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1 Audit > tutorial Qs > Flashcards

tutorial Qs Flashcards

1
Q

auditors independence in relation to public company

A

agency theory occurs within public companies. so shareholders are reliant on auditors

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2
Q

auditors independence in relation to private companies with outside interest

A

management are shareholders usually. auditors ensure no conflict of interest

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3
Q

auditors independence in relation to small company

A

auditor give an outside perspective

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4
Q

why is an audit necessary?

A

all companies are required by statute to have an audit

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5
Q

effects of audit on a company

A

affect the staff, gives shareholders and investors assurance, highlights issues

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6
Q

stages of an audit process

A 
pre engagement
planning
accounting systems
controlling and recording
audit programmes
performance of the audit
reporting
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7
Q

difference between audit engagement partner and ethics partner

A

looks at audit engagement, planning of audit and threats
vs
looking at ethical policies and procedures, and communication

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8
Q

difference between audit plan and audit strategy

A

planning an audit involves establishing the overall audit strategy

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9
Q

typical audit engagement acceptance procedure

A 
integrity of client, 
competency of firm, 
ethical consideration, 
communication, 
issue engagement letter
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10
Q

responsibilities of the auditor

A

//

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11
Q

auditors responsibility in relation to fraud

A

//

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12
Q

principle types of threats to auditors objectivity

A 
self interest
self review
management
advocacy
familiarity
intimidation
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13
Q

whats included in an audit engagement letter

A

addressee
terms of engagement
contents of letter
fees and billing arrangements etc

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14
Q

things new auditor discusses with old auditor

A

reason for leaving
any specific issues
summary of working paper
enquire about companys management

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15
Q

issues you need to examine when taking on a new audit

A

integrity of management
special circumstances
independence
competency to do audit

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16
Q

plan an audit

A

business review
evaluate risks
review internal controls
determine strategy

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17
Q

controlling an audit

A

direction and supervision of managers
role of partners and managers
procedures

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18
Q

documenting audit work

A

record everything
remove work once its been completed from list
no uneccesary info kept
all working papers confidential

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19
Q

define materiality

A

a matter is material if its omission or misstatement will reasonable influence the decision of an auditors report

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20
Q

why is materiality important

A

audit = opinion on truth and fairness of FS

need precision to come to an opinion, material matters take away from this precision

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21
Q

materiality profit

A

5 - 10% of profit

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22
Q

materiality turnover

A

0.5 - 1% of turnover

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23
Q

materiality net assets

A

5 - 10% of net assets

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24
Q

materiality in relation to tests of controls

A

materiality in regards to certain matters may lead to all of the samples being checked rather than a small amount

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25
Q

materiality in relation to P and L account

A

looks at turnover / profit materiality

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26
Q

materiality in relation to BS items

A

looks at net asset materiality

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27
Q

property, plant and equipment risks

A

ownership, existence, completeness, valuation

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28
Q

PPE ownership

A

doubts on ownership, forced removals, held in other country

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29
Q

PPE existence

A

cant do physical inspection, cant access area of PPE (oil rig)

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30
Q

PPE completeness

A

held in lots of places, p and e produced internally and not capitalised

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31
Q

PPE valuation

A

cant establish useful life, purchased in fx

revaluation issues

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32
Q

assessing high level audit risk tangible fixed assets

A

property deeds are susceptible to fraud, difficult to determine asset lives and balance sheet value (as opposed to asset value)

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33
Q

assessing high level audit risk

stock

A

stock can be moved, stock can affect gross and net profit, difficult to calculate complete stock as it consists of raw materials

34
Q

assessing high level audit risk trade debtors

A

may be overstated, inaccurate doubtful debt provisions

35
Q

assessing high level audit risk

trade creditors

A

match invoice to records of goods, always need confirmation of goods

36
Q

assessing high level audit risk

contingencies

A

confirmation of liabilities may not be available due to pending matters

37
Q

what is audit risk

A

the risk the auditors may issue an unqualified opinion on financial statements

38
Q

advantages of narrative notes

A

easy to use and understand

39
Q

disadvantages of narrative notes

A

not useful with complex controls

40
Q

advantages of questionaires

A

easy to prepare, cost effective, simple to complete

41
Q

disadvantages of questionaies

A

controls may be misunderstood or misstated

42
Q

limitations of an audit

A

ISA 200, inherent limitations, natural of reporting, nature of audit procedures

43
Q

auditors responsibility to communicate in regards to deficiencies

A

use written methods to communicate any deficiencies found and in a timely basis

44
Q

define audit risk

A

inappropriate opinion on FS

45
Q

define inherent risk

A

susceptibility of a misstatement that could be material or combined to be material

