Chapters 7-9 Flashcards
6 reasons why it is important to plan an audit
to ensure appropriate attention is devoted to important areas
to identify potential problems
to ensure audit work is organised
to enable appropriate audit staff to be selected
to facilitate the direction, supervision and review of the audit
to co-ordinate work done by other experts and auditors
definition of audit strategy
the overal audit strategy sets the scope, timing, and direction of the audit and guides the development of the more detailed audit plan
definition of audit plan
the audit plan converts the more detailed audit strategy and includes the timing and nature of tasks performed by the engagement team
3 things included in audit plan
description of nature, timing and extent of planned risk assessment procedures
description of nature, timing and extent of further audit procedures
other planned audit procedures
when are interim audit visits carried out
during the period of review
when are final audit visits carried out
after the year end
2 things interim audits tend to focus on
risk assessment
documenting and testing internal controls
definition of audit documentation
the record of audit procedures performed, relevant audit evidence obtained, and conclusions the auditord have reached
7 reasons to keep audit documentation
provide evidence on the basis of the auditors conclusion
provide evidence the audit was planned
assist management team to plan and perform audit
to enable the audit team to be accountable
to assist team members to direct, supervise and review
retain a record of matters of continuing significance
enable quality control reviews
3 examples of permenant audit files
engagement letters
legal documents such as a lease
PY signed FS
3 examples of current audit files
accounts checklist
review notes
time budgets
definition of audit evidence
all the information used by the auditor in arriving at the conclusions on which the auditors evidence is based.
4 words audit evidence must be
relevant
appropriate
sufficient
reliable
what are FS assertions
representations by management, explicit or otherwise, that are embodied in the FS
What is a management expert
an individual or organisation possessing expertise in a field other than auditing or accounting
what is memonic for generating audit procedures
A E I O U
what does AIEOU stand for
Analytical procedures Enquiry Inspection Observation recalcUlation
what is an analytical procedure
comparing financial and non financial info and investigating significant differences
what is enquiry
seeking confirmations from a third party and seeking info from people within the entity
3 main types of analytical procedures
variance analysis
ratio analysis
proof in total
factors to consider when using analytical procedures
the suitability of a procedure to a particular assertion
reliability of the data you are comparing
the amount of a difference that does not require an investigation
example of a substantive procedure
test of details - ie inspection of invoices etc
definition of internal controls
An internal control is the process designed, implemented and maintained by those charged with governance or management to provide reasonable assurance that entity will have:
reliability of financial reporting
effectiveness of operations
compliance with applicable laws
5 components of a internal control system
the control environment entitys risk assessment process information system relevant to financial reporting control activities monitoring of controls
two internal control issues in smaller entitys
likely to have less segregation of duties
increased risk of management override of controls
4 limitations of internal controls
human error
management override of controls
cost of control is more expensive than the benefit
staff don’t follow processes
4 ways auditors use internal control systems
to assess the adequacy of the accounting system
indentify types of potential misstatements
consider factors that affect risk of misstatements
design appropriate audit procedures
4 techniques to record accounting systems
notes
flow charts
IC Questionnaires
IC Evaluation Questionnaires
advs of notes
simple
flexible
can be edited
disadvantages of notes
awkward to update if written manually
time consuming
difficult to identify missing controls
advs of flowcharts
quick to prepare by someone experienced
easy to follow
loose ends are apparent
highlights deficiencys
disadvantage of flowcharts
not good for complex transactions
major amendment is difficult without redrawing
can be time wasting
what type of questionnaires are ICEQ’s or ICE’s
closed questions
advs of questionnaires
quick to prepare easy to use and control junior members can do it easy to identify key controls highlights deficiency
disadvantage of questionnaire
can be vague
may not include unusual controls
there is no weighting of key controls
client can overstate controls
