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AA - Audit and Assurance > Chapter 6 - Planning > Flashcards

Chapter 6 - Planning Flashcards

1
Q

What are the benefits of planning?

A
  • more efficient
  • better understanding of where things might go wrong
  • audit team can be selected with the right skills and experience
  • quality management procedures can be built
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2
Q

Why must an auditor follow the auditing standards?

A
  • provides a checklist of what the auditor must do
  • confidence in the opinion of the auditor
  • consistency
  • better quality to check against
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3
Q

What are the 2 key planning documents an auditor will create?

A
  • the audit strategy
  • the audit plan
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4
Q

What is the audit strategy?

A
  • provides overall framework for the audit
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5
Q

What are the 4 main areas of the audit strategy?

A
  • reporting objectives, timing and communication
  • significant factors and preliminary engagement activities
  • Nature, timing and extent of resources
  • characteristics of the engagement
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6
Q

What are the key elements of reporting, objectives, timing and communication?

A
  • timetable for reporting
  • communication with client, team and 3rd party
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7
Q

What will reporting objectives, timing and communication cover?

A

the practicalities of the audit in order to make sure it is completed on time. Involve setting deadlines.

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8
Q

What are the key elements of significant factors and preliminary engagement activities?

A
  • materiality
  • risk assessment
  • internal controls
  • need for scepticism
  • changes in laws and regulations
  • significant developments
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9
Q

Significant factors and preliminary engagement activities will include what?

A
  • planning activities, which will shape the rest of the audit, are documented.
  • the results of the risk assessment and document
  • preliminary materiality assessment
  • auditor’s views of the client’s internal controls
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10
Q

What are the key elements of nature, timing and extent of resources?

A
  • selection of audit team
  • budget
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11
Q

What are the key elements of characteristics of the engagement?

A
  • FR framework
  • Industry reporting
  • knowledge of business
  • internal audit
  • service organisation]
  • use of ATTs
  • Availability of client staff
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12
Q

The strategy document sets the overall approach for the audit. This will vary from client to client depending on what?

A
  • which accounting standards they are using
  • whether there are any additional reporting responsibilities
  • whether they have an internal audit function or use a service organisation which influences how the auditor can obtain some of the audit evidence
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13
Q

What is the job of the audit plan?

A

to take the audit strategy which ends with an overall general approach to the audit and to turn it into a detailed schedule of the work to be done

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14
Q

When is the audit plan produced?

A

at the end of the planning process

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15
Q

What is some common content between the audit strategy and the audit plan?

A
  • results of risk assessment
  • determination of materiality
  • special audit considerations
  • deadlines
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16
Q

The audit plan includes what?

A
  • what specific work should be done on each area
  • who on the team should do each test
  • how much work should be done on each area - how big a sample
  • when should each part of the work be done - at which visit
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17
Q

How many stages will an audit be performed?

A

one or two stages

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18
Q

If an audit is performed all in one go, the audit work will be performed when?

A

at the final audit stage

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19
Q

If an audit is performed in 2 stages, when will the audit work be performed?

A

some work at the interim audit stage and some work will be performed at the final audit stage

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20
Q

What occurs before the year end?

A
  • interim audit.
  • No full year FS so limit to what testing can be performed
    - auditor will document client systems and make decision on whether reliance can be placed on the internal controls
    - significant purchases can be tested
    - inventory system can be reviewed
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21
Q

What will occur at the year end?

A
  • client may perform a full inventory count and auditor is required to attend
  • Auditor may visit the client shortly after year end to organise a receivables circularisation (sample of the clients customers asked to confirm what they owe at YE)
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22
Q

What will occur after the year end?

A
  • every audit will have a final audit
  • majority of the audit work will be done
  • focus on detailed testing of the year end balances
23
Q

Fraud and error is one of the examples of what?

A

the expectation gap

24
Q

What is fraud?

