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ACA Audit and Assurance > Risks and procedures > Flashcards

Risks and procedures Flashcards

1
Q

Going concern: rapid expansion -> overtrading = cash flow problems

A
  • post YE management accounts -> review performance
  • cash flow forecasts -> ascertain whether x can pay debts and whether assumptions are reasonable
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2
Q

Going concern: new venture = cash flow problems

A
  • post YE management accounts -> review performance
  • cash flow forecasts -> ascertain whether x can pay debts and whether assumptions are reasonable
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3
Q

Going concern: highly competitive market = pressure on margins

A
  • post YE management accounts -> review performance
  • sensitivity analysis on key variables eg. supplier contract fees
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4
Q

Going concern: performance to date has been poor, predicting to make a loss

A
  • post YE management accounts -> review performance
  • sensitivity analysis on key variables eg. supplier contract fees
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5
Q

Going concern: overdraft review -> possibility facility may be withdrawn

A
  • borrowing agreements -> ensure company able to comply with T&Cs
  • inspect correspondence with bank -> monitor relationship
  • written representation on management’s intentions and going concern basis
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6
Q

Going concern: heavily reliant on supplier -> failure to reach agreement = loss of customers

A
  • discuss with management plan if failure on agreement and if they believe company could continue
  • management representation on directors’ plans and feasibility
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7
Q

Going concern: potential breach of compliance or regulation = financial difficulties -> fines or compensation

A
  • inspect correspondence with company’s legal advisers -> ascertain likelihood of breach
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8
Q

Going concern: experienced adverse publicity

A
  • discuss with management whether adverse publicity has impacted rate of growth
  • enquire on actions to address issues
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9
Q

Revenue recognition: high proportion of online sales -> risk sales not recorded correctly in accounting system

A
  • ascertain and test control procedures on recording of online sales
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10
Q

Revenue recognition: revenue increased by X% -> indicates overstatement

A
  • compare actual revenue by product to forecasts and budgets -> ascertain reasons for significant deviations
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11
Q

Revenue recognition: revenue not recognised in correct period

A
  • recalculate deferred income for sample
  • trace total figure to SFP
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12
Q

Revenue recognition: refunds and credits not recorded correctly

A
  • sample of cancelled xxxx -> test for correct treatment of refunds or credits
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13
Q

Revenue recognition: cash sales = risk of understatement -> cash misappropriated without recording transaction

A
  • identify and test control procedures for cash sales
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14
Q

Revenue recognition: in-store transactions -> high cash sales = risk of misappropriation and not recorded

A
  • identify and test control procedures for in-store cash sales
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15
Q

Assets: may be inappropriately capitalised or recorded incorrectly

A
  • physically inspect assets/title deeds for property
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16
Q

Assets: useful lives not appropriately estimated

A
  • enquire of management as to ULs and consider if appropriate
17
Q

Assets: depreciation charge not recorded pro rata

A
  • recalculate dep charge for year on sample
  • trace total figure to income statement
18
Q

FX: sales in foreign currencies not translated at appropriate rate

A
  • agree FX rates to appropriate independent source eg. Bloomberg
  • re-perform calculation of conversion for sample of invoices
19
Q

Inventory: days increased -> potential inclusion of obsolete/perishable goods = inventory overstatement

A
  • YE stock count -> observe/assess procedures, two-way count, note slow-moving/damaged items
  • ascertain from prod manager how use of perishable goods is monitored and controlled
  • identify obsolete items -> review age analysis of inv and post YE mvmts
20
Q

Inventory: inv figure extracted from records = may not reflect physical quantities

A
  • perform test counts at stock count -> compare quantities to perpetual inv system -> reasons for discrepancies
  • review and evaluate periodic inventory counts
21
Q

Inventory: costing system not reflect appropriate direct costs, and allocation of prod overheads involves exercise of judgement

A
  • enquire with management on costing system
22
Q

Inventory: overseas suppliers -> translation errors

A
  • agree FX rates to appropriate independent source eg. Bloomberg
  • re-perform calculation of conversion for sample of inventory
23
Q

Inventory: existence of competition -> drive down selling prices = NRV below cost

A
  • identify items which may have NRV below cost by reviewing selling prices after YE
24
Q

Inventory: returned stock inappropriately included and inappropriately valued

A
  • discuss with management intention regarding returned inventory
25
Q

Unrecognised liabilities: breaches of regs and compliance -> penalties which need to be recognised/disclosed

A
  • ascertain from management how it proposes to account for/disclose potential legal claims/penalties
  • inspect financial statements for appropriateness of disclosure
26
Q

Unrecognised liabilities: X provision is an estimate = judgemental which increases risk of errors

A
  • enquire with management how provisions are estimated
27
Q

Intangible NCAs: inappropriately capitalised costs

A
  • schedule of capitalised costs of intang. NCAs -> ensure they meet recognition criteria
  • review expense accounts -> ensure no other costs should have been capitalised
28
Q

Intangible NCAs: UL estimate inappropriate -> amortisation charge incorrect

A
  • discuss with management basis of estimated UL -> ascertain whether reasonable
  • re-perform amort calculation
29
Q

Trade payables: days fallen and gross profit margin increased -> understatement of purchases and payables

A
  • evaluate and test controls over recording of supplier invoices and payments to suppliers
  • reconcile payables in purchase ledger with supplier statements
  • direct confirmation if supplier statements unavailable
  • cut-off testing -> trace receivables to invoice entries and vouch invoices recorded back to goods received records
  • inspect after date payments/invoices
  • inspect new supplier contract terms -> tighter credit = fall in payables days
30
Q

Trade payables: overseas supplier -> translation errors

A
  • reperform sample of FX translations -> check against appropriate 3rd party rates

ACA Audit and Assurance (1 decks)

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