Topics 1-5 Flashcards
What is the objective of an audit?
To enable the auditor to express an opinion as to whether the financial report is prepared in accordance with applicable financial reporting frameworks.
What is an assurance service?
Professional services that improve the quality of information for decision makers.
Why undertake audits or assurance services?
Users want information they can trust, therefore the information must be:
-reliable
-accurate
-up to date
-prepared in accordance with the law
Therefore auditing and assurance services are used to reduce the information risk and improve the level of faith placed by users on the information contained within the reports.
What is information risk?
the possibility that information upon which business relies on to make decisions may be unreliable, therefore the decisions made are inaccurate.
What are the causes of information risk?
- the numbers disclosed are not free from material error
- the numbers are not disclosed correctly (in accordance with standards and other mandatory requirements)
- the entity is not a going concern
What is professional scepticism?
Guilty until proven innocent
Trust no one
What is the auditing process?
Source documents
Processing of documents
preparation of reports
What are the 6 steps to resolving an ethical dilemma?
- obtain relevant facts
- identify the ethical issue
- Determine who is affected by the outcome and how
- identify the alternatives
- identify the consequences of each alternative
- decide the appropriate actions
What are some threats to independence?
Self-interest threat self-review threat advocacy threat familiarity threat intimidation threat
What is APES110 about?
Code of Ethics for Professional
Accountants
What are the fundamental principles of APES 110?
Integrity Objectivity Professional competence and due care Confidentiality Professional behaviour
What are the 5 types of evidence/tests?
- gaining an understanding of the internal control environment
- testing of controls
- testing of transactions
- testing of balances
- analytical review
What is a going concern?
Assumes that the entity can continue to operate into the foreseeable future (defined as 12 months).
What is a going concern?
Assumes that the entity can continue to operate into the foreseeable future (defined as 12 months).
What are inherent risks?
A measure of the auditor’s assessment of the likelihood that there are material misstatements in a segment before considering the effectiveness of the internal control.
What is internal control?
a process designed to provide reasonable assurance regarding the achievement of management’s objectives in the following categories:
- reliability of financial reporting;
- effectiveness and efficiency of operations; and
- compliance with applicable laws and regulations
What journals are included in the sales and collection cycle?
Sales journal
Cash receipts journal
General journal
What balance sheet items are included in the sales and collection cycle?
Cash at bank
Trade accounts receivable
Other accounts receivable
What Income statement items are included in the sales and collection cycle?
Sales
Sales returns and allowances
Bad debts expense
Allowance for doubtful debts
What are management assertions?
Implied or expressed representations by management about classes of transactions and the related accounts and disclosures in the financial statements.
What are the 3 categories of management assertions?
- Assertions about classes of transactions and events for the period under audit
- assertions about account balances at period end
- assertions about presentation and disclosure
What are the assertions about classes of transactions and events?
- occurrence
- completeness
- accuracy
- classification
- cut off
What are the assertions about account balances?
- existence
- completeness
- valuation and allocation
- right and obligations
What are the assertions about presentation and disclosure?
- occurrence and rights and obligations
- completeness
- accuracy and valuation
- classification and understandability
Audit objectives: what does ACCEPT stand for?
Accuracy Classification Completeness Existence Posting & Summarisation Timing
Also
Rights and Obligations
Realisable value
Presentation and disclosure