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Auditing > Unit 1- The Audit Process > Flashcards

Unit 1- The Audit Process Flashcards

1
Q

What is the objective of an audit?

A
  • to obtain reasonable assurance whether FS as a whole are free from misrepresentation.
  • to enable to auditor to express an opinion on whether FS are prepared in accordance with the applicable framework.
  • is to provide an opinion that enhances the credibility of the FS
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2
Q

What are the ethical principles whereby an accountant needs to adhere to in terms of the Code of Professional Conduct?

A
  • Integrity
  • Objectivity
  • Confidentiality
  • Competence and due care
  • Professional Behaviour
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3
Q

What is the scope of the audit?

performed in accordance with

A
  • International Standards on Auditing (ISA)
  • Guidance provided by the International Regulatory Board of Auditors (IRBA)
  • Relevant legislation.
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4
Q

What type of assurance will an audit that is completed in accordance with ISAs provide?

A

The audit will provide reasonable assurance.

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5
Q

Why is only reasonable assurance provided and not absolute assurance provided?

A

The auditors only test a sample of the transactions to gain sufficient information, but the risk of not detecting all material misstatements is still possible.

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6
Q

What are the limitation of an audit?

A
  • use of testing
  • the vulnerability of the internal control systems
  • evidence being more persuasive than conclusive.
  • work being open to a subjective opinion.
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7
Q

What does some of the responsibilities of the Auditor include?

A
  • expressing an opinion on the completeness of the FS and that they are prepared in accordance with applicable framework.
  • to plan and perform an audit in such a way that it reduces the risk of material misstatement to an acceptable lower level.
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8
Q

What is some of management’s responsibilities?

A
  • ID the applicable financial framework
  • ensure that FS are prepared in accordance to framework and presented accordingly.
  • design/implement/maintain internal controls
  • select appropriate accounting policies
  • make reasonable accounting estimates.
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9
Q

What are the fundamental principles of Auditing?

Basic principles on which auditing is based

A
  • Verifiability of financial data
  • No conflicts of interests.
  • FS being free of collusion and other irregularities.
  • Internal controls reduce irregularities
  • Consistent application of GAAP to ensure faithful representation.
  • Which held true in the past will hold true in the future.
  • Act exclusively in the capacity of an auditor.
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10
Q

What are the benefits of an audit for Investors, employees, state and creditors?

A
  • base their investment decisions on the audited FS
  • use the audited FS to base their decisions regarding employee benefits.
  • use FS for the collection of taxes
  • use FS to base decisions regarding the provision of trade credit.
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11
Q

How does the Standard -Setting process work?

guidance, issued, prescribed

A
  • ISA provides guidance on performing an audit
  • Standards are issued by the International Audit and Assurance Standards Board (IAASB)
  • Prescribed by IRBA
  • And is binding.
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12
Q

What is the four sections of the ISA standards and their engagement?

A
  • ISA = all audits
  • ISRE = all audits and review of other info
  • ISAE = all assurance engagements
  • ISRS = all standards and related services
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13
Q

When is deviation from the standards allowed?

A

Only if it will help achieve the objective of the audit more effectively.
(Needs to be justified)

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14
Q

What is a statutory audit?

A

Audit that is mandated by an act, the auditor’s duties and responsibilities are statutorily regulated by the relevant acts

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15
Q

What is a non-statutory audit?

A

Audits that are requested by a client.

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16
Q

What 4 types of engagements can an auditor enter into?

A
  • Audit
  • Review
  • Agreed-upon procedures
  • Complication
17
Q

Describe the comparative level of assurance, report provided as well as the considerations for AUDIT.

A
  • High, but not absolute assurance
  • Positive assurance given
  • Sufficient amount of audit evidence is gathered to form an opinion.
18
Q

What is the considerations for a review?

A
  • to perform procedures based on the audit evidence and provide an opinion on whether the FS were prepared in accordance to the applicable fin framework.
19
Q

What level of assurance does a review provide and what report does it provide?

