Materialty % AND Auditor's Report Section B Flashcards
When is profit after tax considered material?
If it is over 10%
Is 8% profit before tax material?
Yes
Test for completeness (understatement) direction?
Source document => FSs
When does interim audit occur?
During the period of review
When does final audit occur?
After the year end
Purpose of interim audit?
Carry out procedures that would be too difficult to perform at year-end due to time constraints
Statutory requirement for interim or final?
Interim: No statutory requirement to perform interim audit
Final: Statutory requirement
Purpose of final audit?
Express an audit opinion on FSs covering the entire period being audited
How should possibility of additional claims be disclosed?
As a contingent liability, as it is possible but not probable and quantifiable
If adequate disclosure of provision?
Unmodified opinion with emphasis of matter paragraph
If inadequate disclosure of provision? (material but not pervasive_
Qualified with a basis for qualified opinion paragraph
Is 7.3% profit before tax material?
Yes
When provisions are understated and error is material but not pervasive (auditor’s opinion)
A qualified opinion would be necessary
When is a basis for qualified opinion paragraph needed?
Explains the material misstatement in relation to EVENT and the effect on FSs
How should possibility of additional claims be disclosed in IAS 37?
As a contingent liability
When company adequately discloses an issue?
Unmodified with emphasis of matter paragraph
When company inadequately discloses an issue? (likely material but not pervasive)
Qualfiied opinion with basis for qualified opinion paragraph
What does a basis for qualified opinion paragraph used for?
Discusses the matter and opinion paragraph will be modified to state “except for” the failure to adequately disclose the matter
Is 2.3% of total equity+liabilities/total assets considered material?
Yes
What if a FD refuses to amend this error IAS 37?
Audit opinion will be modified due to a material misstatement
Is 2.1% of total assets considered material?
Yes
What would IAS 10 classify as an adjusting event?
If conditions of an event existed at year-end
What happens if there is a faulure to make such a provision? (effect on profit and provisions)
Causes profits to be overstated and provisions to be understated
Impact on audit opinion if directors refuse to make a provision?
Should issue a modified opinion on the grounds that there is a material misstatement
What is the opinion paragraph called for a material but not pervasive error with a basis for opinion paragraph included after the opinion paragraph?
Qualified “except for”
An event which does not provide evidence of a condition at year-end? (adjusting or non-adjusting)
Non-adjusting event
If disclosures arer adequate for a going concern issue?
A material uncertainty related to going concern section will be included
What is the a material uncertainty related to going concern section included after?
After the opinion AND basis for opinion paragraph
If disclosures are inadequate for a going concern issue (but there’s ongoing nature of negotiations)?
Qualified opinion
What is a basis for opinion paragraph used for?
Explaning that a material uncertainty exists and that FSs don’t adequately disclose the matter
Is 1.2% of total assets considered material?
Yes
Can costs already expensed be written back as assets?
NO
Where is the basis for opinion paragraph after?
The opinion paragraph
What sort of opinion is formed if provisions are understated and profits are overstated?
Material but not pervasive
6% of total liabilities material?
Material
Audit opinion if management refuses to post-year-end payment run?
Modified
Audit opinion if management refuses to remove project from intangible assets and charge it to SPL?
Is modified but not complied with IAS 38
Audit opinion if there is a lack of signed written representation letter?
Auditor does not have sufficient and appropriate audit evidence to form an opinion
Opniion given if there is no written representation letter?
Does not express an opinion on FSs due to inability to obtain sufficient appropriate evidence
How does basis for opinion paragraph change if there is a disclaimer of opinion?
Changes to a basis for disclaimer of opinion
How does statement that “auditor has audited the FSs changed” change in a disclaimer of opinion?
Will be changed to “auditor was engaged to perform an audit”
When is a profit before tax erorr considered to be immaterial?
An error is less than 5%
When is a review of subsequent events done?
Events which occur between date of FSs and date of auditor’s report
When should audit misstatements be communicated to TWCG?
On a timely basis
Materiality range for revenue?
0.5% to 1%
Should 2.2% of profit before tax be adjusted?
NO
Should 2.2% profit before tax be cause to modify an opinion?
Unmodified opinion with no further disclosure
0.2% of revenue material?
NO
Materiality level for assets?
1 to 2%
Materiality level for revenue?
