Using experts, Accounting Estimates, and analytical procedures Flashcards
1
Q
When should an auditor consider using an expert?
A
When specialised knowledge is needed (e.g. valuations, actuarial calculations, complex tax issues, legal opinion)
2
Q
What must the auditor evaluate about an expert?
A
- Competence
- Capability
- Objectivity
- Scope of work
- Reasonableness of findings
3
Q
What are examples of accounting estimates?
A
- Provision for doubtful debts
- Inventory obsolescence
- Warranty obligations
- Depreciation methods
- Fair value estimates
- Outcome of litigation
4
Q
What should auditors understand about accounting estimates?
A
- How the client made the estimate
- Controls over the process
Wether experts were used - The assumptions made
- Subsequent events after balance date
5
Q
How can auditors test accounting estimates?
A
- Review the method and assumptions
- Develop an independent estimate
- Review events after year end
- Check if the financial reporting standards were followed
6
Q
What are analytical procedures?
A
Evaluations of financial information by studying plausible relationships among financial and non financial data
7
Q
When must analytical procedures be used during an audit?
A
- During planning (Risk assessment)
- During completion (overall review)
8
Q
What are the steps for performing an analytical procedure?
A
- Develop an expectation
- Assess reliability of data
- set an acceptable threshold
- Compare actual vs expectation
- Investigate significant differences
9
Q
What are the benefits of using analytical procedures?
A
- Improves understanding of the business
- Identifies areas of potential risk
- Can be efficient and cover 100% of data
- Provides strong evidence if corroborated