A
  • lower level of assurance (moderate)

- Negative assurance

20
Q

What procedures does a review include?

A
  • enquiries

- analytical reviews

21
Q

What procedures does a review not include?

A
  • assessment of accounting and internal control systems

- testing of record & answers to enquiries

22
Q

What are the considerations, report and level of assurance provided by AGREED-UPON PROCEDURES?

A
  • procedures of an audit nature are performed.
  • the receiver of report forms their own opinion.
  • report is limited to the parties of agreement.
  • provides only factual findings
  • no assurance/opinion is provided
23
Q

What is the considerations of a compilation?

A
  • accountant uses accounting expertise to collect, classify and summarise financial info.
  • designed to not provide/allow an opinion.
24
Q

Describe the Engagement Activities stage of Auditing.

A
  • client investigation takes place
  • determine the skills and competence requirements
  • establish the terms of the engagement
25
Q

Describe the stage: Planning audit @ overall FS level & establishing overall audit strategy.

A
  • understand the entity and its environment
  • obtain an understanding of the entity’s internal control system as well as their information system.
  • ID and assess the risk of material misstatement @ overall FS level.
  • set the materiality by ID significant accounts to audit in detail
  • formulate an overall audit strategy with specific risk responses.
26
Q

Describe the stage: Detailed planning @ ascertain level for individual classes of transactions, accounts, balances and disclose.

A
  • For significant accounts:
  • perform risk assessment procedures to ID risks
  • establish a detailed audit approach
  • For non-significant accounts:
  • verify accounts through substantive analytical review procedures.
27
Q

Obtaining audit evidence through performance of an audit includes two “steps”

A
  • test controls

- substantive procedures.

28
Q

Describe the stage: Evaluating, concluding and reporting

A
  • overall review of financial info & evaluation of the audit evidence
  • conclude and formulate an audit opinion
  • report
29
Q

Managements responsibilities ito complying with laws and regulations:

A

Is responsible for the compliance with certain laws and regulations, prevention and detection of non-compliance.

  • ID and monitor legal requirements
  • implement and monitor internal controls and ethical codes.
  • ensure that staff understand the ethical code and code of conduct
  • monitor adherence to the code
  • monitor compliance with laws
  • establish & maintain an internal audit function and an audit committee.
30
Q

Auditors responsibilities ito complying with laws and regulations:

A
  • ID and assess possible misstatements
  • for verifying compliance with laws and regulations
  • ensure sufficient evidence is obtained to support the compliance with laws and regulations
  • ID non-compliance that may result in a misstatement.
31
Q

Describe the actions and procedure of an auditor:

A
  • perform audit with an attitude of professional scepticism
  • obtain a general knowledge of entity’s legal framework and their compliance thereof.
  • perform procedures to detect non-compliancy.
  • gather evidence to support compl/non
  • obtain written communication from management that all possible non-compl have been disclosed.
32
Q

How can an auditor obtain a general understanding of an entity’s legal framework and their compliancy.

A
  • use existing knowledge

- enquire with management regarding policies implemented & regulations that could have fundamental impact on operations.

33
Q

What are the procedures that need to be taken on the discovery of non-compliance of laws and regulations?

A
  • ID and obtain understanding of the nature & impact of non-compliance
  • document the findings in relevant working papers
  • consider the impact on the other aspect of the audit.
34
Q

How to report non-compliance:

A
  • report it to those charged with governance.
  • if aware they need to supply proof of their awareness.
  • if material & not disclosed in FS -> qualifying opinion.
  • if info is provided
  • > qualify opinion/refrain
35
Q

When can the auditor withdraw from the engagement?

A

When the non-compliance is material and the client does not implement corrective measures.

36
Q

What are the indicators of non-compliance?

A
  • investigations by government department of the payment of fines and penalties
  • payments made to unspecified services
  • excessive amounts of sales commission.
  • purchase prices that are substantially higher/lower than market related prices

Auditing (1 decks)

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