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AA Question Rote > Minor Areas Section B Rote (Substantive) > Flashcards

Minor Areas Section B Rote (Substantive) Flashcards

1
Q

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

A

Whether matter communicated with those charged with governance

Level of risk in relation to (financial statement item)

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2
Q

What are the contents for a KAM ISA 701?

A

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

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3
Q

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

A

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

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4
Q

How to adjust an overstated receivables balance?

A

Use of an allowance for receivables or write off the balance

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5
Q

What if finance director refuses to increase the provision?

A

Audit opinion is modified to MM

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6
Q

When is a basis for qualified opinion paragraph needed?

A

Explain MM in relation to understated provision and effect on FSs

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7
Q

What is meant by a KAM?

A

A significant audit issue

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8
Q

How should the possibility of additional claims be disclosed?

A

As a contingent liability

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9
Q

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

A

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

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10
Q

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

A

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

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11
Q

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

A

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

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12
Q

What should happen to training costs in a restructuring provision?

A

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

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13
Q

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

A

If a misstatement is material

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14
Q

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

A

Profits are overstated and provisions are understated

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15
Q

Factors that can affect going concern status?

A

Suppliers may not offer favourable credit terms

Not paying dividend makes shareholders lose faith

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16
Q

What is meant by a non-adjusting event?

A

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

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17
Q

What happens with research expenditure in IAS 38?

A

Is expensed to SPL rather than capitalised

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18
Q

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

A

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

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19
Q

What is meant by window dressing?

A

Bank overdraft overstated as trade payables have been understated.

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20
Q

What needs to be done to address window dressing?

A

Post-year-end payment run

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21
Q

Reliability of audit evidence (indepdenent)

A

Better if obtained from independent sources outside the entity

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22
Q

Reliability of audit evidence (internal)

A

When the entity’s internal controls are effective

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23
Q

Reliability of audit evidence (documentary)

A

Documentary form is always better than evidence obtained orally

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24
Q

Reliability of audit evidence (direct)

A

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

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25
Q

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

A

Management have not complied with the accounting requirement

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26
Q

When error is material but not pervasive (opinion paragraph)

A

Would be qualified “except for”

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27
Q

What is a basis for qualified opinion paragraph used for?

A

Needed to explain the material misstatement

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28
Q

Working papers (name)

A

Name of client - identifies client being audited

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29
Q

Working papers (year-end)

A

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

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30
Q

Working papers (reviewer)

A

Name of audit team member who reviewed the working paper

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31
Q

Working papers (preparer)

A

Indetifies name of audit team member who prepared the relevant paper

32
Q

Working papers (conclusion)

A

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

33
Q

When there’s no written representation letter?

A

Auditor does not have sufficient and appropriate audit evidence

34
Q

What opinion should be formed if written representation not obtained?

A

Disclaimer of opinion

35
Q

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

A

It is changed to basis for disclaimer of opinion

36
Q

1st step of positive receivables circulisation?

A

Obtain consent from finance director in advance of undertaking circularisation

37
Q

2nd step of positive receivables circulisation?

A

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

38
Q

3rd step of positive receivables circulisation?

A

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

39
Q

4th step of positive receivables circulisation?

A

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

40
Q

5th step of positive receivables circulisation?

A

When no response is received, follow up with another letter

41
Q

6th step of positive receivables circulisation?

A

When replies are received, they are reconciled to receivables record

42
Q

Purpose of an engagement quality management review?

A

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

43
Q

What should engagement quality management review include (significant)

A

Discussion of significant matters with the engagement partner

44
Q

What should engagement quality management review include (FSs)

A

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

45
Q

What should engagement quality management review include (conclusions)

A

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

46
Q

What are narrative notes?

A

Consist of a written description of a system. Detail what occurs in the system at each stage

47
Q

Advantage of narrative notes (record)?

A

Simple to record after discussion with staff members cane asily be written up as notes

48
Q

Advantage of narrative notes (understanding)?

A

Can facilititate understanding by all members of audit team, especially more junior members who might find other members too complex

49
Q

What are ICQs used to?

