Revision Flashcards
what are the 5 elements to assurance
- three-party relationship
- appropriate subject matter
- suitable criteria
- sufficient and appropriate evidence
- written assurance report
What is professional scepticism
this is ensuring that you always have a questioning mind and being alert to any errors, while maintaining a professional manner.
What are the 5 assertions that relate to the Statement of comprehensive Income
Occurrence – have the sales actually been reported
Completeness – they have not excluded any
Accuracy – ensure the correct amount is recorded
Cut Off – this relates to the reporting period making
sure all expenses or sales are reported in the correct timeframe
Classification – the expenses are classified properly
What is the 5 Assertion for Statement of financial position
Existence – do the assets physically exist
Rights and obligations – do the assets/liabilities carry a
right or obligation to pay a creditor
Completeness – have they excluded any balances
Accuracy, valuation, and allocation – this is an important one. Has the asset been valued importantly and are the assets able to fulfil its purpose
Classification – are they being classified correctly
What should you consider if there is an overdue Trade Receivables amount
In a question like this you can not always assume that just because the debts are outstanding they won’t be paid. you need to considered that there could be a payment plan in place. although it is safe to assume that the longer the debts are outstanding the less likely they are to be paid.
What is a substantive procedure
this a procedure that is used to try and find and miscalculations. this could involve counting inventory or going through the sales invoices. we are essentially re-creating the process in which it was recorded
What are the financial indicators that could affect the going concern of a company
1) One of the first thinsg we would need to consider here is the liabilities the company has. Is there any high interest debt that could be an issue if the company has any unexpected losses
2) Is there any sort of financing that is subject to other factors i.e is there any loans that could be withdrawn if the cash position reduces?
3) What is the current state of the cash flow? Is there already signs that the cash position could be at risk?
4) This would be the case if the firm had a parent company that agreed to cover any operating losses. This would mean that the company would be more likely to be a going concern as all losses are covered
5) Another factor that we would need to consider is has the firm decided to stop paying dividends, although this is not a clear indicator it could still mean that the firm doesn’t have the expendable
what are the operating factors that could affect the company’s going concern
1) Does management still have the intention to keep the business running.
2) Has the company lost large amounts of property that could affect its ability to operated
3) Does the company have a staffing issue? Is it struggling to find the labour and skill set in order to continue operating
4) does the company have any new competitors that could affect the way the business is operating
What other indicators could affect the company’s going concern?
1) is the company still complying with laws and regulations as failing to do so could result in large fines
2) does the company have any pending legal issues that if it came to fruition could affect the company’s ability to operate
3) is there any changes in laws and procedures that could change the company’s ability to operate as it currently does?
What is an analytical review
this is where we look at both the Finacial and non-financial information in order to gain information on the company and how it operates. we look at relationships and fluctuations that are inconsistent or differ from any expected values
What is and how is a preliminary analytical review performed
1) We can have a preliminary analytical review – this is where we perform an analytical review in order to obtain and understanding of the business and the environment. This could constate of looking at financial data of prior years and also how the competitors faired in this field. This helps us to asses the risk of material misstatement and help us to determine the nature, timings and the extent of the audit procedures to help the auditor develop an audit strategy
What is a substantive analytical review
2) Now we have substantive analytical procedure. This is when the auditor deems that an analytical review would be more effective and effiecnt than tests of details in reducing the risk of material misstatement,
What is a final analytical review
3) Finally we have the final analytical review (which is required under ISA520) – this is performed at the end of an audit and is an overall review of he financial statements. This is to ensure that the audit is consistent with the auditors understanding of the entity. This is Not conducting in order to gain additional substantive assurance. If they find irregularities then additional audit practises should be perform and they should consider if they want to include any additional audit practises
How do we test for Bank and Cash
Firstly lets talk about some assertions – as bank and cash would be in the statement of financial position we would probably want to test the existence of these accounts – this would be done by simply asking the bank for some bank statements for the accounts. We have to make sure that the letter is received directly from the bank otherwise the evidence losses all of its value.
How dow test for trade receivables
As this is in the statement of financial position we would need to firstly see if this exists. We have an account created which consists of due payments so we would want to make sure that these sales occurred. This could be done by checking sales invoice to see if a sale was created. Secondly, we could see if there is a right and obligation. As well as seeing the invoice and checking that there is a debt here, we could also check to see that there is a right and obligation here to pay back the debt. As well as this we would want to make that all of the trade receivables in the account relate to the reporting period. this could be done by test the first few and last few to make sure that they are all within the financial period reported on.
