Stat Audit

Question 1

What is a stat audit?

Answer 1

the auditor obtains evidence to give an opinion on whether the financial statements are free from material misstatement and give a true and fair view
it gives confidence to the user of the financial statements (shareholders)
it gives reasonable assurance, a high level of assurance or a positive expression

Question 2

What are the exemptions of audit?

Answer 2

Two of:
- less than or equal to 50 employees
- revenue less than or equal to 10.2 million
- assets less than or equal to 5.1 million

Question 3

What are the advantages of a stat audit?

Answer 3

• professional scrutiny of business
• reduces risk of bias, error or fraud
• recommendations on internal control improvement
• enhances credibility of financial statements
• assurance to shareholders, investors, lenders, HMRC
• growing businesses will require audit in the future

Question 4

What are disadvantages of a stat audit?

Answer 4

• cost
• staff time spent with auditors/disruption
• limited by materiality

Question 5

What are the responsibilities of director (management)?

Answer 5

• prepare the financial statements (including sustainability disclosures)
• prepare directors/strategic report
• manage business by:
• internal controls to safeguard assets and prevent fraud
• identify risks and develop mitigation strategies (including sustainability risks)
• comply with laws and regulations (including sustainability regulations)

Question 6

What are the audit reponsibilities?

Answer 6

• opinion on whether the financial statements are free from material misstatement and gives a true and fair view
• opinion on whether directors/strategic report are consistent with the financial statements
• in the future, there could be additional responsibility in respect of sustainability disclosures

Question 7

Whats are auditor rights?

Answer 7

• access to accounts and information necessary for the audit
• attendance at any general meeting

Question 8

What is the expectations gap?

Answer 8

auditors responsible to detect material misstatement caused by fraud and error = expectation that auditor identifies all misstatement and all frauds

auditor uses sampling = expectation that auditor checks all balances

auditor uses materiality threshold = expectation that unqualified opinion means financial statements are 100% correct

audit report and engagement letter clarify these matters