revision issues Flashcards
what is audit risk
audit risk is the risk that the auditor expresses an inappropriate audit opinion when the FS are materially misstated.
what are the 2 major components of audit risk
one is dependant on the entity, and is inherent or control risk
the other in dependant on the auditor and is detection risk
definition of inherent risk
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.
definition of control risk
the risk that an error or omission in the FS is not detected or prevented by the entitys internal controls
definition of detection risk
the risk that the procedures performed by the external auditors will not detect a misstatement that could be material.
definition of test of controls
audit procedures designed to evaluate the operating effectiveness of controls in preventing, detecting or correcting material misstatements at the assertion level
definition of substantive procedures
audit procedures designed to detect material misstatements at the assertion level
substantive procedures for redundancies (4)
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
substantive procedures for completeness of payroll (3)
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
substantive procedures for accuracy of payroll (3)
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agree the total cash withdrawn for wage payments equates to the weekly wages paid
4 steps to plan using a CAAT
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
what types of accounts need to be tested when testing TR
a sample of large balances as well as nil balances and balances that have been written off in the year
what do audit need to do in regards to accounting estimates
use their own estimates as their evidence is more conclusive than managements
substantive procedures for completeness of purchases
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
substantive procedure for occurrence of purchases
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
what are control procedures for standing data
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
what are data analytics
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.
3 ways auditors might use data analytics
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
what is professional scepticism
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
what is professional judgement
application of relevant training, knowledge and experience in making informed decisions about the appropriate courses of action.
what could weak levels of control mean for audit risk
more substansive procedures
what should the audit response be if they cannot attend all inventory counts
assess which ones they will attend as to which has the most significant risk of misstatement
what should the audit response be if they are a new client
ensure they have a suitably experience team and ensure the team have an adequate training time
whats the audit risk for work in progress
assassing the percentage completion is likely to be subjective and the audit team need to assess whether they have the relevant expertise
whats the audit response to work in progress
consider using an independent expert
5 things auditors must consider before accepting a new audit
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
when should analytical procedures be used
can be used throughout but must be used during risk assessment and final audit
are audit software techniques tests of control or substansive procedures
only substansive procedures
what must an external auditors do for all small companies
assess the attitudes awareness and actions of managements
2 facts on emphasis of matter paragraph
the matter is deemed to be fundamental to users of FS
it is used when there is significant uncertainty
when would a disclaimer of opinion be issued
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.
