mistakes

Question 1

Questions to ask potential clients

Answer 1

Potential conflicts of interest
Previous auditor contact process
Any scenarios from questions been fixed/changed, or problems for the company/future.

Question 2

going concern

Answer 2

Retirement of leader,
Or lack of succession plans

Question 3

Auditors can prepare FS for who

Answer 3

LTDs only

Question 4

Assurance report on controls can be…

Answer 4

Either limited or Reasonable assurance, never absolute (expectations gap)

Question 5

Opinion shopping additional procedures.

Answer 5

Perform back ground checks on MGMT
Ensure adequate resources and expertise are available in the firm

Question 6

legal proceedings extra point

Answer 6

LICENSE REVOCATION or Closure of business

Question 7

MGMT override tests

Answer 7

Whistle blowing procedures
Review significant estimates/judgements

Question 8

Intimidation threat

Answer 8

Safeguard:
More experienced workers
Impact on other areas of the audit

Question 9

Self interest threat

Answer 9

Anything relating to loss + fee income
Misstatements
Disciplinary action

Question 10

considerations for new appointments

Answer 10

Opening balance concerns + companies

Question 11

Enquiries of MGMT over RATIOS:

Answer 11

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…

Question 12

sources of evidence/documents

Answer 12

Aged receivables, inventory, payables
Contracts/Correspondence with suppliers/customers
Breakdown of {COGS}{operating costs}
Product costs + selling prices

Question 13

Client evaluating Firm tender

Answer 13

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?

Question 14

Points for Engagement letter + reason

Answer 14

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

Question 15

after date payments for

Answer 15

FINES

Question 16

Analytical procedures

Answer 16

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

Question 17

sensitivity analysis

Answer 17

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

Question 18

receivables

Answer 18

check terms of contract for credit details
check date on contract
direct confirmation of balance with customers
re perform calculations, exclude certain customers

Question 19

reasonable assurance

Answer 19

detailed testing (controls, systems, numbers) + analytical …

Question 20

limited assurance

Answer 20

mgmt enquiries + analytical review

Question 21

third party revenue holder

Answer 21

cut off issues due to banking of revenue at third party

recognition of revenue net of costs

Question 22

purchase of NCA

Answer 22

Vouch purchase costs to…
vouch ownership/registration documents
consider significant losses/profits on disposal

Question 23

process of analytical procedures

Answer 23

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.

Question 24

Consequences of: Dont check assets to register

Answer 24

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.

Question 25

Directors meeting should include what info

Answer 25

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.

Question 26

Substantive testing

Answer 26

Analytical procedures and test of detail

NOT CONTROLS TESTING

Question 27

Matters to be considered in respect of opening balances that weren’t audited:

Answer 27

• 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

Question 28

Report by exception on

Answer 28

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

Question 29

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)

Answer 29

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

Question 30

Mgmt responsibility of fraud

Answer 30

Implementing system on internal controls.

Whistle blowing procedures

Preventing+ detecting… culture etc

Question 31

Profit forecast vs Cash flow forecast

Answer 31

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)

Question 32

Audit risk in a question

Answer 32

State any reason for concern in the company regarding the audit.

Where are the potential sources of error?