revision issues

Question 1

what is audit risk

Answer 1

audit risk is the risk that the auditor expresses an inappropriate audit opinion when the FS are materially misstated.

Question 2

what are the 2 major components of audit risk

Answer 2

one is dependant on the entity, and is inherent or control risk
the other in dependant on the auditor and is detection risk

Question 3

definition of inherent risk

Answer 3

Inherent risk is the risk posed by an error or omission due to a factor other than an internal control. This could be due to complexity of transactions or a situation where a high level of judgement is required.

Question 4

definition of control risk

Answer 4

the risk that an error or omission in the FS is not detected or prevented by the entitys internal controls

Question 5

definition of detection risk

Answer 5

the risk that the procedures performed by the external auditors will not detect a misstatement that could be material.

Question 6

definition of test of controls

Answer 6

audit procedures designed to evaluate the operating effectiveness of controls in preventing, detecting or correcting material misstatements at the assertion level

Question 7

definition of substantive procedures

Answer 7

audit procedures designed to detect material misstatements at the assertion level

Question 8

substantive procedures for redundancies (4)

Answer 8

obtain analysis of redundancy calculations and cast it

obtain written representation from management confirming completeness

review board minutes to assess the probability of redundancies

ask directors if they have formally announced there intentions

Question 9

substantive procedures for completeness of payroll (3)

Answer 9

compare total payroll expense to last year and investigate significant differences

compare monthly payroll expense

reconcile the total wages and salaries per the payroll records to the amount in the financial statements

Question 10

substantive procedures for accuracy of payroll (3)

Answer 10

cast a sample of payroll records

recalculate gross and net pay for a sample of employees and agree to the payroll expense

agree the total cash withdrawn for wage payments equates to the weekly wages paid

Question 11

4 steps to plan using a CAAT

Answer 11

Set objective of CAAT

Determine the content and accessibility of the entitys files

define types of transactions to be tested

define procedures needed to be performed

Question 12

what types of accounts need to be tested when testing TR

Answer 12

a sample of large balances as well as nil balances and balances that have been written off in the year

Question 13

what do audit need to do in regards to accounting estimates

Answer 13

use their own estimates as their evidence is more conclusive than managements

Question 14

substantive procedures for completeness of purchases

Answer 14

Compare to prior year on a month by month basis to highlight any concerns on completeness

for a sample of invoices, trace amounts to GRN to confirm completeness of recording

for a sample of amounts in the ledger, agree them to the computerised payment list to verify amount

Question 15

substantive procedure for occurrence of purchases

Answer 15

for a sample of amounts in the ledger, trace them back to invoices

for a sample of GRN’s, trace them back to original order form

for a sample of payees on the list, trace them back to the invoice

Question 16

what are control procedures for standing data

Answer 16

access to a master file is limited only to authorised staff

all amendments to data are authorised prior to input

access to the file is controlled by logins and passwords and passwords must be changed regularly

anything included in standing data but no longer used ( employees or suppliers that are no longer included ) should be removed by a manager

Question 17

what are data analytics

Answer 17

the examination of data to try and identify patterns, trends or correlations. As the quantity of data has increased, it has become more and more necessary to evolve ways of processing and making sense of it.

Question 18

3 ways auditors might use data analytics

Answer 18

Analayse patterns relating to revenue or costs per product or per customer.

Trace the matching of orders to goods despatched/ received documentation and to the invoice, in order to determine whether revenue or costs should be recognised.

Interrogate journals to determine whether there are any patterns ( regarding who has processed certain journals( where fraud is suspected

Question 19

what is professional scepticism

Answer 19

an attitude that includes having a:

questioning mind

being alert to conditions that could rise to material misstatement

critically assessing audit evidence rather than taking it at face value

Question 20

what is professional judgement

Answer 20

application of relevant training, knowledge and experience in making informed decisions about the appropriate courses of action.

Question 21

what could weak levels of control mean for audit risk

Answer 21

more substansive procedures

Question 22

what should the audit response be if they cannot attend all inventory counts

Answer 22

assess which ones they will attend as to which has the most significant risk of misstatement

Question 23

what should the audit response be if they are a new client

Answer 23

ensure they have a suitably experience team and ensure the team have an adequate training time

Question 24

whats the audit risk for work in progress

Answer 24

assassing the percentage completion is likely to be subjective and the audit team need to assess whether they have the relevant expertise

Question 25

whats the audit response to work in progress

Answer 25

consider using an independent expert

Question 26

5 things auditors must consider before accepting a new audit

Answer 26

experience and capacity of engagement team and if other experts are required

any issues that may threaten the ACCA code of ethics

consider reputation and integrity of director

consider level of risk attached to the audit

contact previous auditor and assess any ethical or professional reasons why they shouldnt

Question 27

when should analytical procedures be used

Answer 27

can be used throughout but must be used during risk assessment and final audit

Question 28

are audit software techniques tests of control or substansive procedures

Answer 28

only substansive procedures

Question 29

what must an external auditors do for all small companies

Answer 29

assess the attitudes awareness and actions of managements

Question 30

2 facts on emphasis of matter paragraph

Answer 30

the matter is deemed to be fundamental to users of FS

it is used when there is significant uncertainty

Question 31

when would a disclaimer of opinion be issued

Answer 31

the auditor has not been able to obtain sufficient appropriate audit evidence on which to base an opinion and has concluded that the possible effects of any misstatement could be material and pervasive.