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AA Question Rote > Section A Rote > Flashcards

Section A Rote Flashcards

1
Q

Element of an assurance engagement (C)

A

Criteria

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2
Q

Element of an assurance engagement (R)

A

Report

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3
Q

Element of an assurance engagement (E)

A

Evidence

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4
Q

Element of an assurance engagement (S)

A

Subject matter

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5
Q

Element of an assurance engagement (3)

A

3 party relationship

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6
Q

Definition of an external audit?

A

Gives an opinion on the financial statements of a company are fairly presented, independent

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7
Q

How are operating licence and hygiene regulations effect according to ISA 250?

A

Don’t have a direct effect on FSs but can have a material effect

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8
Q

When there’s no direct effect but possible material effect according to ISA 250?

A

Should perform specific audit procedures

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9
Q

What is a reasonable assurance engagement?

A

A high but not absolute level of assurance

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10
Q

Is a reasonable assurance assurance report positive or negative?

A

Positive

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11
Q

Is a limited assurance assurance report positive or negative?

A

Negative

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12
Q

Is a statutory audit reasonable or limited?

A

Reasonable

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13
Q

Is a review of cash flow forecasts reasonable or limited?

A

Limited

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14
Q

What is an engagement partner responsible for?

A

Direction, supervision, performance and review of an audit

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15
Q

Is it a strength or deficiency if the audit team as a whole takes collective responsibility for the audit?

A

Deficiency

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16
Q

Should chief internal auditor be part of the audit committee?

A

No

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17
Q

Should executive director be part of the audit committee?

A

No

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18
Q

Should non-executive director be part of the audit committee?

A

Yes

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19
Q

What can give a bank confidence in lending money to a company (in terms of audit committee)?

A

Have at least one member who has relevant financial experience

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20
Q

Benefit of data analytics over CAATs?

A

Do not require significant tailoring time as they are standardised

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21
Q

Is not establishing an internal audit function a corporate governance deficiencies?

A

NO

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22
Q

Elections and corporate governance deficiencies?

A

Directors should be subject to annual re-election

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23
Q

How should board be composed in corporate governance?

A

At least 50% should composed of non-executive directors (excluding the chair)

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24
Q

When there’s an absence of a member with relevant financial experience?

A

That mev bmber must be recruited

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25
Q

Responsibility of directors for internal controls? (annually shareholders)

A

To review internal controls annually, to report on internal control to shareholders

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26
Q

What are threats to fundamental principles? (S-I)

A

Self-interest

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27
Q

What are threats to fundamental principles? (S-R)

A

Self-review

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28
Q

What are threats to fundamental principles? (A)

A

Advocacy

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29
Q

What are threats to fundamental principles? (F)

A

Familiarity

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30
Q

What are threats to fundamental principles? (i)

A

Intimidation

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31
Q

When audit engagement partner and finance director go on holiday together, what are the risks?

A

Familiarity and self-interest. Rotation of audit partners

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32
Q

ACCA Code of Ethics of Conduct, in relation to audit team being offered 10% discount on mobile phones?

A

Should not be accepted, unless it is trivial and inconsequential

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33
Q

What services can audit firms provide to a firm?

A

If it does not assume a management responsiblity

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34
Q

What is a self-interest threat?

A

Risk of fianncial interest will inappropriately influence professional accountant’s judgement/behaviour

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35
Q

Where do mandatory safeguards apply to?

A

Public interest entity audits

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36
Q

How is the scope of external auditor’s work determined?

A

By the audit engagement partner

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37
Q

What must an audit be in terms of independence from the board?

A

Must be a completely independent exercise with no influence from the board

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38
Q

Is there a clear division between running the board of directors and running directors in a company’s business?

A

YES

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39
Q

What does the head of the internal audit department report to?

A

The audit committee

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40
Q

What is the function of an internal audit department?

