Minor Areas Flashcards
Sources of information?
prior year FS info
Company websites
accounting system
Review board
Management accounts
Quality managment?
briefing - informed of responsibilities, objectives of work
tracking progress audit to ensure work compelted on time
competence of team - significnat matters dealt with
Review of work - senior required standard
documentation - work performed provides basis for opinion
Revision of engagement letter main reasons?
misunderstands scope audit
size of business
senior management
legal requirements - contract out of date
Preconditions for audit characteristics?
FR framework is acceptable, assess nature entity
Preparation FSs applicable framework
design and implemetnation internal controls free MM
access all info relevant audit
Prevention and Detection of Fraud
identify ROMM due fraud
Reasonable assurance - controls are good at preventing errors
Gather evideicne related to fraud
Discuss with teams to ensur they know what they’re resposnible for
Professional scepticism?
ISA 200 - questioning mind, alert conditions
Risk of overstatement understateemnt
management bias as judgement involved
weak controls
Audit planning benefits?
attention important areas
resolve problems timely
direction supervision engagement team
assistance coordination work experts
New audit client?
Contact previous auditors - Assess whether any ethical or professional reasons why firm should not accept appointment
Management lack integrity - greater risk of fraud and intimidation
Pre-conditions (FSs, internal controls, info reelvant audit)
Independence and objectivity - any threats to independence and objectivity can’t be reduced via safeguards
Resources available - adequate resources with suitably experienced staff
Supervision and review key characteristics
track progress
competency time
review work - review work done by assistants is done with accordance professional standards
significant matters - raised partner attention, conclusions amended
Analytical procedures?
Analytical procedures stages
planning - risk assessment help auditor understand entity
final audit - sufficient appropriate evidence. Tests of detail or substantive procedures
review stage - consistent understanding entity
Audit strategy documents?
Main characteristics - Prepared in accordance with financial reporting framework
Reporting objectives, timing and nature - audit timetable interim and final
Significant factors affecting audit - Materiality of audit
Preliminary engagement activities - Design and implementation internal controls
Nature, timing and extent of resources - human and technological resources
Audit risk components?
inappropriate opinion
areas ROMM detection
assertion transaction material
inherent - before controls
control - entity’s controls
detection - auditor mistake
Conflict of interest?
Communciate clear guidelines for members of each engagement team on issues of security and confidentiality
Use confidentiality agreements signed by employees and partners
Advise one or both clients to seek additional independent advice
Implement procedures to prevent access to information
Review engagement?
alternative audit and involves practicioner revoiewing financial data
practicioner gathers evideince satisfied subject matter
negative assurance - nothing comes to attention that subject matter contains MM
Laws and regulations?
audit procedures identify non-compliance
aware of non-compliance obtain understanding of act and effect on FSs
must report non-compliance TCWG
Deficiencies internal control (external auditor)
likelihood deficiencies MM in the future
suspectibility fraud related asset/liability
importance controls FR process
How defiency links to other deficneices
Control activities?
Segragation
Authorisation
Reconciliations
Verifications
Physical logical controls
Components of internal control?
Control environment - management’s awareness of responsibilities, TCWG independence from management
risk assessment - identifying risk, significance and likelihood
monitor system of IC - effectiveness internal controls, remedial actions
information system - records and process transactions relevant FSs
Control activities - reconciliation
Limitations of control?
human error
ineffective controls
collusion of staff
management override
Narrative notes?
written description
time-consuming
missing
simple to record
understand complex
ICQ?
list of questions transaction cycle
overstated particular answer
unusual controls excluded
quick prepare recording
drafted throughly all controls
Flowcharts?
diagrammatic internal system, Sequence of events
easy to view diagram - entire system represented
standard symbols identify missing controls
Report to management?
board of director’s address
deficiencies internal control during the audit
only addresses deficiencies identified during audit
only use for management
sign off - audit firm
Importance communication TCWG?
TCWG understand matters related to audit working relationship
Helps auditor in obtaining information from TCWG relevant to audit
Helps TCWG fulfil responsibiltities over financial reporting process
Internal/external auditors?
objective
reporting
scope of work
availability of report
relationship company
Assignment Internal Audit department?
review financial controls - purchasing process and payroll cycle
Regulatory compliance - subject large number laws and regulations
IT systems reviews - complex computer systems
cash controls - lots of cash payments
Fraud investigations prevent/detect fraud
Engagement letter characteristics?
objective and scope
responsibilities auditor
responsibilities manage
framework preparation FSs
expectation provide written representations
PY System Notes?
