General

Question 1

What does disaggregate mean?

Answer 1

separate (something) into its component parts

Question 2

What should the auditor consider when disaggregating overall planning materiality?

Answer 2

Auditor should consider materiality in relation to different classes of transactions and disclosures (ISA-320 para.4)

Therefore planning materiality gets allocated to various transaction classes

Question 3

Considerations about inventory when determining materiality in auditing planning?

Answer 3

On what basis do you value inventory?
What is the valuation policy, is it inline with industry?
Is there WIP inventory as part of total inventory?
Is there an obsolescence factor?

Question 4

Considerations on credit policy when determining materiality in auditing planning?

Answer 4

What steps do they use to determine credit worthiness
What credit control procedures are in place, and credit limits and policies
Look at debtors ledgers, how much of it is aged

Question 5

What are the 5 principals for the code of ethics?

Answer 5

1. Integrity
2. Objectivity
3. Professional competence and due care
4. Confidentiality
5. Professional behaviour

Question 6

What does it mean to act ethically ?

Answer 6

can be described as doing “good” or “the right thing” and is fundamental to the profession’s survival

Question 7

Who does the NZICA code of ethics apply to?

Answer 7

NZICA’s Code of Ethics applies to all members including Accounting Technicians (ATs) and Provisional Members

Question 8

What are some of the threats that could compromise auditors’ ethics and independence? Five

Answer 8

Self interest - Potential or other existing work from the audit client.

Self review - Past association with the audit client

Advocacy - A member of the audit team becomes an advocate for or against the audit client’s position.

Familiarity - Close relationship with the auditor who becomes sympathetic towards the client’s position.

Intimidation - The auditor may be deterred from acting objectively by real or perceived threats.

Question 9

What is independence in auditing?

Answer 9

The most important ethical issue for auditors is independence. Independence is about whether you are unbiased in how you approach your work and how you make decisions and come to opinions.

Question 10

What is the result if an audit lacks independence?

Answer 10

Without independence the audit lacks authority and thus all value.

Question 11

What are the five principles of the NZICA code of ethics?

Answer 11

Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behaviour

Question 12

What is OAR

Answer 12

It is overall audit risk and refers to the potential effects of audit failure.

Question 13

What is audit failure?

Answer 13

In which the auditor provide and inappropriate opinion. It’s were the audit provides a clean (unqualified) opinion that statements are true and fair when they are not

Question 14

What is the definition of an audit?

Answer 14

An audit is an objective examination and evaluation of the financial statements of an organization to make sure that the records are a fair and accurate representation of the transactions they claim to represent.

Question 15

What does “True and fair” mean?

Answer 15

Conceptual benchmark of an audit
Not defined in the Companies Act 1993 nor by Courts.
Broad terms has come to mean : auditor is judging the reasonableness of the information being presented.
In NZ Sec 16 of FRA requires an auditor to express an opinion that accounts show a true and fair view and comply with GAAP

Question 16

List reasons to explain why financial statement audits are necessary (four examples)

Answer 16

1. Conflict of interest. (Financial statements prepared by managers and they report of managements own performance) Creates conflict of interest between management and shareholders
2. Remoteness. Users of financial data not usually able to access the accounting data.
3. Complexity. Need someone to check who has the expertise
4. Consequence of error. Assurance that financials are reliable

Question 17

What does integrity mean?

Answer 17

Not being involved in incompatible activities.

Not associated with false and misleading statements.

Question 18

What does objectivity mean?

Answer 18

Professional accountants should not compromise their professional or business judgement because of:

• Bias
• Conflict of interest
• Undue influence of others

Question 19

What is Professional competence and due care?

Answer 19

Maintain professional knowledge
Must remain abreast of relevant technical, professional and business developments
Act carefully and thoroughly in accordance with the requirements of the assignment
Ensure that those working under his/her authority have appropriate training and supervision

Question 20

In the Code of Ethics what is Professional Behaviour about?

Answer 20

This fundamental principle requires that professional accountants:

- Comply with relevant laws and regulations
- Avoid any action that may bring discredit to the profession
- Market and promote themselves in an honest and truthful manner