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AA > General > Flashcards

General Flashcards

1
Q

Materiality

A

Information is material if it’s omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements.

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2
Q

Performance materiality

A

The amount set at less than materiality for the financial statements as a whole.

reduces the risk of smaller amounts aggregating.

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3
Q

Audit data analytics

A
  • Transnational analysis (Looking at 100% of transactions)
  • Judgement areas
  • Analytical procedures (using market / economic data to form expectations)
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4
Q

Audit procedures for estimates (3)

A

1) Obtain evidence of subsequent events
2) Written representation on the basis for estimation
3) Develop own estimate and compare

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5
Q

Procedures for going concern (3)

A

1) Review future plans, including financial forecasts, projections and the latest interim/management accounts.
2) Review the company’s borrowing facilities and other finance, considering where any loan covenants are likely to be breached.
3) Review minuets of board meetings

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6
Q

Ethical standard on the engagement partner of non-listed client

A

When it reaches 10 years:

  • Careful consideration
  • If not rotated:
    1) Apply safeguards
    2) Document reasoning and communicate reasoning with those charged with governance.
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7
Q

Ethical standard on audit engagement partner of a listed client

A

Rotate after 5 years, no return within 5 years.

However, the audit committee may approve the extension to 7 years in certain circumstances.

When the client become listed, if they have already served 4 years, they can do a maximum of 2 more!

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8
Q

Ethical standard regarding engagement quality review partner of a listed client

A
  • Rotate after 7 years.

- No return within 5 years.

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9
Q

When is a matter pervasive? (3)

A

1) Not confined to a particular element of the financial statements
2) Represents a substantial proportion of the financial statements
3) Fundamental to the users understanding

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10
Q

What to do when relying on the work of others?

A

1) Are they competent and objective?

2) Has it been properly prepared & planned, and are the conclusions appropriate?

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11
Q

The company has doubts over going concern and has disclosed these doubts

A
  • Agree
  • Material by nature
  • Unmodified opinion
  • Modified report

*Material uncertainly related to going concern included in report after opinion

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12
Q

The company has doubts over going concern and has not disclosed there doubts

A
  • Disagree
  • Material nature by nature (Pervasive if it is a going concern)
  • Adverse opinion
  • Reason for modification included after opinion.
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13
Q

Audit opinion & report: 1 immaterial misstatement

A
  • Unmodified opinion
  • “In our opinion the financial statements show a true and fair view”
  • Unmodified report
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14
Q

Audit opinion & report: 1 immaterial limitation of scope

A
  • Unmodified opinion
  • “In our opinion the financial statements show a true and fair view”
  • Unmodified report
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15
Q

Audit opinion & report: 1 material misstatement that’s not perverse because it is isolated

A
  • Qualified “except for” opinion
  • “In our opinion the financial statements show a true and fair view except for…”
  • Modified report
  • Basis for qualified opinion paragraph goes after
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16
Q

Audit opinion & report: 1 material limitation of scope that’s not perverse because it is isolated

A
  • Qualified “except for” opinion
  • “In our opinion the financial statements show a true and fair view except for…”
  • Modified report
  • Basis for qualified opinion paragraph goes after
17
Q

Audit opinion & report: Pervasive issue - misstatement

A
  • Adverse opinion
  • “In our opinion the F/S do not show a true and fair view”
  • Modified report
  • Basis for qualified opinion paragraph goes after
18
Q

Audit opinion & report: Pervasive issue - Limitation of scope

A
  • Disclaimer (substituent opinion)
  • “We are unable to form an opinion on the F/S”
  • Basis for qualified opinion paragraph goes after
  • Report by exception that:
    1) Proper accounting records have not been kept
    2) All information has not been received by the audit date.
19
Q

The company is not a going concern: Has prepared on a break up basis & properly disclosed

A
  • Agree
  • Issue is material by nature
  • Unmodified opinion
  • Modified report
  • Emphasis of matter paragraph goes after
20
Q

The company is not a going concern: Has NOT prepared on a break up basis & properly disclosed

A
  • Disagree
  • Material by nature and perverse
  • Adverse opinion
  • Reason for modification witted after the opinion
21
Q

What is the self interest threat?

A

Self interest is the reluctance to take actions which are adverse to your interests.

  • Audit trainee: May be unwilling to raise a contentious matter
  • Audit senior: Risk is an inappropriate opinion is issued.
22
Q

Issues for accepting engagements:

A

1) Risk
2) Ethics
3) Practical matters
4) Legal matters

AA (2 decks)

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