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ACA Audit and Assurance > Chapter 12 > Flashcards

Chapter 12 Flashcards

1
Q

What opinion on the audit report if the financial statements had the wrong basis and director refused to change?

A

Adverse Opinion

Pervasive misstatement

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2
Q

What opinion on the audit report if the financial statements had the correct basis but the wrong disclosure?

A

Qualified opinion

Material misstatement

Potential adverse if no disclosure exists

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3
Q

What opinion on the audit report if the financial statements had the correct basis and the correct disclosure?

A

Unmodified opinion

Include emphasis of matter paragraph

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4
Q

Audit completion - Comparatives ISA 710

A
  • Accounting policies consistent
  • Free from error
  • Any changes adequately disclosed
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5
Q

What basis does the company use if can continue for the foreseeable future?

A

Going concern basis

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6
Q

What basis does the company use if cannot continue for the foreseeable future?

A

Break-up basis

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7
Q

Going concern review ISA 570 - Procedures

A
  • Analyse and discuss cash flow forecasts
  • Analyse and discuss interim F/S
  • Read board minutes
  • Enquire about litigation claims
  • Assess company’s ability to raise finance
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8
Q

Subsequent events ISA 560

A

Anything between YE and accounts signed

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9
Q

What duty does the auditor hold in between the YE and the auditor’s report issued?

A

Active duty

To consider the impact of subsequent events and compliance with IAS 10.

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10
Q

What duty does the auditor hold in between the the auditor’s report issued and the AGM?

A

Passive duty

No active duty but if something does come to attention:

  • discuss with management
  • revise auditor’s report (modify or new date)
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11
Q

What is an adjusting impact?

A

Dr / Cr

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12
Q

What is a non-adjusting impact?

A

Disclosure e.g warehouse burnt down

Would become adjusting if creates going concern

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13
Q

What is the going concern basis?

A

If the business can carry on 12 months after

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14
Q

When it comes to the going concern review what is the managements responsibility?

A
  • Prepare the F/S on the correct basis
  • Review company’s ability to continue
  • Disclose companies going concern status
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15
Q

When it comes to the going concern review what is the auditors responsibility?

A
  • Evaluate management assessment
  • Get sufficient and appropriate evidence
  • Assess disclosures
  • Determine implications on the auditor’s report
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16
Q

What happens if they aren’t certain if they are going concern?

A

Prepare the F/S under the going concern basis.

Include a Material Uncertainty of going concern paragraph (MURG)

17
Q

Audit Completion - Evaluating the effect of material misstatement ISA 450

A

Auditor must consider:
- Effect of identified misstatements

  • Effect of accumulated uncorrected misstatements
18
Q

ISA 450 distinguishes between:

A

1) Factual misstatements - about which is no doubt

2) Judgemental misstatements - being unreasonable management judgements concerning estimates

3) Projected misstatements - being the results of extrapolated misstatements through the population

19
Q

What is an extrapolation misstatement?

A

When you test a sample with a result of a 10% error which is projected to mean 10% of all is wrong.

20
Q

What is the Written Representation ISA 580?

A
  • Supports other audit evidence
  • Auditor drafts
  • Directors sign
  • Date after all audit work gathered and prior to auditor’s report
21
Q

What are examples of what is included in the Matters of management judgement?

A

Shows estimates they’ve included e.g
- Depreciation
- Warranty estimates
- NRV of inventory

22
Q

What are examples of what is included in the Matters of management intention?

A

Shows they have told us everything about:
- Related party transactions
- Subsequent events
- Going concern status

23
Q

What is the purpose of a written representation?

A

Is a letter from the director to the auditor listing stuff that is confided to management e.g related party transactions

24
Q

What must the management confirm within the written representation?

A
  • Their responsibility to prepare the financial statements
  • They have provided all relevant information to the auditor
  • That all transactions are recorded in the financial statements
25
Q

Is a Written Representation a form of audit evidence?

A

Yes

26
Q

What happens if the written representation is not provided?

A
  • Discuss the matter with management
  • Re-evaluate the integrity of management and evaluate the effect that this may have on the evidence in general
  • Take appropriate actions in relation to possible effect on audit opinion
27
Q

What should the auditor do if the written representations are inconsistent with other audit evidence?

A

Auditor will need to perform audit procedures in an attempt to resolve the matter.

If management integrity is low, do we trust the signage of the letter of representation? If not disclaimer opinion “unable to provide an opinion”.

28
Q

What does “Prospective financial information” mean?

A

Financial information based on assumptions about events that may occur in the future.

29
Q

What are the acceptance issues around PFI?

A
  • The intended use of the information (internal or external use?)
  • Whether the information will be for general or limited distribution
  • The nature of the assumptions
  • The format and content of the report
  • The period covered by the information
  • Knowledge and resources required
  • Objectivity of the audit firm
30
Q

What are the terms of the engagement when it comes to PFI?

A
  • Standards relevant to the engagement
  • Nature of engagement
  • To whom the report will be made available to
  • A clear statement of directors’ and reporting accountant’s responsibilities (expectation gap)
  • The period covered by the forecast information and scope of work
31
Q

What assurance is provided through PFI?

A

Since PFI relates to events that have not yet occurred, limited evidence may be available to support the assumption.

The auditor can only provide a negative conclusion of assurance, “nothing has come to my attention”

32
Q

What to include when reporting PFI?

A

(a) Title
(b) Addressee
(c) Identification of the PFI (e.g cashflow forecast)
(d) A reference to the ISAE standards
(e) A statement that management is responsible for the PFI
(f) When applicable, a reference to the purpose
(g) A statement of negative assurance as to whether the assumption provides reasonable basis
(h) An opinion to whether the PFI is properly prepared in accordance to reporting framework
(i) Appropriate caveats concerning the achievability of the results indicated by the PFI
(j) Date of the report
(k) Reporting accountant’s address
(l) Signature

33
Q
A

ACA Audit and Assurance (12 decks)

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