0.5 to 1%
Materiality level for profit before tax?
5 to 10%
8% profit before tax material?
Yes
Confirms the proceeds of sale relates to which assertion?
Accuracy
What is non-adjusting event?
Gives new information about event that did not exist at year-end
Other matter paragraph represents?
Other matter paragraph only relevant to matters not related to FSs
Emphasis of matter paragraph represents?
Only required if matter disclosed adequately in FSs and auditor considers to be fundamentally important and wishes to bring attention of user
What period does management assessment for going concern cover?
At least 12 months from FSs
Is EQR a position of significnace?
YES, not like FC
What services can an audit firm provide?
Firm does assume a management responsibility
Can design and implementation of IT systems over financial reporting be provided by audit firm?
Service cannot be performed
Can assistance with preparation of tax return be provided by audit firm?
Service can be provided
Can accounting services be provided by audit firm?
Service cannot be provided
Can recrutiing services for position of credit controller be provided by audit firm?
Service can be provided
Permanent audit files?
Contains documents of a permanent nature related to the audit and the client’s business
Current audit files?
Contains information directly relevant to the current audit
What a repreliminary engagement activities useful for?
Helps to ensure that the auditor has considered events or circumstances that may adversely affect his ability to perform the audit engagement
What is overall audit strategy?
Sets the scope, timing and direction of the audit and helps guide the development of the detailed audit plan
What comes first, audit plan or audit strategy?
Audit strategy
What is audit plan?
A description of the nature, timing and extent of planned risk assessment procedures and audit procedures at assertion level
What is meant by direction in engagement team?
Responsibilities, objectives of task, nature of the business
What is meant by supervision in engagement team?
Have skills, follow instructions, work is done following audit plan
What is meant by review in engagement team?
Audit objectives acheived, adequate documentation, significant audit matters raised and resolved
Managerment’s assessment covers?
12 months from the date of FSs
Should overall level of materiality to be used in the audit be included in tender of audit?
No
Should proposed fee for the initial audit be included in tender of audit?
Include
Should a description of staff be included in tender of audit?
Include
Should a summary of potential other services auditor can provide be included in tender of audit?
Include
Two most important things prior to accepting an audit?
Firm independent of potential client and has appropriate resources to conduct the audit of the potential client
Is scope of audit included in engagement letter?
Yes
Is responsibilities of management included in engagement letter?
Yes
Is timetable for the provision of accounting information by Severn Co included in engagement letter?
No
Is fees and billling arrangements included in engagement letter?
No
When audit has been accepted, what should be submitted?
Letter of engagement
What references should be obtained before accepting thwe audit?
Obtain references concerning the directors
What is done before ensuring existing auditor’s resignation has been properly conducted?
Perform client screening procedures, including an assessment of Mickey’s risk profile
Is the auditor appointed by and answerable to TCWG of the company?
No
Opinion given if going concern basis is inappropriate?
Adverse opniion
When there’s uncertainty about outcome of the liquidation, what opinion should be given?
An emphasis of matter paragraph would be appropriate
When an auditor disclaims an opinion, is KAM included?
No
When ios an auditor required to read other information?
The auditor is required to read the other information and consider whether there is a material inconsistency or misstatement
Adequate disclosure of going concern issue?
material uncertainty related to going concern section
Inadequate disclosure of going concern issue?
Qualified if negotations are in place
What happens with fraudulent transactions?
Are written off to SPL
An example of information processing controls?
Control totals, to check the completeness and accuracy of invoices
When GRNs are not matched to purchase orders on a frequent basisc auses what?
STOCK-OUTS
What should be done with credit card statements?
Should be reconciled
Occurrence direction of testing?
Amonut included in FSs => supporting doucmentation
How long should engagement partners be in their position?
7 years and cooling-off period for 5 years
Existence?
All assets, liabilities and capital is REAL AND CAN BE VERIFIED TANGIBLE
Valuation?
Must be at the correct value
Completeness?
Has anything been missed
Rights & Obligations
Should we have rights by us (asset), do we have the obligation (liability)
Completness transactions?
All revenues and expenses have been recorded by the management
Occurrence?
All transactions should have been occurred
Cut-off?
Things should have been occurred in the correct accounting period
Classification?
Cost of sales should be recognised in cost of sales
Accuracy?
All sales, expenses should be valued at the correct amount
