Chapter 9: Planning an audit

Question 1

How to approach questions

Answer 1

Read and judge which FS has issues
Describe area of risk and use subheading
Justify and explain risk (why balance may be wrong, is it over/understated, AP etc)

Question 2

Give examples of factors increasing risk and reasons why (3 each)

Answer 2

Factors- new auditor, payment for services in arrears/advance, rapid expansion

Overstated balances, difficulty gathering evidence and is there AP to support this

Question 3

How to approach audit procedures questions?

Answer 3

Substantive procedures and tests of control determined by assertion being tested
Think action, source, objectives

Understatement= completeness
Overstatement= existence for assets and occurrence

Question 4

What should auditors inquire about? 4

Answer 4

Expected changes
Reasoning for accounting treatment
Reasons for unusual ratio
Expected outcome of R&D

Question 5

List relevant ISA and paragraph for inventory, accounting estimates, opening balance and going concern

Answer 5

Inventory- ISA501 para a1-16
Accounting est- ISA540
Opening balance- ISA510 para 6
Going concern- ISA570 para 12

Question 6

Give common examples of estimates and what risk assessment is required

Answer 6

PPE dep, impairment, FV, pending litigation, value of financial instruments

ISA540- auditor obtain evidence how they obtained estimate reached and develop auditor point estimate

Question 7

What should auditor carry out before relying on work of internal auditors (3)?

Answer 7

General assessment- assess objectivity, competence and consider approach

Specific assessment- assess work that may be relied on, was work planned and performed properly. Sufficient evidence?

Conclusion- auditor should test work of internal auditor and observe procedures. Extend own procedure if not adequate.

Question 8

What is the group auditor responsible for?

Answer 8

Est overall strategy, directing and supervising component auditors (sub) and form opinion in group FS

They also evaluate high risk elements of group audit identified by component auditor

Question 9

What does group auditor communicate to component and vice versa (4 each)

Answer 9

1. Responsibility, expectation, materiality, events castings doubt on going concern
2. Matters relevant to ID ROMM, events casting doubt on going concern, confirmation work performed and ethical standards met. Also overall findings/deficiencies

Question 10

List key assertions about transactions and about balances (4 each)

Answer 10

Occurrence (recorded transactions occurred)
Completeness (all recorded)
Accuracy
Cut off

Existence (asset, liability, equity exists)
Rights and Obligation (entity owns assets)
Completeness (all recorded)
Accuracy