Module 13

Question 1

What are the 5 reasons auditors plan?

Answer 1

Attention directed to important areas
Problems identified and resolved early
Selection of staff
Effectively and efficiently 
Direction and supervision

Question 2

Overall audit strategy sets out

Answer 2

Scope timing and direction of audit

Question 3

Understanding the entity requires what aspects?

Answer 3

Nature
Accounting policies
Objectives 
Measurement 
Internal control
Industry factors 

NAOMII

Question 4

Risk assessment procedures?

Answer 4

Analytical
Enquiry
Inspection
Observation

AEIO
U Recalculation

Question 5

What are analytical procedures?

Answer 5

Involve evaluation of financial info through analysis of plausible relationships

Question 6

What are the 5 analytical procedure techniques and when are they commonly used?

Answer 6

Comparison - planning and completion
Ratio analysis - planning
Reasonableness test- planning and substantive
Trend analysis- substantive
Large and unusual items review - substantive

Question 7

What are the three types of materiality?

Answer 7

Overall
Performance
Specific items

Question 8

Timing of materiality calculation

Answer 8

Estimated during planning

Reassessed throughout audit

Question 9

Misstatement can arise as a result of?

Answer 9

Fraud or error

Question 10

What is fraud?

Answer 10

An intentional act involving deception and often collusion to obtain and unjust or illegal advantage

Question 11

What are the two types of fraud?

Answer 11

Fraudulent financial reporting

Missapropration of Assets

Question 12

What are the three fraud risk factors?

Answer 12

Incentive or pressures IR
Opportunities CR
Rationalisations IR

Question 13

What are the three types of materiality?

Answer 13

Overall
Performance
Specific items

Question 14

What is overall materiality?

Answer 14

Threshold as to what is significant to the financial statements as a whole

Question 15

What is performance materiality?

Answer 15

Set below overall materiality to reduce probability that uncorrected/undetected misstatements exceed overall materiality to an acceptable low level

Used to perform testing

Question 16

What is specific items materiality?

Answer 16

Individual accounts or disclosures may have their own lower level

Judged to be material in own right

Question 17

Common example of materiality bases?

Answer 17

1% revenue
5% PBT
2% net assets

Professional judgement to set

Question 18

Performance materiality is set as?

Answer 18

A percentage of overall materiality

Question 19

What is fraudulent financial reporting?

Answer 19

Intentional manipulation of financial information to obtain unjust or illegal advantage

Question 20

What is misappropriation of assets?

Answer 20

Intentional theft of company assets or inappropriate and unauthorised use of company assets

Question 21

Directors responsibility in relation to fraud?

Answer 21

Preventing and detecting by implementing a sound system of internal controls

Question 22

Auditor responsibilities in relation to fraud?

Answer 22

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

Question 23

Fraud risk at planning stage?

Answer 23

Auditor must consider ROMM due to fraud as part of overall risk assessment

Question 24

Three categories of fraud risk factors?

Answer 24

Incentives or pressures - motivate (IR)
Opportunities - allow (CR)
Rationalisations - believe that it is justifiable or acceptable (IR)

Question 25

High risk of fraud will result in a?

Answer 25

Higher ROMM

Detection risk will be low, perform additional procedures to collect sufficient appropriate evidence