Chapter 4

Question 1

what does the ISA (UK) 500 require in terms of evidence?

Answer 1

auditors to obtain sufficient appropriate audit evidence to be able to draw conclusions on which to base audit opinion

Question 2

what does sufficient evidence depend on?

Answer 2

-risk
- materiality
- level of assurance being given

Question 3

What does appropriate evidence mean?

Answer 3

• it needs to be reliable and relevant
  Reliable= format (written, copy, oral), source (auditor generated, third party, client)
  Relevant= proves one or more of the financial statements assertions

Question 4

Assertions about classes of transactions and events, and related disclosures for the period under audit.

Audit evidence is relevant if it proves one or more of?

Answer 4

1. occurrence
2. completeness
3. accuracy
4. cut-off - in relevant accounting period
5. classification - transactions recorded in proper accounts
6. presentation

Question 5

Assertions about account balances, and related disclosures, at the period end

Audit evidence is relevant if it proves one or more of?

Answer 5

1. existence
2. rights and obligations - entity owns assets and liabilities are the obligations of the entity
3. completeness
4. accuracy, valuation and allocation
5. classification
6. presentation

Question 6

true or false:
A sales invoice is not as relation as a purchase invoice

Answer 6

true

Question 7

true or false:
a bank statement from the clients file is more reliable than a bank letter sent directly to the auditor

Answer 7

false

Question 8

true or false:
an explanation from the client is more reliable when received in an email than a phone call

Answer 8

true

Question 9

when would substantive testing be used? and when is limited substantive testing used?

Answer 9

• substantive: internal controls are not expected to be effective
• limited substantive: when controls have found to be effective through test of contols

Question 10

what should the auditor do if the evidence gathered isn’t sufficient?

Answer 10

• attempt to find further evidence
• consider implication for the audit opinion

Question 11

when reporting what is the RAPID terms used if a material problem arises that the auditor will put in the report?

Answer 11

R= returns adequate for our audit have not been received from branches not visited by us
A = accounts are not in agreement with the underlying accounting records
P= proper accounting records have not been kept
I= Information and explanations required for the audit were not received
D= directors remuneration disclosed required by law were not made

Question 12

what is included in the auditors report?

Answer 12

Review in book page 79

Question 12

What format does the report take if the auditor thinks the financial statements show a true and fair view?

Answer 12

• it will be unmodified
• standard wording of the ISA (UK) 700 auditors report can be used

Question 13

What format does the report take if the auditor thinks the financial statements don’t show a true and fair view?

Answer 13

• it will be modified
• containing information for the user to explain the issues

Question 13

What are the 3 additional areas the Corporate Governance Code audit process require

Answer 13

1. assessment of risk of material misstatement
2. application of materiality
3. overview of scope of the audit

Question 14

what is the aim of the new long form auditors report for listed companies that have to comply with the UK corporate Governance code?

Answer 14

narrow the expectations gap