Module 18 Flashcards

1
Q

In order to audit evidence to be appropriate, it must be both

A

Relevant and reliable

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2
Q

Audit evidence is relevant as long as it

A

Provides evidence over one or more of the financial statement assertions

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3
Q

Reliability of audit evidence depends on its

A

Source and nature

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4
Q

Professional scepticism requires attitude that includes (3)

A
  • Questioning mind
  • Being alert to conditions which may indicate possible misstatement due to error or fraud
  • Critical assessment of audit evidence
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5
Q

When auditor carries out substantive testing, evidence of exercising professional scepticism includes (6)

A
  • Not just accept information produced by the entity
  • Use knowledge of entity to identify specific audit risks
  • Analyse figures, results of testing and challenge management’s assumptions and explanations
  • Determine if any contradictory evidence
  • Make judgements only on evidence gathered and only conclude on an account once..
  • Document audit judgements setting out conclusion and rationale
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6
Q

Only conclude on an account once (3)

A
  • Sufficient enquiry and challenge
  • Sufficient testing of assertions has been undertaken
  • Quality of evidence obtained has been critically appraised and judged by the auditor to be sufficiently persuasive
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7
Q

Five types of substantive analytical procedures

A
  • Comparison
  • Ratio analysis
  • Reasonableness test
  • Trend analysis
  • Large and unusual items review
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8
Q

Stages for analytical procedure

A

1) Form expectation
2) Compare expectation to actual
3) Investigate and corroborate
4) Conclude whether sufficient appropriate evidence has been obtained

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9
Q

Auditor should use

A

Knowledge of entity and all other information available to them

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10
Q

Audit may use following sources of information to form expectation (5)

A
  • Management accounts
  • PY information adjusted for CY trends
  • Known interaction between financial data eg interest expense and loan balance
  • Known interaction between financial and non financial data eg payroll costs and staff numbers
  • Discussions with management
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11
Q

Any significant differences between the expectation and actual balance will be

A

Followed up

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12
Q

Test of detail involves testing of

A

Specific items within a population

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13
Q

When documenting audit test, remember (4)

A

1) Verb
2) Population
3) Document
4) Acitivity

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14
Q

Exam approach (7 considerations)

A

1) Risk of material misstatement
2) Approach
3) Accounting policies
4) Assertions
5) Testing techniques
6) Standard tests
7) Common procedures

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15
Q

Approach the testing the detail of an account balance by either

A
  • Testing the movements which give rise to the balance

- Testing the closing account balances directly

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16
Q

General rule > NCA and liabilities > test

A

Movements (usually few because held for a long time)

17
Q

General rule > Current assets and liabilities > test

A

Closing balance (fluctuating constantly due to operations)

18
Q

Accounting policies considerations (3)

A
  • Requirements of accounting standards in relation to particular account
  • Accounting policies applied by client in calculating figure
  • Business and operations to assess whether policies are appropriate and all aspects of accounting standards have been considered
19
Q

Perform audit test for each

A

Assertion

20
Q

Key assertions > Assets

A

Existence

Accuracy

21
Q

Key assertions > Liabilities

A

Completeness

22
Q

Key assertions > Transactions

A

Cut-Off

Occurrence

23
Q

Tests commonly performed by audit software include (4)

A
  • Sample selection
  • Summarisation
  • Computation
  • Re-performance/ recalculation
24
Q

Audit data analytics usually focus around analysis of (8)

A
  • Journals
  • Substantive analytical procedures
  • Recalculating transactions/ balances
  • Comparing valuations
  • Analysing contracts
  • Comparing entity data to external data
  • Manipulating data eg impairment modelling
  • Supporting SAPs
25
Q

Before performing CAAT/ ADA procedures

A

Must perform checks over completeness and accuracy (inputs and outputs)

26
Q

Standard tests on balance sheet account

A
  • Agree opening balances to PY FSs
  • Cast supporting schedules to test accuracy
  • Complete disclosure checklist to verify accounts are properly presented
  • Agree accounting policies applied are reasonable and comply with accounting standards
  • Confirm closing balance to TB and final FSs
27
Q

Property, plant and equipment > risk

A

Usually lower risk audit area because of relatively small number of transactions but can be higher risk due to complexity of certain types of transactions eg revaluations, assets under construction

28
Q

Relevant transactions for PPE include (6)

A
  • Additions
  • Disposals
  • Depreciation
  • Impairment
  • Revaluations
  • Leased assets
29
Q

Four key tests auditor can conduct to determine whether sufficient appropriate evidence that a balance is recoverable

A
  • Review aged debtors report (eg round sum payments, early invoices unpaid but later ones cleared, customer paying less than invoiced amounts)
  • Reasonableness of policy relating to allowance for receivables
  • Post year end credit notes
  • Post year end cash receipts
30
Q

Trade payables risk

A

Often classified as high risk due to significant impact understated liabilities can have on financial statements

31
Q

GRNI account should be

A

Regularly reviewed (control to ensure payables are not understated)

32
Q

Supplier statements selected should be mix of (7)

A
  • Suppliers with large balances at date circularised
  • Suppliers with large YE balances
  • Suppliers with large balances at other times during the year
  • Major suppliers
  • Suppliers with nil or debit balances
  • Suppliers with balances not in line with expectations
  • Sample of other suppliers
33
Q

When testing inventories, must consider (4)

A
  • Quantity held
  • Components of cost
  • Whether this complies with accounting standard
  • Net realisable value
34
Q

Reasons why NRV may be lower than cost (6)

A
  • Product line replaced by another model
  • Poor quality/ damaged inventory
  • Obsolescence
  • Decision to reduce price to remain competitive
  • Poor inventory management
  • Adverse exchange rate movements
35
Q

Testing stock provision (3)

A
  • Aged stock report
  • Reasonableness of provision policy
  • Post YE sales
36
Q

Derivatives always measured at

A

Fair value through profit and loss

37
Q

Controls relating to derivatives (5)

A
  • Management’s attitude to control of transactions
  • Regular confirmation and reconciliation of items to external statements
  • Competency of those involved including use of experts
  • Segregation of duties
  • Monitoring and review of performance reports