General Flashcards
Materiality
Information is material if it’s omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements.
Performance materiality
The amount set at less than materiality for the financial statements as a whole.
reduces the risk of smaller amounts aggregating.
Audit data analytics
- Transnational analysis (Looking at 100% of transactions)
- Judgement areas
- Analytical procedures (using market / economic data to form expectations)
Audit procedures for estimates (3)
1) Obtain evidence of subsequent events
2) Written representation on the basis for estimation
3) Develop own estimate and compare
Procedures for going concern (3)
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
Ethical standard on the engagement partner of non-listed client
When it reaches 10 years:
- Careful consideration
- If not rotated:
1) Apply safeguards
2) Document reasoning and communicate reasoning with those charged with governance.
Ethical standard on audit engagement partner of a listed client
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!
Ethical standard regarding engagement quality review partner of a listed client
- Rotate after 7 years.
- No return within 5 years.
When is a matter pervasive? (3)
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
What to do when relying on the work of others?
1) Are they competent and objective?
2) Has it been properly prepared & planned, and are the conclusions appropriate?
The company has doubts over going concern and has disclosed these doubts
- Agree
- Material by nature
- Unmodified opinion
- Modified report
*Material uncertainly related to going concern included in report after opinion
The company has doubts over going concern and has not disclosed there doubts
- Disagree
- Material nature by nature (Pervasive if it is a going concern)
- Adverse opinion
- Reason for modification included after opinion.
Audit opinion & report: 1 immaterial misstatement
- Unmodified opinion
- “In our opinion the financial statements show a true and fair view”
- Unmodified report
Audit opinion & report: 1 immaterial limitation of scope
- Unmodified opinion
- “In our opinion the financial statements show a true and fair view”
- Unmodified report
Audit opinion & report: 1 material misstatement that’s not perverse because it is isolated
- 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
Audit opinion & report: 1 material limitation of scope that’s not perverse because it is isolated
- 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
Audit opinion & report: Pervasive issue - misstatement
- 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
Audit opinion & report: Pervasive issue - Limitation of scope
- 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.
The company is not a going concern: Has prepared on a break up basis & properly disclosed
- Agree
- Issue is material by nature
- Unmodified opinion
- Modified report
- Emphasis of matter paragraph goes after
The company is not a going concern: Has NOT prepared on a break up basis & properly disclosed
- Disagree
- Material by nature and perverse
- Adverse opinion
- Reason for modification witted after the opinion
What is the self interest threat?
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.
Issues for accepting engagements:
1) Risk
2) Ethics
3) Practical matters
4) Legal matters
