Questions Flashcards
Answers
Why do auditors mention internal controls under the section on directors responsibility?
The internal control system must be properly in place to prevent errors and fraud and to ensure that the information that comes out of the bookkeeping system in reliable.Directors run the company, so they are responsible for this.
Why is it necessary for the independent auditor to have the qualification CA (sa) behind his name ?
Assure reader that:
- well trained and educated
- well informed on the lastest audit process and the law bound the SAICA code of conduct and could face disciplinary sayction/action if he is negligent.
Why do independent auditors specifically mention page numbers in their audit report?
Does not look at every aspect of the books of the business. Only certain pages are thoroughly scrutinized. they therefore no. The pages that they have looked at thoroughly and are responsible for.
Based on a test basis/sampling method.
Statistical sampling is an audit technique.
What are the consequences for auditors if they are negligent/unethical in their duties ?
- may not be re-appointed as auditors
- face disciplinary action by the professional body
-sued /fined / lose license to practice
/Suspended
Role of independent auditors
Appointed by shareholders
To express and opinion on whether financial statements are a true and fair reflection of the company’s financial position.
What are the types of audit reports ?
1) Qualified
2) unqualified
3) Disclaimer
4) Withheld
What is a Qualified Audit Report ?
- Bad report
- , except that the ……
- . Issued when the financial statements are not a true and fair reflection of the company’s financial position.
- Irregularities and discrepancies are found and they need clarification
What is an Unqualified Audit Report?
A good report
For all material concepts
Issued when the financial statements are a true and fair reflection of the companies financial position.
Needs no clarification
What are the consequences of a qualified, disclaimer or withheld report ?
Loose potential investors
Existing shareholders might want to sell their shares which lead to drop in share price
Negative publicity an damage the image /reputation of the business
What are the consequences of a qualified, disclaimer or withheld report ?
Loose potential investors
Existing shareholders might want to sell their shares which lead to drop in share price
Negative publicity an damage the image /reputation of the business
Define corporate governance ?
Is about how the business should be managed and controlled in a socially desirable way, in order to achieve it’s aim and objectives .
What is IFRS?
International financial reporting standards
What is SAICA ?
South African institute for charted accountants
What is SAIPA?
South African institute for professional accountants
What is the need for the independent auditor to belong to a professional body ?
Shareholders are assured of skills and expertise
Auditors are governed by a code of ethics
Auditors are continuously trained to keep abreast of modern trends
Auditors can face disciplinary action if they are negligent in their duties
What is the need for IFRS?
To ensure :
- consistency :- treatment and preparation of financial statements do not vary from country to country
- comparability:- financial statements will be consistently prepared and can be compared to internationally by stakeholders and shareholders
- standardisation:- companies operate in a global economy
How do auditors gather evidence?
1) Decide on aspects to investigate
2) identify people involved in transaction
3) the source documents
4) the journals
5) GL,DL,CL, specific internal control measures
6) consider the accuracy in the recording of transactions
What is an internal auditor ?
Appointed by directors
To ensure that internal control measures in the company are being adhered to.
Seven characteristics of good governance according to kind code ?
1) discipline
2) transparency
3) independence
4) accountability
5) responsible management
6) fairness in dealing with stakeholders
7) social issues
What is CSI?
Corporate social investment
Companies give back to the community
What does CSI do for the company ?
Improves image of business
Acts as form of free advertising
Creates good publicity
Results in continues loyalty and support of community
What is the difference between Kind code iii and king code iv ?
King III had 75 principles
King IV has 17 principles
Kind IV report has been scaled down to 82 pages
King IV emphasizes that governance should focus on technology and information as separate issues.
Internal auditor may conduct what ?
Key detect fraud and theft but it is NOT the job of the external auditor to detect thrift and fraud. The more reliable and effective the romd of the internal auditor the less the need for the external auditor to extend his own checks.
Leads to lower independent audit fee
If the Director buys share without advertising for R 5.60 per share
JSE price is 780cents
This is a form of insider trading. In a public company the Companies Act of 71 stipulates the all should be advertised. If shares are bought without being advertised then this constitutes to insider trading which is unethical and criminal offence.
- Compare price bought to JSE
- more capital could have been made
