Planning Engagements & Risk Assessments Flashcards

1
Q

List three reasons why planning an engagement is important

A

Time may be wasted
Important work may be missed
Wrong conclusion may be drawn
A requirement of the auditing standards
Adds to quality

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2
Q

What is a risk of using audit packs?

A

These contain standard key planning areas - there is a risk that matters particular to the client may be forgotten

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3
Q

What are the key differences between the audit plan and the audit strategy

A

Strategy contains main general areas of planning

Plan: more detailed, sets out timing & extent of approach

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4
Q

How can automation help the planning stage of an audit?

A

Rolling forward PY info
Generating WP templates

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5
Q

How can automation help at the fieldwork stage of an audit?

A

Electronic sign offs & feed into auditors report

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6
Q

When setting materiality, what thresholds do auditors use?

A

%5 PBT
0.5 - 1% Gross profit
0.5 - 1% Revenue
1%-2% Total Assets
2%-5% Net Assets
5%-10% Profit after tax

Can remember some by RAP in ascending order
Revenue 0.5-1
Assets 1-2
Profit bt 5

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7
Q

What issues may be material by nature?

A

£1 that turns a profit into a loss
£1 that changes the threshold in which a company operates

Matters relating to directors
Related party transactions

Bottom two have to be disclosed in FSs regardless of value

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8
Q

Who applies the going concern basis of accounting

A

Management - Auditors assess whether this is appropriate

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9
Q

If an auditor has doubts over going concern status, what additional procedures should they implement?

A

Analysing cash flow
Reading terms of debentures & loan agreements
Inquiring of litigation claims & reasonableness of managements assessment of their outcome

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10
Q

How is management override tested during an audit?

A

Journals testing
Review of accounting estimates
Analysing significant or unusual transactions

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11
Q

Why does understanding the entity aid an audit?

A

Assess the skills and competence needed in audit team
Plan work so it is efficient
Assess control risk
Assess sig risks
Perform analytical procedures
Comply with professional requirements & ISAs

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12
Q

How can an auditor gain an understanding of an entity?

A

External sources; Industry surveys/publications, CH
The firm; Perm files, PY file, Past audit team members
The client; Correspondence, walkthroughs

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13
Q

What are some indicators of non compliance?

A

List in ISA 250A para 13-1

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14
Q

What is business risk?

What are the three general categories of business risk?

A

Business risk: defined in ISA 315

Risk to a business of achieving its objectives

SPECIFIC TO CLIENT - NOT AUDIT RISK

Financial Risk; financial consequences

Operational Risk; risks that impact being able to operate

Compliance Risk; risk from non-compliance with laws

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15
Q

What are some inherent risks factors to an audited entity?

A

Complex regulation
Complex accounting measures
Subjectivity - accounting estimates or valuations
Changing economic conditions/markets
Customer loss
Expansion to new locations

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16
Q

Why is there always some level of control risk at an audited entity

Frequently examined

A

Cost > benefit
Non routine transactions
Human error
Management override
Collusion to circumvent controls
Changes in procedures/personnel - time to adjust

17
Q

What factors may increase detection risk within an audit?

A

Lack of understanding of client & industry
Using inappropriate sampling techniques
Failure to address risks - insufficient plan
Lack of skills/competence in team

18
Q

What is audit risk

What would it mean if audit risk is 5%

A

The risk of giving an inappropriate opinion

Function of detection, control & inherent risk

5% chance of giving wrong opinion

19
Q

What is sampling risk

A

That the sample is not representative of the whole population

20
Q

What is non-sampling risk

A

The risk of reaching the wrong audit opinion

21
Q

What are the thresholds for materiality?

A
  • 0.5% - 1% Revenue
  • 1% - 2% Gross Assets
  • 5% - 10% PBT