exam questions Flashcards
Describe the concept of assurance?
An assurance firm’s satisfaction as to the reliability of an assertion being made by one party for the use of another party
What are benefits of an assurance report on financial information?
- enhances the credibility of the information being reported on
- reduces the risk of management bias in the information being reported on
- draws the attention of the user to deficiencies in the information being reported on
An effective system of internal control requires segregation of basic functions.
Give examples of three functions that should ideally be segregated?
- Authorisation of transactions
- Custody or handling of assests
- Recording of transactions
What tests would be used for…
- The audit of a new client, recently started up, with few employees in its accounting department?
- The audit of a long-standing client with a sophisticated IT system and an internal audit department?
- Substantive procedures only – A new client with few employees implies a lack of segregation of duties and hence high control risk. Therefore reliance should not be placed on the internal control system.
- Tests of control and substantive procedures - the client is long-standing with a sophisticated IT system and an internal audit department, so it will be possible to rely on internal controls and then perform reduced substantive procedures.
why may actual inverntory level be higher than book inventory levels?
Unrecorded branch requisitions
What is an oporational audit?
An audit of an oporational process of the organisation
What mistatements found in a sample would not gernerally be extrapolated against the population?
- missposting between customer accounts
- timing differences between customer/client records
Give 4 reaseons when written representation may be required.
- To support other evidence about suitability of accounting polocies
- To support inspection of board minutes with directors intention to sell material investment.
- Whether there are plans to abandon product lines that will result in obselte inventory
- Whether there are undisclosed subsequent events.
How would the valuation of trade recievables be confirmed?
- Direct confirmation with the customer
- Review of cash paid after date
Both are independent of the client
When can a firm provide both audit and accounting services to a client?
If the client is non-listed
What would a negative conformation letter be sent?
- When a substantial number of errors are not expected.
- When the auditor has no reason to believe that the customer will disregard the request.
- Give 1 thing not included in letters from the bank
- Give 3 things always inclded in letters from the bank.
- Details of standing orders
- Bank balance, Guarantees made bu the client, Any titles or other assets held by the bank.
Is the preperation of documentaion a legal requirement by ISA 230?
No it is a proffesional requirement.
Who has the responsibility of monitoring internal controls?
- Internal auditors only
- External auditors will then test these controls
Give 2 things that internal auditors can not do
They should not have oporational resoponsibilities, therefore should not…
- Authorise transactions in excess of limits set by management.
- Prepearing bank reconciliations.