System notes - system covers all stages
Review audit file - weaknesses in system
prior year report - recommendations made in weak area
Interview client staff - determine if system controls have changes
Control activities?
Segragation of duties
Verifications
Authorisation
Physical controls
Reconciliations
Obtain understanding of internal control?
greater ROMM FSs if control system weak
Not effective substantive
reliance placed less
Impact on auditor’s opinion?
Discussion
Materiality (2 marks)
Type of modification
Impact on auditor’s report - (basis for opinion explains misstatement and effect on FSs)
Matters communciated TCWG
Explain planned audit timetable
Key risks identified planning
Significant accounting adjustments
Frauds communicated
Automation advantages?
large volume
test data to test program controls
reduce human error
Automation disadvantages?
setup costs
team training
documentation - devise appropriate procedures
Need for internal audit?
Complexity activities
Number of employees
Assurance by management
Corporate governance
Key audit matters?
Areas higher assessed ROMM
Singificant auditor judgement relating to areas in FSs which were related to significant management judgment
Effect on audit of significant events which occured in the period
WHAT THE ISSUE IS - describe issue
WHY THE ISSUE IS A KAM - refer to intro on KAM
HOW ISSUE WAS ADDRESSED - audit procedures
Reliability of audit evidence?
independent sources
by auditor
documentary not verbal
Original not photocopies
Working papers?
name of client auditng paper
year-end date of paper
subject - area being audited
reviewer - who reviewed working paper
Lack of written representation?
lack of letter - evidence
disclaimer of opinion
basis of disclaimerog opinion
auditor was engaged to perform the letter
Outsourcing internal audit?
Staffing
Skills and experience
Flexibility
Existing IA department
Confidentiality
Loss of in-house skills
Interim audit?
Carry procedures difficult
Risk assessment
tests of controls
Substantive testing books
No stat
Final audit?
Express opinion
third party
adjustment FSs
Analytical procedures
Subsequent events
Stat
IAS 37?
Explain issue
Materiality and explain IAS 37 criteria
What opinion issued
Basis of opinion
Subsequent events?
Explain issue
Whether it occured during year or afterwards
Calculate materiality - appropriate treatment
List audit procedures
Written representations
TCWG believe they have fulfilled their responsibility for preparation of FSs
Needed to support audit evidence relevant to FSs. May be necessary for judgmental areas
Confirm management have communicated all internal control deficiencies they are aware of
Audit risk opening sentence?
Assertion about a class of transaction, account balance to a misstatement that could be material, whether individual or when aggregated to other misstatements
How should reviewing the work of assistants be assessed?
In accordance with professional standards
Significant matters should be raised to who in supervision and review?
Partner attention
Why contact auditors for when auditing a new audit client?
Assess whether any ethical or professional reasons why firm should not accept appointment
When threats to independence can’t be reduced for an audit engagement?
Must resign from the engagement
What must auditors consider when assessing materiality?
Whether the number of errors when aggregated can cause a misstatement
Why use risk assessment procedures for analytical procedures?
To obtain an understanding of the entity and assess the ROMM
What does audit strategy docuemnt define?
Financial information audited has been prepared to financial reporting framework and there’s an availabiltiy of key personnel
Who should confidential agreements be made?
To employees and partners of the firm
What must auditor do when they become aware of non-compliance with laws and regulations?
Must obtain an undertstanding of the circumstances it occurred and evalaute effect on FSs
How should IA review fraud?
Review the controls in place to prevent/detect fraud
Why should cash controls be used by IA?
If cash held is likely to be very significant
What should be done if control system is effective?
Reliance can be pliaced on controls and substantive procedures are less required
What if controls are not effective?
Substantive procedures should be relied on
What is meant by outgoing auditor’s response?
Prior to accepting an audit engagement, auditor required to contact previous auditors to ask for all information relevant to audit firm should or shouldn’t accept engagement
What is meant by management integrity?
Audit engagement partner has reason to beleive management lack integrity, there is a greater risk of fraud and intimidation
Independence and objectivity?
Must consider whether any threats to independence and objectivity can’t be reduced to low level via safeguards
Resources available at the time of the audit?
