Chapters 5-6 Flashcards
5 fundamental principles
objectivity confidentiality professional competence and due care integrity professional behaviour
5 types of threat
self interest familiarity self review advocacy intimidation
explanation of self review
this arises when the same person needs to review work they have been involved with - solution is to use different teams
explanation of self interest
when a financial or other interest will inappropriately influence your decisions
explanation of familiarity
the risk that due to a long relationship with a client that you are more willing to accept their work
explanation of advocacy
the risk that you as an accountant will promote the client to the point where their objectivity is compromised, i.e in a litigation or dispute
explanation of intimidation
the risk that the accountant will be pressured into not acting objectivitely
safe guard for self interest threat
sell shares
remove that individual from the team
inform audit committee
have an independant partner review
4 acceptance procedures
ensure your professionally qualified to act
ensure existing resources are adequate
obtain references
communicate with present auditors
6 signs of a low risk audit client
long term prospects well financed strong internal controls conservative/prudent accounting policies competent management few and usual transation
6 signs of a high risk client
poor recent forecast lack of finance control deficiencies evidence of questionable integrity lack of FD unexplained transactions
what is an engagement letter
the written terms of an engagement in the form of a letter
x
x
5 areas of a good engagement performance
direction supervision review consultation resolution of disputes
whats a peer review
a review of the audit by another partner
whats a cold review
peer review carried out before the audit report is signed
whats a hot review
peer review carried out after the audit report is signed
two types of monitoring of the firms quality control and procedures
ongoing evaluation
periodic inspection
what is the overall objectice of the auditors
to obtain reasonable assurance about whether the FS are as whole free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion
what is professional scepticism
an attitude that includes a questioning mind, being alert to conditions that may indicate misstatement and a critical assessment of audit evidence
what is professional judgement
application of relevant training, knowledge and experience in making informed decisions that are appropriate as per the audit engagement
definition of audit risk
the risk that the audit expresses an inappropriate decision when the FS are materially misstated.
3 types of audit risk
inherant
control
detection
what is inherant risk
the risk posed by an error or omission in a financial statement due to a factor that is not an internal control .
what is a control risk
that a misstatement due to error or fraud that could be material either alone or combined will not be prevented or detected by the companys internal control
what is a detection risk
that the procedures performed by the auditor to reduce audit risk will not detect a misstatement that exists
definition of material
information is material if its omission or misstatement could reasonably be expected to influence the economic decisions of users taken on the basis of FS
What is the appropriate percentage of materiality for revenue
05-1%
What is the appropriate percentage of materiality for total assets
1-2%
What is the appropriate percentage of materiality for profit before tax
5-10%
