Evidence and reporting Flashcards
What does ISA 500 require?
Auditors to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion
According to ISA 500, what must evidence be? (2)
- Appropriate
2. Sufficient
Define sufficient evidence
- Relates to the quantity of audit evidence
2. Depends on risk, materiality, level of assurance to be given
Define appropriate evidence
- Relates to the quality of audit evidence
- Is reliable by virtue of source and format
- Is relevant as it proves one or more of the financial statement assertions
According to ISA 315, what are the two types of financial statement assertion?
- Assertions about classes of transactions and events, and related disclosures, for the period under audit
- Assertions about account balances and related disclosures, at the period end
What are the assertions about classes of transactions and events, and related disclosures, for the period under audit? (6)
COCA-CoP
- Completeness
- Occurrence
- Classification
- Accuracy
- Cut-off
- Presentation
What are the assertions about account balances and related disclosures, at the period end?
CREP-CAVA
- Classification
- Rights and obligations
- Existence
- Presentation
- Completeness
- Accuracy, Valuation, and Allocation
Define occurrence
- An assertion about classes of transactions and events, and related disclosures, for the period under audit
- Transactions that have been recorded have occurred and pertain to the entity
Define completeness (for the period under audit)
- An assertion about classes of transactions and events, and related disclosures, for the period under audit
- All transactions that should have been recorded have been recorded
Define accuracy
- An assertion about classes of transactions and events, and related disclosures, for the period under audit
- Amounts have been recorded appropriately
Define cut-off
- An assertion about classes of transactions and events, and related disclosures, for the period under audit
- Transactions have been recorded in the correct accounting period
Define classification (for the period under audit)
- An assertion about classes of transactions and events, and related disclosures, for the period under audit
- Transactions have been recorded in the proper accounts
Define presentation (for the period under audit)
- An assertion about classes of transactions and events, and related disclosures, for the period under audit
- Transactions and events are appropriately aggregated and clearly described, and related disclosures are relevant and understandable
Define existence
- An assertion about account balances, and related disclosures, at the period end
- Assets, liabilities, and equity interest exist
Define rights and obligations
- An assertion about account balances, and related disclosures, at the period end
- The entity owns the assets, and liabilities are the obligations of the entity
Define completeness (at the period end)
- An assertion about account balances, and related disclosures, at the period end
- All assets, liabilities, and equity interests that should have been recorded have been recorded
Define accuracy, valuation, and allocation
- An assertion about account balances, and related disclosures, at the period end
- Assets, liabilities, and equity interest are included in the financial statements at appropriate amounts
Define classification (at the period end)
- An assertion about account balances, and related disclosures, at the period end
- Assets, liabilities, and equity interests have been recorded in the proper accounts
Define presentation (at the period end)
- An assertion about account balances, and related disclosures, at the period end
- Assets, liabilities, and equity interests are appropriately aggregated and clearly described, and related disclosures are relevant and understandable
When would an auditor use tests of control?
When they expect the internal controls to be effective
What would the auditor do after using tests of control and finding that controls are effective?
The auditor would perform some substantive testing due to the inherent limitations of inherent controls
What would the auditor do after using tests of control and finding that controls are ineffective?
The auditor would begin again and perform substantive testing such as analytical procedures and tests of detail
When would an auditor use only substantive testing?
When they do not expect the internal controls to be effective
What are walkthrough tests?
Tests that confirm the auditor’s understanding of the system
What does tests of control test?
The system that gets the numbers into the financial statements
What does substantial testing test?
The numbers in the financial statements
What does tests of control involve?
Procedures including enquiry, observation and reperformance, and data analytics
What does substantive testing involve?
Procedures including analytical procedures and tests of detail
When is tests of control appropriate?
When control risk is low and using tests of control is a more efficient means of gathering evidence
When is substantive testing appropriate?
When the auditor expects internal controls to be ineffective. Substantive testing must always be carried out on material items.
What are the limitations of internal controls?
- Collusion
- Management override
- Human error
- Non-routine transaction
What opinions are contained within an audit report? (2)
- Express opinions
2. Implied opinions
When are express opinions stated?
Always
When are implied opinions stated?
Only required if a material problem arises but it is best practice to refer to these items in the audit report even where a problem has not arisen
What are express opinions on the financial statements?
- True and fair
2. Properly prepared in accordance with Companies Act 2006/accounting standards
What are express opinions on other matters prescribed by Companies Act 2006?
The information contained in the Directors’ Report and Strategic Report is inconsistent with the financial statements.
When are implied opinions required?
RAPID
- RETURNS adequate for our audit have not been received from branches not visited by us
- ACCOUNTS are not in agreement with the underlying accounting records
- PROPER accounting records have not been kept
- INFORMATION and explanations required for the audit were not received
- DIRECTORS’ remuneration disclosures required by law were not made
What does ISA 700 require to be included in the audit report?
CODEBOOK-TAGAMA
- Matters on which the auditor is required to report on by exception under COMPANIES ACT 2006
- Auditor’s OPINION of the financial statements
- DATE of the report
- Name and signature of ENGAGEMENT PARTNER
- BASIS for opinion
- OTHER INFORMATION
- OPINION on other matters
- KEY audit matters (listed companies)
- TITLE
- ADDRESSEE
- GOING CONCERN section
- AUDITOR RESPONSIBILITIES
- MANAGEMENT RESPONSIBILITIES
- AUDITOR’S ADDRESS
What should be included in non-audit reports?
CWIRC-STRANDS
- Identification of CRITERIA
- Summary of WORK PERFORMED
- Any INHERENT LIMITATIONS which exist
- Any RESTRICTIONS upon purpose/user
- CONCLUSION
- Identification and description of SUBJECT MATTER
- TITLE
- Statement identifying RESPONSIBLE PARTY
- ADDRESSEE
- NAME of firm/practitioner
- DATE
- Work performed in accordance with relevant STANDARDS
What level of assurance would you expect to be given for a statutory audit?
Reasonable
What level of assurance would you expect to be given for a report on prospective financial information?
Limited
What level of assurance would you expect to be given for a report on review of interim financial information?
Limited
What is the financial statement assertion that is being tested during a review of the financial statements using a Companies Act checklist?
Classification as the Companies Act checklist ensures that all classification issues are addressed
What is the financial statement assertion that is being tested when tracing non-current assets which have been observed in use back to the non-current asset register?
Completeness
What is the financial statement assertion that is being tested when tracing a sample of transactions selected from sales orders back to the nominal ledger?
Completeness
What is the financial statement assertion that is being tested when reviewing the financial statements disclosure note for non-current assets, using a checklist based on IFRS requirements
Completeness
