mistakes Flashcards
Questions to ask potential clients
Potential conflicts of interest
Previous auditor contact process
Any scenarios from questions been fixed/changed, or problems for the company/future.
going concern
Retirement of leader,
Or lack of succession plans
Auditors can prepare FS for who
LTDs only
Assurance report on controls can be…
Either limited or Reasonable assurance, never absolute (expectations gap)
Opinion shopping additional procedures.
Perform back ground checks on MGMT
Ensure adequate resources and expertise are available in the firm
legal proceedings extra point
LICENSE REVOCATION or Closure of business
MGMT override tests
Whistle blowing procedures
Review significant estimates/judgements
Intimidation threat safeguard
Safeguard:
More experienced workers
Impact on other areas of the audit
Self interest threat
Anything relating to loss + fee income
Misstatements
Disciplinary action
considerations for new appointments
Opening balance concerns + companies
Enquiries of MGMT over RATIOS:
is it due to …( (list changes in activities)
Due to over/under statement of … (link to ratio)
GPM and OM differences due to:
> Changing classification of costs
> Provisions for damages…
sources of evidence/documents
Aged receivables, inventory, payables
Contracts/Correspondence with suppliers/customers
Breakdown of {COGS}{operating costs}
Product costs + selling prices
Client evaluating Firm tender
Auditors experience in sector + with systems
[quality] Audit strategy, reliance on controls/IA, Use of data analytics
proposed fee, BEST VFM
personnel for audit,
>can they work with them?
> efficiency
Proposed timeline> deadlines >busy periods
References
Any other services they can provide?
Points for Engagement letter + reason
Who report is directed to
Intended use:
> to avoid reliance by unforeseen 3rd parties
> limited liability
Period covered by forecast info
nature of assumptions
> clarity on what subject to review
> Accountant reports on reasonableness
Statement of MGMTs responsibilities… (SPECIFIC)
Performed in accordance with … (ISAs, ISAEs)
caveat/disclaimer -> avoid over reliance
nature of assurance to be provided (reasonable/limited)
Form of reports provided
after date payments for
FINES
Analytical procedures
Compare year on year
Compare average per:
>for prior year
>for budget
>for each office
Providing finance to client
= credit checks
= review their budgets + forecasts
sensitivity analysis
inflation
interest rates
exchange rates
time to achieve…
amounts received…
variations in seasonality, costs, demand
cost of selling/making etc
loss of customers when opening stores from on lines
rent reviews
receivables
check terms of contract for credit details
check date on contract
direct confirmation of balance with customers
re perform calculations, exclude certain customers
reasonable assurance
detailed testing (controls, systems, numbers) + analytical …
limited assurance
mgmt enquiries + analytical review
third party revenue holder
cut off issues due to banking of revenue at third party
recognition of revenue net of costs
purchase of NCA
Vouch purchase costs to…
vouch ownership/registration documents
consider significant losses/profits on disposal
process of analytical procedures
Substantive analytical procedures assist the external auditor in forming an overall conclusion on the financial statements. The procedures are used to obtain relevant and reliable audit evidence by identifying expected relationships or detecting material misstatements and can be used as a ‘proof in total’. The procedures assist audit efficiency as they can reduce the need for tests of details, reduce sample sizes and identify areas where further work is required.
Consequences of: Dont check assets to register
Assets may not be available when required for use resulting in business disruption.
Additionally, incorrect capital allowances may be claimed and depreciation charges/useful life may be inappropriate.
Compliance with covenants may be affected by misstated assets/profits.
Directors meeting should include what info
Information presented at directors’ meetings should include cash flow forecasts for at least the next 12 months (or the period of the bank loans),
key assumptions used in their preparation,
a sensitivity analysis
a commentary on compliance/non compliance with covenants.
Substantive testing
Analytical procedures and test of detail
NOT CONTROLS TESTING
Matters to be considered in respect of opening balances that weren’t audited:
• Check opening balances correctly brought forward
• Review client working papers for prior year
• Check appropriateness of accounting policies/accounting policies consistently applied year to year
• Any changes appropriately accounted for/disclosed
• Substantive work on opening balances (where no alternative available)
• State in auditor’s report that comparative figures not audited (ISA (UK) 710)
• Ensure disclosure of lack of audit in prior year in financial statements
• Integrity of accounting system/strength of control environment
Report by exception on
Inadequate accounting records kept
Returns adequate for the audit not received and branches not visited
The FS don’t match underlying records
INFO +explanations necessary for audit not received
If No CG statement issued by PLC
If MM found int he directors/strategic report
Why has a cold review been performed?
What actions should take on back of cold review?
(Fee is smaller than expected, and basis of fee not recorded)
Why performed?
> indication of low balling
> may indicate a lack of independence or
> lack of appropriate resources leading to lower audit quality
> audit firm losses potentially
Actions:
> discuss how fee calculated
consider if reasons for low fee calculated
provide additional training
consider if other clients impacted
Mgmt responsibility of fraud
Implementing system on internal controls.
Whistle blowing procedures
Preventing+ detecting… culture etc
Profit forecast vs Cash flow forecast
Profit forecast on accruals basis
(Depreciation in profit, not in cash flow
Allowances and provisions in profit)
Cash flow forecast on cash basis
(When cash is paid and received,
No provisions or liabilities)
Audit risk in a question
State any reason for concern in the company regarding the audit.
Where are the potential sources of error?
Listed companies
Additional disclosures in audit report:
KEY AUDIT MATTERS
specify materiality thresholds (FS and performance) + (judgements to determine them)
Compliance the UK CGC
Deposits =
Cut off threat
Over trading when company grows too quickly
Going concern
Strong competition
Compete on price
Online sales can lead to
Systematic recording errors
Revenue risk and procedure for an arrangement
Obtain copy of agreement and understand how revenue is generated
Prospective information
Provide opinion on
assumptions
Properly prepared
Prospective information
Provide opinion on
assumptions
Properly prepared
External auditor when we are other asssurance
Can help us
No written representations provided
M+P
Report by exception under TCA
*adequate accounting records not maintained
* all information required was not maintained
Confirmations that WR used for:
Inventory, valued at lower of…
TRADE REC, at recoverable amounts
Tangible assets, assumptions of useful life’s
RPT, fully disclosed in FS
Confirmations that WR used for:
Inventory, valued at lower of…
TRADE REC, at recoverable amounts
Tangible assets, assumptions of useful life’s
RPT, fully disclosed in FS
Dependencies =
Impacts =
Resources, regulation such as H&S (costs money)
Emissions, working conditions, employee right
FS Level Misstatements
Window dressing
GC risk
Weak Control
New systems
Errors across the whole FS
Mandatory firm rotation after…
Tender after…
20years
10years
Auditors report of a listed entity
Name of EP
KAM
D/S report consistent
Corp Gov statement
Elements to be included in the :
Opinion section
Matters to be communicated to TCWG:
Identify entity audited + period covered
Identify each FS audited
Reference to the notes, include sig acc pol
Identify applicable FRF
FS PP according to FRF
FS PP according to legislation
TCWG:
significant funding from audit:
- errors
- matters of disagreement
- effect on the firm + content of auditors report
IC deficiencies