Must have adequate resources for staff to carry out the audit
Inherent risk?
Before consideration of any related controls
Control risk?
WIll not be prevented, or detected and corrected on a timely basis by entity’s itnernal control
Detection risk?
Affected by sampling and non-sampling risks. Procedures by auditor won’t detect misstatement
When question relates to IAS 37?
Discuss issue
Adequate vs inadequate disclosure
Is financial statements can’t be prepared on a going concern basis adjsuting or non-adjusting?
Always an adjusting event
What is meant by control environment?
Management’s awareness of responsibilities, TCWG independence from management
What is meant by entity’s risk assessment process?
Identifying risk, significance and likelihood
What is meant by entity’s process to monitor the
system of internal control?
Effectiveness internal controls, remedial actions
What is meant by information system and communication?
Records and process transactions relevant FSs
What is interim audit used for?
To carry out procedures that would be too difficult to perform at year-end due to time constraints
What is final audit used for?
Express an audit opinion on FSs covering entire period being audited
Activities performed in interim audit?
Inherent risk assessment and gaining understanding of entity
Substantive testing
Tests of control to ensure effective operation
Activities performed in final audit?
Subsequent events review
Agreeing FSs to accounting records
Obtaining third party confirmations
Obtaining written representations
Objective of external audit?
Express an opinion on truth and fairness of FSs
Objective of internal audit?
Improve company’s operations by reviewing efficieicny and effectiveness of internal controls
Reporting of external audit?
Reports to shareholders
Reporting of internal audit?
Reports to management and TCWG
Availability of report of external audit?
Publicly available
Availability of report of internal audit?
Not publicly available
Scope of work of external audit?
Verifying the truth and fairness of FSs
Scope of work of internal audit?
Wide in scope and dependent on management’s requirements
Appointment and removal of external audit?
By shareholders of the company
Appointment and removal of internal audit?
By audit committee or board of directors
Relationship with company of external audit?
Must be independent of the company
Relationship with company of internal audit?
May be employees or an outsourced function
Example of financial/operational controls in IAD?
Purchasing process
What are reconciliations?
Comparing two (or more) data elements and bringing them into agreement if differences are identified
What are verifications?
Comparing two (or more) items with each other or with a policy and taking follow-up action if items do not match or are inconsistent with a policy
What is meant by nature, timing and extent of resources in audit strategy?
Human, technological and intellectual resources assigned
What is meant by preliminary engagement activities and knowledge from previous engagements characteristics?
Effectiveness of internal controls
Volume of transactions, which determines whether it is more efficient for audit team to rely on internal controls
What is meant by significant factors affecting the audit chracteristics?
Determination of materiality for the audit
What is meant by reporting objectives, timing and nature of communication?
Audit timetable for reporting including interim and final
Any discussions with management regarding reports issued
What is meant by main characteristics of the engagement?
Financial information audited in framework
Availability of key personnel
Why shopuld TCWG be helped in overseeing the financial reporting process?
Reduces ROMM in FSs
What must be ensured when TCWG are maintaining a working relationship with auditors?
Auditor’s independence and objectivity
What is occurrence?
The transactions and events that have been recorded have actually occurred and pertain to the entity
What is completeness?
All transactions and events that should have been recorded have been recorded
What is accuracy?
Amounts and other data relating to recorded transactions and events have been recorded appropriately
What is cut-off?
Transactions and events have been recorded in the correct period
What is classification?
Transactions and events have been recorded in proper accounts
What is materiality?
Misstatements economic effect on users
Quantitiative and qualitative
Benchmarks - ultimately auditor’s judgment
What is performance materiality?
Aggregate of uncorrect and undetected misstatements exceeds materiality for FSs as whole
Prior to accepting audit?
Issues which might arise threaten compliance with ACCA such as level of fees
Consider whether they were competnent to perform work and appropriate resources
Whether auditor knows client’s directors, needs to consider reputation and integrity of directors
Should have considered level of risk attached to audit of Percy and whether this was acceptable
Work of an independent auditor?
Evaluate competence, capabilities including expertise and objectivity of a management expert
Does valuer understand the accounting requirements of IAS 16
Should meet with expert and discuss with them the relevant expertise
Assumptions used should be reviewed carefully
System of internal control characteristics?
Reliability of financial reporting
Effectiveness and efficiency of its operations
Compliance with applicable laws and regulations
