Content Flashcards
Mgmt Assertion Meaning
Mgmt’s claims about financial statement items
Transaction Assertions (OCCAC)
Occurence
Completeness
Cut-off
Accuracy
Classification
Balance Assertions (RACE)
Rights/obligations
Allocation
Completeness
Existence
Presentation and Disclosure (COCA)
Completeness
Occurrence/rights
Classification and understandability
Accuracy and valuation
Types of threats to independence (FAIRS)
Familiarity
Advocacy
Intimidation
Self-review
Self-interest
Safeguards for independence (RIDSS)
Remove conflicted team members
Independent reviews
Decline gifts and entertainment
Seperate audit/consulting team
Staff rotation
Common law elements for negligence (4)
Duty of care owed
Breach of that duty
Reliance by the third party
Causation of loss
Materiality definition
Misstatements are material if they could influence user decisions
Materiality benchmarks
5-10% of NPBT
0.5-2% of revenue
1-2% of total assets/equity
Audit risk model
AR = IR x CR x DR
Inherent risk
risk of misstatement without considering controls
Control risk
risk that internal controls wont detect it
Detection risk
risk that auditor procedures will miss it
Wirecard scandal in Germany
Recent news example of compromised independence scandal
IAS NZ 500
auditors must obtain sufficient (quantity) and appropriate (quality) evidence.
Factors affecting sufficiency
Risk of material misstatement (higher risk = more evidence)
Materiality (higher materiality = more precision needed)
Sample size (larger size = more sufficiency)
Factors affecting appropriateness
Relevance (is the evidence related to the assertion?)
Reliability (external confirmations > internal docs)
Source (e.g. obtained directly by auditor is more reliable)
IAS NZ 265
requires auditors to report significant deficiencies to governance
PES 1 independence requirements
Auditors must maintain both independence of mind and in appearance
Independence of mind
objective decision making
Independence in appearance
no relationships or interests that create doubt
