mnemonics Flashcards
Explain the key elements of an assurance engagement
Criteria - abide by accounting standardse.g. IAS, IFRAS, UK GAAP
Report - Written report providing opinion on subject matter
Evidence - to support assurance opinion e.g. annual reports
Subject Matter - Financial statements/ internal controls/ corporate governance
Three party relationship:
Responsible party - Director of company
Intended user - Person asking for audit
Practioner - Auditor
What items must be included in an engagement letter?
MARROWS
Management’s responsibility to prepare the financial statements and to provide the auditor with unrestricted records to docs/records requested
Auditors responsibility - independence, ethical PIPCO opinion on f/s
Reporting framework - IFRS
Reports - written confirmation of audit output
Objective of audit of financial statements - to express an opinion on f/s
With Scope of audit - extent of audit procedures and the period covered. Also reference to legislation, regulations etc
What are the auditors responsibility
Responsible for obtaining reasonable assurance that the financial statements are free from material misstatement. Objectives: DIR
- Identify and assess risks of matieral misstatment due to fraud
- Design and implement appropriate tests in response (Enquiry/observation)
- Respond appropriately to actual or suspected fraud identified. (e.g. money laundering reporting officer)
What are the evidence gathering procedures?
AEIOU
Analytical procedures - evaluation of financial info by studying possible relationships among financial and non-financial data.
Enquiry - ask a relevant person for info
Inspection - of a document e.g. invoice
Observation - of a process such as an inventory count
recalcUlation - Check mathmatical accuracy of a doc e.g. bank rec
2 extra
Reperformance - verificaition managements approach by auditor e.g. repeating an activity already done
Confirmation - relates to evidence from a third party source
What are the assertions about classes of transactions, events and disclosures, used by the auditor? P/L
COCCOA
-Completeness: all transactions, events and disclosures that should be recorded are recorded.
-Occurence: transactions and events that have been recorded /disclosed have occured and pertain to the entity
-Classification: t&e recorded in the proper/correct accounts
-Cut-Off: t&e recorded in correct accounting period
-Accuracy: t&e recorded appropriatley and disclosures accurately described
What are the assertions about account balances and related disclosures? SOFP
CCOVE
Classification: assets, liabilities, and equity interests have been recorded in the proper accounts.
Completeness: all assets, liabilities and equity interests that should have been recorded have been recorded and disclosures included.
Obligations and rights: the entity holds or controls the rights to assets and liabilities are the the obligations of the entity.
Valuation, accuracy and allocation: assets, liabilities and equity interests and any related disclosures included in financial statements at appropriate amounts.
Existence: assets, liabilities and equity interests exist.
Presentation: assets, liabilities, and equity interests are appropriately aggregated and disaggregated. Disclosures understandable and in line with IFRS requirements.
What are the limitations of internal controls
CHUE
Collusion - two or more people working together to bypass a control
Human element - Some controls are only as good as the people operating them.
Unusual transactions - controls are generally designed to deal with what routinely happens. For an unusual transaction, the control may not be relevant or exist.
Expense - expensive to run may outweigh risk
What are the components of internal control?
CRIME
Control activities
Risk
Information systems
Monitoring
Environment control (Control environment)
What controls will auditor be looking for during inventory counts?
COR
Counting - systematic counting to ensure all inventory is counted.
-Teams of two counters, one with counting and other checking, or two independent counts.
- External auditors will also complete test count
Organisation of count - supervision by senior staff (not normally involved with inventory).
-Restriction and control of production process and inventory movements during count
- Identification of damaged, obsolete, third party and returnable inventory
Recording - Serial numbering, control and return of all inventory sheets (ensure not pre-filled). Completed in ink and signed
- Record quantity, condition, stage of production and work in progress.
- Reconciliation with inventory records and investigation/correction of any differences.
What are threats to this?
MASSIF
Management threat
Advocacy threat
Self review
Self interest
Intimidation
Familiarity