A

For review and monitoring

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41
Q

What is essential for a review of FSs in a limited assurance engagement? (large amounts analytical)

A

Enquire of management of large and unusual items in FSs

Perform analytical procedures to understand relationship between items and FSs

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42
Q

Is an assurance engagement limited or reasonable?

A

Reasonable

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43
Q

What is needed to provide an internal audit service to an audit client? (responsible)

A

Be responsible at all times for internal audit activities

Acknowledge responsibiltiy for processes of internal control

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44
Q

Evaluating the self-review threat (materiality FS)

A

The materiality of related FS amounts

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45
Q

Evaluating the self-review threat (misstatement)

A

Risk of misstatement of assertions related to FS amounts

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46
Q

Evaluating the self-review threat (reliance external internal)

A

Reliance that audit team will place in work of internal audit service

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47
Q

When is audit sampling in performing tests of details an inherent limitation of an audit?

A

When 100% of all balances and transactions need to be tested

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48
Q

What is a familiarity threat?

A

Been in charge for too long or a personal relationship

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49
Q

Why is a contingent fee not allowed?

A

As it’s a self-interest threat

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50
Q

WHat is a contingent fee?

A

Paid when a specific outcome is achieved

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51
Q

When an audit engagement partner must be removed from the team?

A

For more than 7 years

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52
Q

If question says Code of Ethics and Conduct?

A

Focus on ethics

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53
Q

Who is external auditor appointed by?

A

The shareholders

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54
Q

Who is internal auditor appointed by?

A

The audit committee

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55
Q

When looking at valuation, what should I ask myself?

A

Does it change the NUMBER

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56
Q

In audit evidence, is external or internal evidence better for evidence?

A

External

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57
Q

Are lawyers > customers for evidence in a food poisoning case?

A

Lawyers are better

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58
Q

When there’s an invoice-in-transit?

A

Agree to pre-year-end invoice

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59
Q

When there’s cash-in-transit?

A

Agree to post-year-end cash book and bank statement

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60
Q

If accounts are not amended and there’s a disagreement with client?

A

The report is modified (due to material misstatement or no evidence)

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61
Q

What conclusions are there in material misstatement?

A

Adverse or Qualified opinion

62
Q

When is a material misstatement consdiered adverse?

A

If it is very very large

63
Q

When an appropriate adjustment is made to a fnancial statement (audit opinion)

A

It is unmodified

64
Q

What is a basis for qualified opinion paragraph done for?

A

Explain the limitation in relation to lack of evidence over inventory

65
Q

Is a cash receipt more reliable than correspondence with lawyers when determining recoverability of a debt?

A

YES

66
Q

What is the period in which management’s assessment covers?

A

At least 12 months from date of the financial statements

67
Q

Example of analytical procedures?

A

Proof in total

Compare to prior year

68
Q

What is included within the engagement quality review?

A

Evaluation of all significant audit judgements

Evaluation of conclusions reached in formulating auditor;s report

69
Q

What period does management assessment cover?

A

At least 12 months from date of the FSs

70
Q

When there’s receivables balance that is an irrecoverable debt (profit)

A

The profit is overstated

71
Q

Auditor’s responsibility in relation to subsequent events between auditor’s report and fianncial statements are due to be issued?

A

Auditor discusses need for adjustments with management

72
Q

How does an auditor attend an inventory count?

A

Observes client staff

Reviews procedures for identifying damaged, obsolete and slow-moving invnetory

73
Q

Which evidence is the most reliable?

A

Independent 3rd party evidence

74
Q

What is systematic sampling?

A

Involves having a constant sampling interval, starting point determined randomly

75
Q

When is there a legitimate reconciling item? (issuance)

A

When it is issued before the year end

76
Q

When supplier statement balance agrees to what is on the purchase ledger?

A

No further work is required

77
Q

Most reliable way showing lodgments have been recorded?

A

Bank statement showing lodgments have been cleared by the bank

78
Q

Why is asking for something not considered reliable?

