Incorrect questions Flashcards
acronym for quality control (detail)
Leadership Ethical compliance Acceptance Resources Engagement performance Monitoring
acronym for when you can accept a client ( detail)
Technical competence Resources Independence Money laundering Risk / reputation Outgoing auditor Terms of engagement
acronym for quality control
LEAREM
acronym for when you can accept a client
TRIMROT
when are audit risks found
FS level or balance and transactional level
example of balance and transactional level risk answer in exam
there is a risk of over/under/mis statement of xxx because xxx
could be recievables/ inventory /revenue etc
3 examples of FS level of risk
risk of misstatement at FS:
going concern
Fraudulent reporting
Internal controls
2 sentences must be used when discussing going concern as a audit risk
if xxxx is not a going concern, the FS must be prepared on a break up basis. If this has not happened, the uncertainty must be prepared in the notes of the FS
should you include audit tests in your audit risk question
NEVER
subheadings for a tender question
Overview of the firm areas of expertise and key staff assessment of client needs deadlines fees non audit services quality control and ethics
how are things material
by nature
value
or impact
criteria for material (revenue)
0.5%-1%
criteria for material (total assets )
1%-2%
criteria for material (profit before tax)
5%-10%
what is insolvency
the inability of a company to pay its debts when they are due (not enough assets even if you were to sell them)
what is illiquidity
the inability of a company to readily obtain its cash from its assets in order to meet obligations (they do have assets but cant easily get cash from them)
two common reasons of becoming insolvent
overtrading
lack of profitability
what happens when a company becomes insolvent
administration - continues to exist but under control of administrator
liquidation - company is wound up and ceases to exist
format of evidence questions
example:
Copy of Bank statement to confirm the amount paid for the asset
you must start with a noun and not a verb otherwise its a procedure
evidence question - one to always use
Copy of FS note to confirm the disclosure is appropriately made
audit report question - do two parts, what are they?
impact on the audit opinion
additional paragraphs that may need to be included in the audit report
example of pervasive
turns profit into a loss
4 points to include in the impact on audit opinion section of audit report question
explain problem in accounting knowledge
assess whether problem is material, immaterial or pervasive
explain reason for modifying opinion - the audit opinion will modified on the basis of material misstatement
give conclusion - in conclusion the audit opinion is qualified
what are the different audit opinions and why
qualified - material misstatement
unmodified - no problems
adverse - pervasive misstatement
disclaimer - pervasive inability to provide to obtain sufficient appropriate audit evidence
example of something not pervasive
only one or two balances that are wrong
what shouldnt you use in an audit report question
emphasis of matter - they hate it
uk variant - going concern. when does the 12 month going concern valuation need to be from
audit report date
3 guaranteed marks for cash flow evidence
working paper agreeing the opening balance to the bank statement
working paper confirming that the additions/ adding up is accurate
working paper confirming or comparing the forecast to actual
how do you go into liquidation
creditor must show they are owed more than £750 and that its served a payment request at the registered address
petition is presented in court if not paid within 21 days
if the debt is undisputed, a winding up order is granted
court will appoint official reciever who will wind up company
the directors must prepare a statement as to why the company is failed
a meeting is held with creditors then final return at court and then its dissolved
what happens when you go into administration
you have 12 months of breathing space where you cannot be demanded for unpaid debt. an administrator is appointed and makes all decisions. they will decide if you can continue or if not they will put them in liquidation
