Minor Areas Section B Rote (Substantive)

Question 1

What does audit engagement partner consider in key audit matters ISA 701?

Answer 1

Whether matter communicated with those charged with governance

Level of risk in relation to (financial statement item)

Question 2

What are the contents for a KAM ISA 701?

Answer 2

A reference to audit risk in relation to (financial statement item)

Level of judgment required, why issue is of significance

How matter addressed with brief overview of audit procedures adopted

Question 3

When a firm experiences cash flow difficulties just a few months after year end?

Answer 3

Highly unlikely can be recovered so it’s an adjusting event in IAS 10

Question 4

How to adjust an overstated receivables balance?

Answer 4

Use of an allowance for receivables or write off the balance

Question 5

What if finance director refuses to increase the provision?

Answer 5

Audit opinion is modified to MM

Question 6

When is a basis for qualified opinion paragraph needed?

Answer 6

Explain MM in relation to understated provision and effect on FSs

Question 7

What is meant by a KAM?

Answer 7

A significant audit issue

Question 8

How should the possibility of additional claims be disclosed?

Answer 8

As a contingent liability

Question 9

What happens when there’s adequate disclosure in IAS 37?

Answer 9

Unmodified opinion is given with an emphasis of matter paragraph to highlight the issue

Question 10

What happens when there’s inadequate disclosure in IAS 37?

Answer 10

As FSs likely misstated, a qualified opinion is given. Basis for qualified opinion paragraph discussing the matter

Question 11

What happens to opinion paragraph if there’s an inadequate disclosure for IAS 37?

Answer 11

Modified to state “except for” the failure to adequately disclose the matter, FSs give a true and fair view

Question 12

What should happen to training costs in a restructuring provision?

Answer 12

Taken out of cost of the provision and instead expensed to SPL

Question 13

When considering how an auditor’s report is modified, what is always essential to do?

Answer 13

If a misstatement is material

Question 14

When there’s a failure to make a provision in the FSs?

Answer 14

Profits are overstated and provisions are understated

Question 15

Factors that can affect going concern status?

Answer 15

Suppliers may not offer favourable credit terms

Not paying dividend makes shareholders lose faith

Question 16

What is meant by a non-adjusting event?

Answer 16

Events occurred after reporting period and is not an event which provides evidence of a condition at year end

Question 17

What happens with research expenditure in IAS 38?

Answer 17

Is expensed to SPL rather than capitalised

Question 18

What is the purpose of including KAM in auditor’s report?

Answer 18

Help users in understanding the entity and basis for users to discuss with management

Question 19

What is meant by window dressing?

Answer 19

Bank overdraft overstated as trade payables have been understated.

Question 20

What needs to be done to address window dressing?

Answer 20

Post-year-end payment run

Question 21

Reliability of audit evidence (indepdenent)

Answer 21

Better if obtained from independent sources outside the entity

Question 22

Reliability of audit evidence (internal)

Answer 22

When the entity’s internal controls are effective

Question 23

Reliability of audit evidence (documentary)

Answer 23

Documentary form is always better than evidence obtained orally

Question 24

Reliability of audit evidence (direct)

Answer 24

Always better if audit evidence is obtained directly by the auditor rather than indirectly

Question 25

If management refuses to amend an error relating to an accounting standard?

Answer 25

Management have not complied with the accounting requirement

Question 26

When error is material but not pervasive (opinion paragraph)

Answer 26

Would be qualified “except for”

Question 27

What is a basis for qualified opinion paragraph used for?

Answer 27

Needed to explain the material misstatement

Question 28

Working papers (name)

Answer 28

Name of client - identifies client being audited

Question 29

Working papers (year-end)

Answer 29

Year-end date - identifies year end to which audit working papers relate

Question 30

Working papers (reviewer)

Answer 30

Name of audit team member who reviewed the working paper

Question 31

Working papers (preparer)

Answer 31

Indetifies name of audit team member who prepared the relevant paper

Question 32

Working papers (conclusion)

Answer 32

Overall conclusion of audit work performed, whether its true or fair

Question 33

When there’s no written representation letter?

Answer 33

Auditor does not have sufficient and appropriate audit evidence

Question 34

What opinion should be formed if written representation not obtained?

Answer 34

Disclaimer of opinion

Question 35

In disclaimer of opinion, what happens to basis for opinion paragraph?

Answer 35

It is changed to basis for disclaimer of opinion

Question 36

1st step of positive receivables circulisation?

Answer 36

Obtain consent from finance director in advance of undertaking circularisation

Question 37

2nd step of positive receivables circulisation?

Answer 37

Obtain list of trade receivables at year end, cast and agree to trade receivables account

Question 38

3rd step of positive receivables circulisation?

Answer 38

Select a sample from receivables list ensuring nil, old, large balances are selected

Question 39

4th step of positive receivables circulisation?

Answer 39

Circularisation letters sent requesting confirmation from year-end receivables balance, replies are sent directly to audit team

Question 40

5th step of positive receivables circulisation?

Answer 40

When no response is received, follow up with another letter

Question 41

6th step of positive receivables circulisation?

Answer 41

When replies are received, they are reconciled to receivables record

Question 42

Purpose of an engagement quality management review?

Answer 42

Provide an objective evaluation, on or before the date of the auditor’s report, of the significant judgments the engagement team made and the conclusions it reached in formulating the auditor’s report

Question 43

What should engagement quality management review include (significant)

Answer 43

Discussion of significant matters with the engagement partner

Question 44

What should engagement quality management review include (FSs)

Answer 44

Review of the financial statements and the proposed auditor’s report

Question 45

What should engagement quality management review include (conclusions)

Answer 45

Evaluation of the conclusions reached and consideration whether the proposed auditor’s report is appropriate