A

As it is verbal evidence, not written evidence

79
Q

Do auditors prepare financial statements?

A

NO, management do

80
Q

1st step in planning of CAATs (objective)

A

Set objective of CAAT

81
Q

2nd step in planning of CAATs (determine accessibility entity files)

A

Determine content and accessibility of entity’s files

82
Q

3rd step in planning of CAATs (types tested)

A

Define types of transactions tested

83
Q

4th step in planning of CAATs (procedures performed)

A

Define procedures to be performed on the data

84
Q

Should referencing the work of an external expert be included in an auditor’s report?

A

NO

85
Q

Is classification relevant to an audit programme for additions?

A

NO

86
Q

How to calculate a bank overstatement?

A

Customer payments (after year end) - Cheques not posted (after year end)

87
Q

Do GDNs before or after year-end determine when sales cut-off is applied?

A

Before year-end

88
Q

DIfference between substantive and tests of controls?

A

Confirming understanding of control

Financial statements

89
Q

When is amount considered material in ISA 320?

A

1% of total revenue

5% of profit before tax

90
Q

What is meant by inherent risk?

A

Suspectibilty of an assertion about a class of transaction to a misstatement before considering any related materials

91
Q

What is meant by control risk?

A

Suspectibilty of an assertion about a class of transaction to a misstatement before considering won’t be prevented on a timely basis by entity’s controls

92
Q

What is meant by detection risk?

A

Reduce audit risk to an acceptablty low level. Is affected by samplnig and non-sampling risk

93
Q

What does audit risk compose of?

A

ROMM and detection risk

94
Q

Level of assurance in external audit?

A

Reasonable asurance

95
Q

Level of assurance in review engagements?

A

Negative assurance - where nothing comes to their attention

96
Q

Auditor and laws and regulations (non-compliance TCWG)

A

Auditor must report non-compliance to management and those charged with governance

97
Q

Auditor and laws and regulations (procedures non-compliance FSs)

A

Audit procedures to help identify non-compliance with laws and regulations that have material impact on FSs

98
Q

Auditor and laws and regulations (aware non-compliance act)

A

When auditor aware of non-compliance with laws they must obtain understanding circumstances occurred and effect on FSs

99
Q

Auditor and laws and regulations (non material auditor opinion)

A

If non-compliance has material effect. Auditor must give qualified or adverse opinion

100
Q

What is meant by a control environment? (control people overall foundation)

A

Influences the control consciousness of people and provides overall foundation for operation of other components

101
Q

What is meant by an entity’s risk assessment process? (iterative process risks)

A

An iterative process for identifying and analysing risks to achieve entity’s objectives and form basis for determining risks managed

102
Q

What is meant by an entity’s process to monitor the system of internal control?

A

Continual process to assess effectiveness of internal control performance over time

103
Q

What is meant by information system and communication?

A

Activities, policies and records designed to ensure transactions are accurate

104
Q

What is meant by control activities?

A

Proper application of policies in all components of entity’s of direct and indirect controls

105
Q

ICEQs vs ICQs?

A

ICEQs are generally easier to apply to a variety of different systems than ICQs

106
Q

What do ICEQs determine?

A

Whether there are controls which prevent or detect specified errors

107
Q

What do ICQs determine?

A

Determines whether ocntorls exist which meet specific control objectives

108
Q

Do internal auditors review financial statements?

A

No, audit committee does

109
Q

Example of economy for the 3Es?

A

Lowest cost at which appropriate quantity and quality can be achieved

110
Q

Example of efficiency for the 3Es?

A

Relationship between goods and services produced and resources used to produce them

111
Q

Example of effectiveness for the 3Es?

A

Extent to which an activity is achieving its policy objectives

112
Q

What is done first, tests of control or walkthrough tests

A

Perform tests of control

Perform walkthrough tests

113
Q

Does scope being set by finance director reduce independence of internal audit department?

