External Audit- Primer 2 Flashcards
Interim Visit
- one or more visits during the year
- evaluate the controls
- simile to internal audit’s assurance work
Interim External Audit or Internal Process
- ascertain and document the process and controls
- walk through test
- assess control adequacy
- assess control effectiveness
asses control adequacy
- choose and sample compliance test
- choose and sample substantive test
asses control effectiveness
- recommend and agree improvements
steps to tackle potential control weaknesses
- identify the issue
- state the implication
- give recommendation
(may have a management response or agreed action section)
What is audit evidence?
All the information used by the auditor in arriving at the conclusions and judgements on which the audit opinion is based
ISA 500 on audit evidence
‘auditors must design and perform audit procedures that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence’
external audit evidence
- comes from external sources
- more reliable than evidence obtained from the company’s own records
external audit evidence examples
- external valuations
- receivables circulars
- bank confirmation
auditor evidence
- evidence obtained by the auditor directly is more reliable than indirectly obtained
Eg. receivables confirmation
company audit evidence
- reliable when the control systems have been tested and found to be effective
eg. effective inventory counting procedures
documents audit evidence
- written evidence is always more reliable than oral representations
- original documents are more reliable than photocopies
eg. original bank statements
audit testing techniques
- inspection
- observation
- enquiry
- confirmation
- recalculation
- re-performance
- analytical procedure
Final Visit
- finalise the opinion
- All substantive testing
- test of balances to asses truth, fairness and free from misstatement
financial statement assertions
- Statements made by management about the financial statements (explicit and implicit)
- auditor is required to test to see if these declarations are true
ways to describe financial statement assertions
- existence and occurrence
- completeness
- presentation and disclosure
- valuation
- rights and obligations
Management responsibilities (ISA 570 - going concern)
- make an explicit assessment of the entity’s ability to continue as a going concern
Auditor responsibilities (ISA 570 - going concern)
Consider:
- appropriateness of management’s use of going concern basis
- whether there are material uncertainties about the entity’s ability to continue as a going concern that need to be disclosed in the financial statements
overall review
- Compliance with accounting regulations
- Review for consistency and reasonableness
- Analytical procedures
- Summarising errors
- Evaluating the effect of misstatements
Factors influencing appropriate opinion
- misstatements?
- sufficient evidence?
- could the matter be material?
- does the matter pervade the financial statements?
Pervasive effects in the financial statements
- those that are not confined to specific elements
- those that could represent a significant portion of the financial statements
- those that relate to disclosures which are fundamental to users understanding
ISA 706 Modified Auditors report
matters that do not affect the auditors opinion
ISA 705 Modified Auditors report
matters that do affect the auditors opinion
