Standards On Auditing Flashcards
Professional skepticism
Reduces the risk of overlooking unusual circumstances, over generalizing while drawing conclusion from audit evidence, using inappropriate assumptions in deterring NTE, includes being alert to contradictory audit evidence, risk of fraud, reliability of the audit documents
Audit engagement letter contents
Objective and scope of audit, responsibility of auditor and management, identification of applicable frf, reference to to the expected form and content of report
Sources of fraudulent financial reporting
Fictitious journal entries close to end of an period, advancing or delaying any event or transaction, inappropriately adjusting assumptions in ac estimates, complex transactions, unsuaudal transactions
Risk Factors relationg to misstatement
Incentive or pressure , rationalization of the act, opportunity
Communicating significant finding to tcwg under 260
Qualitative aspect of accounting practices, accounting policies and accounting estimates, significant difficulty faced (LOSA), any other communication required
Significant difficulty
Non availability of audit evidence, too short time to compete e audit, excess efforts for getting saae, restrictions imposed m.by mangt, significant delays in providing info
Joint responsibility areas
Not divided, common decision regarding NTE of audit procedures, matter brought by one of the joint auditors to others and there is an agreement on such matter, presentation and disclose in accordance with AFRF, compliance with the relevant statutes, audit repot complies with relevant requirements
Overall audit strategy
Characteristic of engagement defining scope, reporting objectives to plan timing of the audit and nature of communication required, directing he engagement team efforts, results of preliminary engagement activities, NTE of audit procedures
Audit risk at the level of FS
ROMM
Significant risks are
Risk of fraud, risk of change in economic, accounting, or other developments lik change in regulatory environment, complex transactions, transaction wi related party, unusual transaction outside the ordinary course of business, degree of subjectivity in the measurement of estimates , basically - SA 240, SA 550 x2 , SA 540 and GST/INDAS
Risk assessment in CIS environment
Program development and maintenance, system support software, operations, physical CIS environment, Control over specialized utility program
Risk to internal control imposed by it systems
DATA - unauthorized access, unauthorized changes, loss of data, inaccurate processing of data
SYSTEMS AND PROGRAMS- unauthorized changes or failure to make necessary changes
Factors of choosing benchmark
Elements of FS, items on which attention of users is tend to be focused, nature of the entity and the stage of life cycle, ownership structure and way it is financed, volatility of benchmark
Factors warranting re test of controls
Deficient control environment, deficient monitoring of controls, deficient general it controls, substantial manual elements in control, change in personnel leading to change in controls, changing circumstances
Factors that may assist in determine the use of external comfirmation
Confirming party knowledge of e subject matter
Ability and willingness of the confirming part to respond ( costly to time consuming, legal liability, different currency, not a accept the responsibility )
Objectivity of the confirming party
Understanding how user entity uses the service of service entity
Nature of service provided and significance of those services
Nature and materiality of transaction processes or FS Effected by service organization
Degree of interaction
Nature of relationship
Sources of misstatement
Inaccuracy in gathering and processing the data
Omission in an amount or disclosure
Unreasonable judgements concerning accounting estimates due to clear misinterpretation of facts
Judgement in ac estimates that are unreasonable and inappropriate selection and application of accounting policies
Evaluating the work of management expert
Evaluate competence, capability & obejctivity of that expert
Obtaining understanding of the work of that expert
Evaluate appropriateness of the expert work ( relevance and reasonableness of findings and conclusions and assumptions and methods, relevance completeness and accuracy of the source data )
Reliability of audit evidence
Internally generated or external document
Internally generated if related controls on such or effective
Directly obtained from outside or through the entity
Photocopy of original
Written or oral
Obtain evidence regarding the existence and condition of the inventory by attending the physical counting to
Evaluate management instructions and procedures for recording and controlling the results of inventory count
Observe the performance of management count procedures
Inspect the inventory
Perform test counts
Factors to consider when designing the confirmation request
Assertion BIENG addressed
Risk of material misstatement
Layout and presentation of request
Prior experience on audit of similar engagement
Methods of communication
Mangt authorization to confirming party to respond
Ability of confirming party to provide information
When to use negative confirmation request
Low ROMM
Obtained SAAE regarding operating effectiveness of controls
Low exception rate expected
Low chance of ignorance
Considerations while performing analytical procedures
Suitability of particular substantive analytical procedure
Reliability of the data from which auditors expectation of the recorded amount is developed and source, nature & availability and controls over preparation
Develop an expectation of the recorded amount
Set tolerable limit up to which misstatement is tolerable form the point estimate
Reliability of data for he purpose of analytical procedures
Source of the information
Comparability of the information
Operating effectiveness of controls
Nature and relevance of information available
Understanding the ROMM in accounting estimates
Requirement of AFRF
management process of identifying transactions and events giving rise to need of accounting estimates or revise the existing ones
Any changes in the circumstances warranting to bring change in existing ac estimates
ESTIMATION MAKING PROCESS -
Method or applicable model used
Relevant controls
Management used an expert
Assumptions underlying the accounting estimates
How manager has assessed the effect of estimation uncertainty
Outcome of previous accounting estimates in e current period
Factors influencing the degree of estimation uncertainty
Extent of judgement involved Reliability of source data Duration Observable and unobservable data Sensitivity towards the assumptions Existence of recognized measurement technique in AFRF to mitigate e risk
Possible sources of related party informations
Inspect records and documents like income tax returns, info supplied to regulatory authority, members register, investment register, conflict of interest documents, life insurance policies
Contracts outside the normal course of business
Unusual transactions
Written representation form management