A

YES

114
Q

What are general IT controls?

A

Disaster recovery procedures

Testing procedures using test data

115
Q

What will result in no completeness of payables?

A

GRNs not be sequentially numbered, which makes it hard to trace

116
Q

Revenue is overstated and effect on receivables?

A

Causes a decrease in receivables collection period initially

117
Q

What assertion needs to be tested when talking about understatement of income?

A

Completeness

118
Q

Is an auditor responsible for detecting or preventing an error according to ISA 240?

A

Detecting, not preventing

119
Q

Is timetable for provision of accounting information included in an engagement letter?

A

NO

120
Q

Is an auditor appointed by those charged with governance within the company?

A

NO

121
Q

What isn’t included in an agreement obtained by the auditor?

A

To prevent and detect fraud

122
Q

What should be done first when accepting a nomination for an audit?

A

Communicate with the existing auditors

123
Q

What should be done second when accepting a nomination for an audit?

A

Perform client screening procedures to assess risk => then ensure reisgnation of previous auditor has been previously conducted

124
Q

What is inherent risk?

A

An item is misstated due to characteristics of that item

125
Q

What is detection risk?

A

Auditor’s substantive procedures don’t detect MM

126
Q

What is control risk?

A

Internal controls don’t prevent or detect MM

127
Q

What substantive procedure is inspect relevant purchase invoices for sample of assets on asset register?

A

Rights and obligations

128
Q

Does management providing override apply to external or internal auditors?

A

To external auditors

129
Q

What are information processing controls?

A

Processing of information in IT applications

130
Q

What are general IT controls?

A

Support the continued proper operation of the IT environment

131
Q

Observe the invoicing clerk to ensure prices are being matched. Which assertion?

A

Completeness

132
Q

Difference between audit strategy and detailed audit plan?

A

Audit strategy is more general and high level

Detailed audit plan is more specific and actionable

133
Q

Where does auditor set the performance materiality amount?

A

Lower than the materiality level for FSs as a whole

134
Q

What is performance materiality used for?

A

Reduce risk of aggregated of uncorrected and undetected misstatements exceeds materiality for FSs as a whole

135
Q

What forms the basis for audit strategy and detailed audit plan?

A

The risk assessment

136
Q

Which assertion does review financial statement notes satisfy?

A

Review financial statement notes

137
Q

Is materiality level included in audit plan or audit tender document?

A

The audit plan

138
Q

What does an audit engagement letter do?

A

Outlines the terms and scope of the audit engagement

139
Q

What procedures are usually done in an interim audit?

A

Analytical, tests of controls, updating risk assessments, substantive testing of transactions

140
Q

What procedures are done in a final audit?

A

Detailed substantive testing of year-end balances are conducted. Finishing tests of control and substantive procedures

141
Q

Are internal auditors separately liable for any material misstatements?

A

NO

142
Q

How long must audit files be kept?

A

For five years

143
Q

Is it acceptable to make administrative changes to an audit file after 60 day period?

A

Yes, but not procedural changes

144
Q

Who designs the internal controls?

A

Governance, not auditors

145
Q

An example of segragation in internal controls?

A

Tasks of taking orders, recording sales and receiving payment is allocated to three different staff members

146
Q

is it acceptable to prepare and audit the financial statements of a listed company?

A

No, as it is a self-review threat

147
Q

The request that the former engagement partner attends audit committee meetings (self-interest or familiarity threat)

A

Self-interest

148
Q

if there’s a personal relationship between the audit engagement partner and finance director?

A

It is a self-interest threat

149
Q

Where does audit planning stop?

A

Continues until the completion of the current audit engagement

150
Q

Where is determining appropriate materiality level carried out?

A

Overall audit strategy

151
Q

Why can a prior year audit file not be a useful source of information?

A

System may have changed in the intervening period

152
Q

Who does audit committee normally liaise with?

A

The auditors and directors

AA Question Rote (29 decks)

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