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Assurance > Module 7 Substantive procedures > Flashcards

Module 7 Substantive procedures Flashcards

1
Q

What is an Assertion?

A

Representations by those charged with governance that financial statements have been prepared in accordance with the applicable financial reporting framework

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2
Q

CRACE + P

What are the detailed assertions for balances?

A
  • Completeness (C)
  • Rights and obligations (R&O)
  • Accuracy, validation and allocation (AVA)
  • Classification (CL)
  • Existence (E)

+

  • Presentation (P)
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3
Q

What is Existence mostly associated with and what is its main risk?

A

Associated with Assets

Key risk: OVER statement of assets

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4
Q

What is the main risk associated with the assertion of Completeness?

A

Understatement of liabilities

(Some liabilities are missing)

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5
Q

OCCA + P

What are the (Transactions) Statement of profit or loss assertions?

A

OCCCA + P

  • Occurrence
  • Cut-off
  • Completeness
  • Classification
  • Accuracy

+

  • Presentation
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6
Q

2 things

What do assertions give the auditor?

A

1) A clear definition of specific audit objectives

2) A clearer demonstration of work done

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7
Q

Does the auditor test every balance and transaction?

A

NO

They will focus on those with a higher risk of material misstatement

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8
Q

What does appropriateness mean in relation to evidence?

A

Appropriateness is a measure of the quality of the audit evidence

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9
Q

What does relevance mean in relation to evidence?

A

Relevance relates to whether the evidence obtained addresses (is relevant to) the assertion being tested

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10
Q

What are the three sources of evidence?

A

1) Auditor generated
2) Client generated
3) Third party/externally generated

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11
Q

What is one of the key reasons auditors cannot give absolute assurance?

A

Is due to the use of sampling

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12
Q

What are sampling units?

A

Are the individual items making up a population

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13
Q

When deciding on testing, the decision regarding the selection of approach will be determined by:

A

1) The characteristics of the population (e.g handful of large items or large number of smaller items)

2) The risk of material misstatement (RoMM)

3) The audit efficiency of the approach

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14
Q

What are the methods available to auditors when using sampling?

A
  • Random selection
  • Monetary unit sampling (MUS)
  • Haphazard selection
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15
Q

According to ISA (UK) 500, what are the techniques auditors can use to collect evidence?

A
  • Inspection of records and documents or tangible assets
  • Confirmation from a third party
  • Analytical procedures
  • Recalculation by the auditor to check mathematical accuracy
  • Inquiry of client staff
  • Observation of a process or procedure
  • Reperformance of a process or procedure
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16
Q

What is the purpose of data analytics?

A

Seen as a means of improving audit quality

17
Q

Substantive analytical procedures can generally provide the auditor with evidence over the following Balance assertions?

A
  • Completeness
  • Existence
  • Accuracy, valuation and allocation
  • Classification
18
Q

Substantive analytical procedures can generally provide the auditor with evidence over the following Transaction assertions?

A
  • Completeness
  • Occurrence
  • Cut off
  • Accuracy
  • Classification
19
Q

What are the 5 analytical procedure techniques?

A

1) Comparison
2) Ratio Analysis
3) Reasonable tests
4) Trend analysis
5) Large and unusual items review

20
Q

AEIOU

What are the evidence collection techniques?

A
  • Analytical Procedures
  • Enquiries
  • Inspection
  • Observation
  • RecalcUlation
21
Q

What is Benford’s Law?

A

A probability distribution for the likelihood of the first digit in a set of numbers.

(i.e the number 1 at the start of 10,345)

22
Q

What is regression analysis?

A

A statistical method for estimating the relationship among variables based on past relationships

23
Q

What is the dependent variable in regression analysis?

A

The variable that you are trying to understand or predict. This will be the account that is being audited

24
Q

What is the independent variable in regression analysis?

A

A variable that may have an impact on your dependent variable

25
Q

What is statistical sampling?

A

An approach to audit sampling that has the following characteristics:

i) Random selection of the sample items: and
ii) The use of probability theory to evaluate sample results, including the measurement of sampling risk

26
Q

What are some advantages of statistical sampling?

A
  • It can allow the auditor to select a more targeted and efficient sample
  • It allows a measure of the sufficiency of the audit evidence obtained
  • The use of statistics can reduce the risk that differences in audit judgement result in significant differences in sample sizes selected by different auditors
  • It allows for errors identified in the sample to be quantified and extrapolated to the full population
27
Q

What are some disadvantages of statistical sampling?

A
  • Where data is not available in electronic format, it may not be efficient
  • Statistical sampling requires additional expertise within the audit team
28
Q

What is random seed?

A

The starting point when generating a random sample

29
Q

If it goes from source to FS, what assertion is it?

A

Completeness

30
Q

If it goes from FS to source, what assertion is it?

A

Existence / Occurrence

31
Q

What is the exception to the San Fran rule? And what are they?

A

Decreasing items

Eg:
Credit notes
Fixed asset disposals
Payments for creditors
Receipt of debts

32
Q

When writing a test what three elements should be included?

A

HOW
WHAT
WHY

33
Q

What assertions does a bank recon satisfy?

A

CRACE

34
Q

What assertions does a bank confirmation letter satisfy?

A

CRACE

35
Q

What are the two key sub tests performed on bank statements?

A

-Testing the bank recon

  • Testing the bank confirmation letter
36
Q
A

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