directors have no realistic alternative but to do so

22
Q

Where the assumption is made that the company will cease trading, the financial statements are prepared using the break-up or liquidation basis under what?

A
  • the basis preparation and the reason why the entity is not regarded as a going concern
  • assets are recorded at likely sales values
  • inventory and receivables need to be written down as inventory may be sold at lower price or scrapped and receivables may not pay
  • Additional liabilities may arise
23
Q

What are the directors responsibilities for going concern?

A
  • assess the company’s ability to continue as a going concern
  • prepare forecasts to help with this assessment
  • disclose any material uncertainties relating to going concern in the financial statements
24
Q

What are the auditors responsibilities for going concern?

A
  • evaluate the appropriateness of management’s assessment
  • conclude whether or not an uncertainty exists
  • report in accordance with auditing standards
25
Q

What are the indicators of going concern problems?

A
  • net current liabilities
  • borrowing facilities not agreed
  • trade terms refused by suppliers
  • loss of customers to competitors or liquidation
  • major litigation
26
Q

What are the going concern procedures?

A
  • review forecasts and reasonable assumptions within them
  • perform sensitivity analysis on the forecasts to see what happens if event gets worse
  • review correspondence with key stakeholders
  • read board minutes for evidence of any significant issues that suggest going concern problems
  • obtain written representation from management that they believe the company is a going concern
27
Q

What are the certain disclosures the directors must make regarding going concern?

A
  • there are any material uncertainties over the company’s going concern status
  • the going concern assessment does not cover at least a 12-month period
  • the financial statements have been prepared on a break-up basis
28
Q

What are the reporting implications affected by going concern?

A
  • Appropriate basis of preparation used - no going concern issues
  • Appropriate basis of preparation used - but uncertainty over going concern
  • Appropriate basis of preparation used - company is not a going concern
  • Basis of preparation is not appropriate - company is not a going concern
29
Q

If the auditor agrees with the directors’ use of the going concern basis of preparation and there are no going concern uncertain what will happen with the audit opinion?

A

it will be unmodified and there will be nothing else that needs to be added to the auditor’s report

30
Q

If the uncertainty over going concern is adequately disclosed what will happen with the audit opinion?

A

it will be unmodified but an additional section will need to be included in the auditor’s report called a material uncertainty related to going concern.

31
Q

If the uncertainty over going concern is not adequately disclosed what will happen with the audit opinion?

A

it will be modified due to material misstatement arising from a lack of disclosure

32
Q

If the auditor agrees with the directors’ use of the break-up basis, and assuming that the client has disclosed that the basis of preparation is not going concern basis what will happen with the audit opinion?

A

unmodified opinion can be issued. An additional section will need to be included in the auditor’s report called an emphasis of matter paragraph which will reference the clients disclosure note to ‘emphasise’ it to the shareholders so they know they should go and read it

33
Q

If the auditor disagrees with the directors’ basis of preparation, what will happen with the audit opinion?

A

needs to be modified. This is likely to make the FS unreliable, which is referred to as ‘pervasive’

34
Q

At the end of the audit what two checks are carried out?

A
  • final review of the FS
  • a review of the audit work to ensure it is sufficient and appropriate to form the basis of the audit opinion
35
Q

What checks will be done on the FS at the end of the audit?

A
  • do a final check on presentation and disclosure - disclosure checklist will be used
  • perform final analytical procedures - endure the FS are consistent with our understanding of the company that we have obtained during audit
  • review misstatements and consider their impact on the FS
36
Q

Every audit team member’s work must be reviewed by someone more senior to ensure what?

A
  • the audit work wad performed in accordance with professional standards
  • significant matters have been raised for further consideration and appropriate consultations have taken place
  • nature, timing and extent of the work performed was revised
  • the audit evidence gathered is sufficient and appropriate to support the conclusions reached
  • the FS comply with the appropriate financial framework
37
Q

If during the audit misstatements are found the auditor must do what?

A
  • accumulate a record of all identified misstatements, unless clearly trivial
  • consider if the existence of such misstatements indicates that others may exist
  • communicate misstatements identified during the course of the audit to an appropriate level of management on a timely basis and request correction
38
Q

if management refuse to correct any misstatements what should the auditor consider?

A

their reasons for refusal and take these into account when considering in the FS are free from material misstatement

39
Q

At the end of the audit if management have failed to correct all misstatements what should the auditor do?

A
  • revisit assessment of materiality
  • determine whether the uncorrected misstatements, either individually or in aggregate are material
  • communicate to those charged with governance and explain the effect this will have on the audit opinion
  • request written representation from management and those charged with governance that they believe the effects are immaterial
40
Q

What is the final piece of evidence obtained by the auditor?

A

a written representation letter

41
Q

What is a written representation letter?

A

a written statement by management provided to the auditor to confirm certain matters or to support other audit evidence

42
Q

What is the purpose of a written representation letter?

A
  • preparing the FS in accordance with an applicable financial reporting framework
  • providing the auditor with all relevant info an access to records
  • recording all transactions and reflecting them in the FS
43
Q

What other audit evidence relevant to the FS may be in the written representation letter?

A
  • plans or intentions that may affect the carrying value of assets or liabilities
  • confirmation of values where there is a significant degree of estimation or judgement involved
  • formal confirmation of the director’s judgement on contentious issues
  • aspects of laws and regulations that may affect the FS including compliance
44
Q

What is the procedure for obtaining a written representation?

A
  • auditor drafts the letter
  • wording given to the client to print on headed paper
  • a responsible official within the client entity with knowledge signs
  • letter must be signed and dated before auditor’s report finalised
  • letter provided to the auditor
  • letter reviewed by auditor to ensure provides sufficient evidence
45
Q

How will the auditor assess the reliability of the written representation letter?

A
  • if it is consistent with other evidence obtained
  • if there are any concerns over management integrity which would cast doubt over its reliability
46
Q

If there are doubts over the reliability of the written representation letter what will the auditor do?

A

consider withdrawing from the audit, or issuing a disclaimer of opinion

47
Q

What if the directors refuse to sign the representation?

A
  • discuss why they are refusing
  • if still refuse same as unreliability - auditor should consider to withdraw

AA - Audit and Assurance (11 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions