Module 13 Flashcards
What are the 5 reasons auditors plan?
Attention directed to important areas Problems identified and resolved early Selection of staff Effectively and efficiently Direction and supervision
Overall audit strategy sets out
Scope timing and direction of audit
Understanding the entity requires what aspects?
Nature Accounting policies Objectives Measurement Internal control Industry factors
NAOMII
Risk assessment procedures?
Analytical
Enquiry
Inspection
Observation
AEIO
U Recalculation
What are analytical procedures?
Involve evaluation of financial info through analysis of plausible relationships
What are the 5 analytical procedure techniques and when are they commonly used?
Comparison - planning and completion
Ratio analysis - planning
Reasonableness test- planning and substantive
Trend analysis- substantive
Large and unusual items review - substantive
What are the three types of materiality?
Overall
Performance
Specific items
Timing of materiality calculation
Estimated during planning
Reassessed throughout audit
Misstatement can arise as a result of?
Fraud or error
What is fraud?
An intentional act involving deception and often collusion to obtain and unjust or illegal advantage
What are the two types of fraud?
Fraudulent financial reporting
Missapropration of Assets
What are the three fraud risk factors?
Incentive or pressures IR
Opportunities CR
Rationalisations IR
What are the three types of materiality?
Overall
Performance
Specific items
What is overall materiality?
Threshold as to what is significant to the financial statements as a whole
What is performance materiality?
Set below overall materiality to reduce probability that uncorrected/undetected misstatements exceed overall materiality to an acceptable low level
Used to perform testing
What is specific items materiality?
Individual accounts or disclosures may have their own lower level
Judged to be material in own right
Common example of materiality bases?
1% revenue
5% PBT
2% net assets
Professional judgement to set
Performance materiality is set as?
A percentage of overall materiality
What is fraudulent financial reporting?
Intentional manipulation of financial information to obtain unjust or illegal advantage
What is misappropriation of assets?
Intentional theft of company assets or inappropriate and unauthorised use of company assets
Directors responsibility in relation to fraud?
Preventing and detecting by implementing a sound system of internal controls
Auditor responsibilities in relation to fraud?
Only responsibility for obtaining reasonable assurance that the statements are free from material misstatement
Professional scepticism
Cannot be held responsible for detection and prevention of fraud
Fraud risk at planning stage?
Auditor must consider ROMM due to fraud as part of overall risk assessment
Three categories of fraud risk factors?
Incentives or pressures - motivate (IR)
Opportunities - allow (CR)
Rationalisations - believe that it is justifiable or acceptable (IR)
High risk of fraud will result in a?
Higher ROMM
Detection risk will be low, perform additional procedures to collect sufficient appropriate evidence
