Chapter 8

Question 1

acronym for matters the auditor should consider when testing specific accounting

Answer 1

MRSA

Question 2

what is MRSA

Answer 2

Materiality
Risk of misstatement
Standards that apply
Audit evidence and procedures required

Question 3

what are common errors / misstatements with payroll

Answer 3

starters and leavers
record of amount of hours worked
correct payments
accurate record of payments

Question 4

5 steps for recognising revenue

Answer 4

identify contract
identify performance obligations
identify transaction price
allocate transaction price
recognise revenue when P.O is met

Question 5

for leases, when is it considered a lease for the lessee

Answer 5

the right to substantially all economic benefits

right to direct the use of the asset

Question 6

for leases, what kind of leases are there for lessors

Answer 6

operating and finance

Question 7

when can leases be expensed

Answer 7

short term or less than 5k

Question 8

two types of pensions

Answer 8

defined benefit and defined contribution

Question 9

examples of estimates used by clients

Answer 9

allowance for recievables or damaged inventory
depreciation
warranty provision or lawsuit

Question 10

what should the auditors consider when assessing estimates (5)

Answer 10

complexity
subjectivity
uncertainty
inherent risk factors such as reliance on a standard which could be inappropriate
understanding of the controls relating to the estimates

Question 11

3 step process for considering audit evidence for estimates

Answer 11

evidence from subsequent events ( such as inventory allowance - have they disposed of any after year end)

test managements estimate by assessing the controls used / assumptions made

if the above is not suitable ,auditor should calc their own estimate