A

Assess whether controls exist

50
Q

What are ICEQs used to?

A

Assess the effectiveness of the controls in place

51
Q

Advantages of questionnaires (speed)

A

Questionnaires are quick to prepare, which means they are a timely method for recording the system

52
Q

Advantages of questionnaires (controls)

A

Ensure that all controls present within the system are considered and recorded, missing controls and deficiencies are highlighted to the team

53
Q

Disadvantage of narrative notes (time-consuming)

A

May prove to be time-consuming if internal control system is complex

54
Q

Disadvantage of narrative notes (difficulty)

A

It may make it more difficult to identify if an internal controls are missing in narrative notes

55
Q

Disadvantage of internal controls (overstated)

A

Internal controls may be overstated if the client is aware that the auditor is looking for a particular answer

56
Q

Disadvantage of internal controls (unusual)

A

Unusual controls may not be included on a standard questionnaire and hence may not be identified

57
Q

What are flowcharts?

A

Diagrammatic illustration of internal control system. Lines usually demonstrate the sequence of events and standard symbols are used to signify controls or documents

58
Q

Advantages of flowcharts (view)

A

Easy to view the system in its entirety as it is all presented together in one diagram

59
Q

Advantages of flowcharts (symbols)

A

Due to the use of standard symbols for controls, it can be effective in identifying missing controls

60
Q

Control to reduce risk of fraud reoccuring (members of staff)

A

Related members of staff should not be allowed to work in same department where they can seek to override segragation of controls

61
Q

How risk is mtiigated by control to reduce risk of fraud reoccuring (members of staff)

A

Risk of related staff colluding and being able to commit a fraud without easily being discivered will be reduced

62
Q

Control to reduce risk of fraud reoccuring (customer statements)

A

Customers statements should be sent out each month to all customers. Receivables ledger supervisor should check that all customers have been sent statements

63
Q

How risk is mtiigated by control to reduce risk of fraud reoccuring (customer statements)

A

Customers receiving statements may notice anomalies in allocation of payments and mal alert company of these anomalies

64
Q

Control to reduce risk of fraud reoccuring (bank reconciliation)

A

Bank reconciliaitons should be reviewed regularly by somneone of an appropriate level of management who is not involved in its preparation

65
Q

How risk is mtiigated by control to reduce risk of fraud reoccuring (bank reconciliation)

A

Any compensating material balances netted off to a small difference on the bank rec will be discovered quickly, increasing probability of uncovering fraud on a timely basis

66
Q

What is a value for moeny audit?

A

Focuses on the best combination of services for lowest level of resources. Examines economy, efficiency and effectiveness

67
Q

What is meant by economy in VFM audit?

A

Attaining the appropriate quantity and quality of physical, human and financial resources at lowest cost

68
Q

What is meant by efficiency in VFM audit?

A

Relationship between goods or services produced and the resources used to produce them

69
Q

What is meant by effectiveness in VFM audit?

A

Concerned with how well an activity is achieving its policy objectives or other intended effects

70
Q

Determining if deficiency in internal control is significant (fraud)

A

The suspectibility to loss or fraud of the related asset or liability

71
Q

Determining if deficiency in internal control is significant (financial)

A

The financial statement amounts exposed to the deficiencies

72
Q

Determining if deficiency in internal control is significant (estimated)

A

The subjectivity and complexity of determining estimated amounts

73
Q

Determining if deficiency in internal control is significant (likelihood)

A

The likelihood of deficiencies leading to MMs in FSs in the future

74
Q

Control objectives for sales and dispatch system (accepted)

A

Ensure that orders are only accepted if goods are available to be processed for customers

75
Q

Control objectives for sales and dispatch system (credit)

A

Ensure that goods are not supplied to poor credit risks

76
Q

Control objectives for sales and dispatch system (completeness)

A

Ensure completeness of income for goods dispatched

77
Q

Control objectives for sales and dispatch system (discounts)

A

Ensure that sales discounts are only provided during the valid period

AA Question Rote (30 decks)

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