46
Q

define control risk

A

a misstatement isnt prevented by a control

47
Q

define detection risk

A

a misstatement isnt detected by a control

48
Q

key features of a good internal control system

A 
competent, reliable
defined areas of responsibility
segregation of duties
adequate documents
independent checks
49
Q

procedures usually used to audit internal controls

A

inspection, observation, enquiries, documents etc

50
Q

explain mail being opened

A

ensure mail doesnt go to other employees, ensure mail is accounted for correctly

51
Q

explain maintenance of a register

A

reconcile balance on register, attend a physical check of fixed assets, select samples from register

52
Q

explain bank reconciliation

A

verify cash book against bank statements, enquire how often bank reconciliations are done, confirm differences have been shown, auditor should reperform reconciliations

53
Q

explain passwords in an accounting system

A

observation of password procedure, verification theyve been regularly changed by an authorised official

54
Q

risk present for cash and remittances in the post

A

stolen monies at post office, cash handled by too many people, post office handling information isnt given

55
Q

audit tests for cash and remittances in the post

A

trace sales records
track money using postal services
print out of lodgements from bank and duplicate company records to find discrepancies

56
Q

weaknesses in regards to internal control systems of payments to creditors

A

multiple cheque books, authorisation of payments, who signs cheques, cancelled cheques destroyed

57
Q

SEVEN AUDIT OBJECTIVES

A 
completeness
accuracy
valuation
cut off
existence
rights and obligations
presentation and disclosure
58
Q

factors taken into account when assessing reliability of evidence

A

source, nature, independence of provider, qualifications of provider, reliability in the past, auditors knowledge of area in question

59
Q

5 audit procedures in regards to P and L

A

turnover, ensure accuracy
cost of sales, look at cut off procedures
payroll costs, look at payroll accruals
bank interest charge, look at bank statements,
bad debt charge, look at collectability of amounts outstanding

60
Q

general inherent risks of fixed assets

A

risk of impairment rising, risk in estimating depreciation or useful life, risk of unused assets and assets in course of construction

61
Q

use analytical review in fixed assets

A

compare to budget,

calculate average depreciation, review repairs and maintenance

62
Q

audit procedures implemented before stock count attendance

A

contact client for instructions
book staff to attend stock count
ascertain where stock is being held
prepare audit programme for the count

63
Q

why is observation of physical inventory count essential?

A

proper cut off depends on physical inventory observation and is so important

64
Q

what info should the auditor obtain during physical inventory count

A

sales cut off and purchases cut off

65
Q

lower of cost and net realisable value

A

lower of the goods purchase cost adjusted for shipment and handling costs less all further costs the be incurred in the selling and distribution of the cost

66
Q

errors in stock take

A

items should be recounted
stock supervisor should be allowed to amend for errors in the system
all amendments should be done by an independent senior person

67
Q

debtors audit procedures

A

select sample of debtors and obtain 3rd party confirmation
look at bad debt provisions
update accounting systems for any changes
reconcile debts to the ledger from FS

68
Q

set out follow up procedures for audit assistant

A

detailed review of any other procedures taken after year end

69
Q

set out 3 general considerations for assessing reliability of audit evidence

A

source of evidence, internal / external
document vs written
authentication method, fax vs email

70
Q

audit objectives in relation to creditors

A

liabilities are accurate,
contingent liabilities are properly treated
adequate provision has been made

71
Q

procedures in regards to creditors

A

review of liabilities, confirmations or letters
review legal solicitors letters
post balance sheet reviews

72
Q

purpose of audit procedures in relation to suppliers

A

existence, rights and obligations, valuation, occurrence and completeness

73
Q

what is sufficient evidence?

A

quantity of evidence, enough to form an opinion

74
Q

what is appropriate evidence?

A

relevance and reliability, secure enough to come to an opinion

75
Q

audit procedures regarding going concern

A 
key financial ratios
pending major legal procedures
net liability position
arrears or dividends
inability to obtain new financing
76
Q

auditors responsibilities, period end to auditors report

A

obtain sufficient evidence, non adjusting events should be disclosed, add adjusted events adjusted

77
Q

auditors responsibilities, auditors report to financial statements

A

auditors dont have responsibility to do anything once their reports published
establish any amendments
discuss with directors
consider implications upon the report

78
Q

auditors responsibilities, financial statements to presentation to members

A

auditors have no obligation to do anything

consider amendments, discuss matters and discuss whether issues occurred before or after the auditors report

79
Q

analytical advantages

A

cost effective, helps with comparisons

80
Q

analytical disadvantages

A

doesnt taken into account adjustments

81
Q

example of analytical

A

comparing financial ratios

looking at trends etc

1 Audit (5 decks)

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