A

an intentional act by one or more individuals among management, those charged with governance employees or third parties involving the use of deception to obtain an unjust illegal advantage

25
Q

When would we inform shareholders if fraud has occurred?

A

only if it has led us to modify our audit opinion

26
Q

What are the 2 types of fraud?

A

fraudulent financial reporting
missappropriation

27
Q

what is fraudulent financial reporting?

A

deliberately misstating the financial statements to make the company’s performance or position look better/worse than it actually is

28
Q

what is misappropriation?

A

the theft of a company’s assets such as cash or inventory

29
Q

what is error?

A

an unintentional misstatement

30
Q

when would we identify fraud to managemenet?

A

communicate the fraud on a timely basis

31
Q

When would we identify fraud to those charged with governance?

A

if the suspected fraud involves management

32
Q

when would we identify fraud to 3rd parties?

A

if there is a duty to report

33
Q

If the auditor finds that the client has not complied with the relevant laws and regulations what must the auditor do?

A
  • understand the nature and circumstances
  • obtain further information
34
Q

How does the auditor understand the nature and circumstances?

A

Auditor must obtain an understanding of what has happened:
- was it deliberate?
- is it a serious breach?
- has anybody suffered harm?
- does the regulatory authority need to be made aware?

35
Q

How does the auditor assess whether the non-compliance will have a material impact on the FS?

A
  • discussing the issue with management and company’s legal department
  • reading correspondence from the regulatory authority
  • reading minutes of board and/or management meetings
  • reviewing bank statements
36
Q

What is non-compliance?

A

acts of omission or commission by the entity, either intentional or unintentional, which are contrary to the prevailing laws or regulations

37
Q

When would an auditor report non-compliance to management?

A

communicate the non-compliance on a timely basis

38
Q

When would an auditor report non-compliance to those charged with governance?

A

if the non-compliance is a deliberate act by management

39
Q

When would an auditor report non-compliance to 3rd parties?

A

if there is a duty to report e.g., to a regulator

40
Q

When would an auditor report non-compliance to shareholders?

A

by modifying the auditor’s opinion

41
Q

When might the auditor decide that they need to withdraw from the engagement?

A
  • the non-compliance laws and regulations is so serious they can no longer maintain a relationship
  • breakdown of trust
  • auditor has doubts about the competence of management
42
Q

What are the 3 most important quality management standards?

A
  • engagement resources
  • engagement performance
  • monitoring and remediation
43
Q

What does engagement resources comprise of?

A

-human resources
- technological resources
- intellectual resources

44
Q

What are human resources?

A

refers to the audit team which must have appropriate experience and expertise to perform a high-quality audit

45
Q

what are technological resources?

A

use technology, such as automated tools and techniques, computerised audit files, video calls to facilitate meetings etc

46
Q

What are intellectual resources?

A

allow for consistency in approach, such as the audit firm’s templates and checklists, which ensure auditing standards have been followed

47
Q

What is engagement performance?

A

looks at the quality measures that should be in place for each individual engagement

48
Q

What is the composition of the audit team?

A
  • audit engagement partner
  • audit seniors
  • audit juniors
49
Q

What are the key elements to engagement performance?

A
  • direction and supervision of audit
  • review of the work
50
Q

What is an engagement quality review?

A

additional quality measures that will be used for listed and other high-risk clients

51
Q

What is the purpose of working papers?

A
  • to allow the audit partner to form an appropriate opinion
  • to be our defence in a negligence case that the qudit was carried out correctly and completely
52
Q

how long should the working papers be kept for?

A

5 years after the auditor’s report is signed

53
Q

What are the 2 files the working papers are kept?

A
  • permanent file (all items to use to future audits)
  • current file (all working papers relevant to work done on this years audit)
54
Q

What are the qualities of a good working paper?

A
  • client name and y/e
  • prepared by and date prepared
  • reviewer name and date reviewed
  • work performed, results and conclusion

AA - Audit and Assurance (11 decks)

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