Checkpoint Questions Flashcards
List 6 stakeholders in Geeglow Plc and state why they would be interested in its financial performance.
1) Shareholders
They will look at the level of profit as an indication of future dividends or share price increases.
2) Directors
They will be judged on the performance of the company and may get a bonus based on yearend
profit.
3) Employees
They will want to ensure the performance is strong, meaning they will keep their jobs.
4) Suppliers/lenders
They will want to ensure the performance is sufficient to ensure debts are paid in the future.
5) Government
The government will want to ensure the correct amount of taxes are being paid by the business.
6) Customers
Customers will want to ensure they are being charged a fair price and the company is not making excessive profits.
A brief explanation of reasonable assurance
Auditors do not confirm financial statements are 100% accurate. They will not review every transaction of the business, but only test a sample of items. This is with a view to identifying material (significant) errors. They will therefore provide assurance that the financial statements are not materially misstated.
What is the definition of true?
The information is factual and confirms what really happened.
What is the definition of fair?
The information is not biased and has been prepared in accordance with relevant rules.
What three things need to be established for an auditor to be found liable for negligence?
- The fact the duty of care existed.
- The duty of care was breached.
- The breach caused a loss to the claimant
State 5 elements of an internal control systems
- Control environment
- Risk assessment process
- The information system
- Control activities
- Monitoring controls
State 3 inherent limitations with an internal control system
- Human error
- Collusion
- Management override
Briefly explain a walkthrough test
A test performed by the auditor to follow one transaction through the entire systems of the business. This is used to ensure the auditor fully understands the system.
Briefly explain narrative system notes
A record of the client system written by the order usually using a word processor.
Briefly explain control questionnaires
A series of questions asked by the auditor to confirm whether specifics systems are operated by the client.
Briefly explain tests of control
A test by the auditor to confirm the systems used by the client have operated correctly for a sample of transactions.
State 3 substantive procedures you would perform before, during and after the count.
Before attending the count
- Contact the client to confirm the time and location of the inventory count you are attending.
- Request a copy of the client’s inventory count instructions and review to ensure they are adequate.
- Review last year’s working papers to identify any problem areas.
During the count
1. Perform completeness testing by selecting a sample of physical inventory lines and agreeing to quantities recorded on stock sheets.
2. Perform existence testing by selecting a sample of inventory lines on the stock sheets and agreeing to quantities of physical stock.
3. Review WIP to recorded stage of completion.
Also…
- Record any damaged inventory to be reviewed for NRV provisions.
- Observe client count and ensure procedures are being followed.
- Note last GRN and GDN numbers to assist in cut-off testing.
After the count
- Ensure all count sheets have been obtained (check sequential numbers)
- Follow up the sample of items tested to final quantities on stock sheets.
- Ensure final WIP is recorded at a stage of completion consistent with that observed.
List 5 audit procedures you may perform on the prepayments.
- Cast (add up) the schedule and agree the total prepayments to the nominal ledger.
- Re-calculate a sample of prepayment calculations.
- Perform analytical procedures to compare prepayments with previous year and knowledge of expenses.
- Inspect a sample of purchase invoices to confirm amount of prepaid expenses.
- Enquire about the need for additional prepayments with management.
State 4 analytical procedures you may perform during the audit of payroll expenses.
- Compare the total level of gross pay to previous year or budgeted expenses.
- Divide the total gross pay by number of employees and compare the average pay to your expectation.
- Review monthly pay totals and look for trends, compare to expectation of months of pay rises, bonuses etc….
- Compare the year end payroll liabilities (PAYE/ NI) to expectation of one month’s deductions.
What assertion is this procedure covering?
Recalculate deprecation and ensure this has been correctly recorded in the financial statements
Valuation
