External Audit- Primer 2

Question 1

Interim Visit

Answer 1

• one or more visits during the year
• evaluate the controls
• simile to internal audit’s assurance work

Question 2

Interim External Audit or Internal Process

Answer 2

• ascertain and document the process and controls
• walk through test
• assess control adequacy
• assess control effectiveness

Question 3

asses control adequacy

Answer 3

• choose and sample compliance test
• choose and sample substantive test

Question 4

asses control effectiveness

Answer 4

• recommend and agree improvements

Question 5

steps to tackle potential control weaknesses

Answer 5

• identify the issue
• state the implication
• give recommendation
  (may have a management response or agreed action section)

Question 6

What is audit evidence?

Answer 6

All the information used by the auditor in arriving at the conclusions and judgements on which the audit opinion is based

Question 7

ISA 500 on audit evidence

Answer 7

‘auditors must design and perform audit procedures that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence’

Question 8

external audit evidence

Answer 8

• comes from external sources
• more reliable than evidence obtained from the company’s own records

Question 9

external audit evidence examples

Answer 9

• external valuations
• receivables circulars
• bank confirmation

Question 10

auditor evidence

Answer 10

• evidence obtained by the auditor directly is more reliable than indirectly obtained
  Eg. receivables confirmation

Question 11

company audit evidence

Answer 11

• reliable when the control systems have been tested and found to be effective
  eg. effective inventory counting procedures

Question 12

documents audit evidence

Answer 12

• written evidence is always more reliable than oral representations
• original documents are more reliable than photocopies
  eg. original bank statements

Question 13

audit testing techniques

Answer 13

• inspection
• observation
• enquiry
• confirmation
• recalculation
• re-performance
• analytical procedure

Question 14

Final Visit

Answer 14

• finalise the opinion
• All substantive testing
• test of balances to asses truth, fairness and free from misstatement

Question 15

financial statement assertions

Answer 15

• Statements made by management about the financial statements (explicit and implicit)
• auditor is required to test to see if these declarations are true

Question 16

ways to describe financial statement assertions

Answer 16

• existence and occurrence
• completeness
• presentation and disclosure
• valuation
• rights and obligations

Question 17

Management responsibilities (ISA 570 - going concern)

Answer 17

• make an explicit assessment of the entity’s ability to continue as a going concern

Question 18

Auditor responsibilities (ISA 570 - going concern)

Answer 18

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

Question 19

overall review

Answer 19

• Compliance with accounting regulations
• Review for consistency and reasonableness
• Analytical procedures
• Summarising errors
• Evaluating the effect of misstatements

Question 20

Factors influencing appropriate opinion

Answer 20

• misstatements?
• sufficient evidence?
• could the matter be material?
• does the matter pervade the financial statements?

Question 21

Pervasive effects in the financial statements

Answer 21

• 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

Question 22

ISA 706 Modified Auditors report

Answer 22

matters that do not affect the auditors opinion

Question 23

ISA 705 Modified Auditors report

Answer 23

matters that do affect the auditors opinion