Process of assurance: evidence and reporting Flashcards
What are the six assertions regarding assertions about classes of transactions and events, and related disclosures, for the period under audit?
Occurrence - Transactions and events recorded have actually occurred.
Completeness - All transactions, events and disclosures included.
Accuracy
Cut-off - Transactions and events recorded in correct accounting period.
Classification - Transactions and events recorded in proper accounts
Presentation - Clearly described, relevant and understandable.
What are six assertions about account balances, and related disclosures, at the period end?
Existence - assets, liabilities and equity interests exist
Rights and obligations - the entity holds or controls the rights to assets, and liabilities are the obligations of the entity.
Completeness - All assets, liabilities, equity interests and equity disclosures included.
Accuracy, valuation and allocation - assets, liabilities, and equity interests have been included in the financial statements at appropriate amounts.
Classification - assets, liabilities, and equity interests have been recorded in the proper accounts.
Presentation - Clearly described, relevant and understandable.
Define audit evidence.
Information used by the auditor in arriving at the conclusions on which the auditor’s opinion is based.
Define tests of controls
Audit procedures designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting material misstatements at the assertion level.
Define substantive procedures.
Audit procedures designed to detect material misstatements at the assertion level. Substantive procedures comprise:
Tests of detail (of classes of transactions, account balances and disclosures)
Substantive analytical procedures
Why do auditors carry out tests of controls?
When the auditors carry out tests of controls, they are seeking to rely on the good operation of the control system that the company has in place to draw a conclusion that the financial statements give a true and fair view.
Why do auditors carry out substantive procedures?
When the auditors carry out substantive procedures, they are testing whether specific items within balances or transactions in the financial statements are stated correctly.
Do ISAs require auditors to carry out substantive procedures?
Yes.
ISAs require that auditors must always carry out some substantive procedures, because the limitations in internal control systems.
However, there may also be instances of cases where
it is more appropriate to test controls than to test specific balances or transactions
Define sufficiency of audit evidence.
Sufficiency is the measure of the quantity of audit evidence.
Define appropriateness of audit evidence.
Appropriateness is the measure of the quality or relevance and reliability of the audit evidence.
What are the opinions found in an ‘unmodified’ auditor’s report? (express opinions)
- true and fair view
- properly prepared in accordance with CA2006/accounting standards
- the information contained in directors report and strategic report is consistent with the financial statements
What are five items included only by exception in an auditors’ report? (RAPID)
- RAPID
- Returns adequate for our audit have not been received from branches not visited by us
- Accounts are not in agreement with underlying accounting records
- Proper accounting records have not been kept
- Information and explanations required for the audit were not received
- Directors’ remuneration disclosures required by law were not made
What are fourteen basic elements that an auditor’s report should contain?
Title
Addressee
Auditor’s opinion
Basis for opinion
Going concern section, where applicable
Key audit matters section, for audits of listed companies
Other information
Responsibilities of management for the financial statements
Auditor’s responsibilities for the audit of the financial statements
Opinion on other matters
Matters on which the auditor is required to report by exception
Name of engagement partner
Signature of engagement partner
Auditor’s address
Date of the report
What is the ‘expectations gap’?
The ‘expectations gap’ is defined as the difference between the apparent public perceptions of the responsibilities of auditors on the one hand and the legal and professional reality on the other.
What are three specific issues relating to the ‘expectations gap’?
Misunderstanding of the nature of audited financial statements:
the statement of financial position provides a fair valuation of the reporting entity
the amounts in the financial statements are stated precisely
the audited financial statements will guarantee that the entity concerned will continue to exist
Misunderstanding as to the type and extent of work undertaken by auditors:
all items in financial statements are tested
auditors will uncover all errors
auditors should detect all fraud
Misunderstanding about the level of assurance provided by auditors:
the auditors provide absolute assurance that the figures in the financial statements are correct
