W4 - Initial Considerations and Planning using the risk based approach

Question 1

What are all the stages of an audit process ?

Answer 1

• Accepting a new client
• Agree scopes and terms
• gathering evidence
• completion
• auditors report

Question 2

What is ISA 300 about ?

Answer 2

• Distinguishes between an audit strategy, plan and procedures

Question 3

Why should you plan for an audit ?

Answer 3

• Important areas identified
• potential problems identified
• work completed on time
• work assigned properly
• everyone knows what theyre doing

Question 4

What is important information that a auditor should know about their client ?

Answer 4

Industry, company, operations, locations, challenges, system changes and accounting issues

Question 5

What are two elements of a analytical review ?

Answer 5

ratio analysis, trends

Question 6

What is the audit risk model ?

Answer 6

AR = IR x CR x DR

Question 7

Can you explain audit risk (AR) ?

Answer 7

This is the risk of providing an inappropriate audit opinion

Question 8

What is inherent risk (IR) ?

Answer 8

IR looks at how likely something in financial statements are likely to be wrong if there was no controls to catch it

Question 9

What are control risks (CR)?

Answer 9

Control risks are do do with what mistakes are likely to be in the financial statements which could be important which the companies internal control were not able to catch

Question 10

What are the entity risks ?

Answer 10

IR and CR

Question 11

What is detection risk (DR) ?

Answer 11

A chance that the auditor may miss a issue or something wrong with financial statements

Question 12

What are some factors which could effect inherent risk according to ISA 315 ?

Answer 12

• Management integrity
• Management experience
• Management pressure
• Nature of business
• Industry

Question 13

What are some factors that could effect inherent risk at assertion level ?

Answer 13

• Transaction complexity
• Degree of judgement involved
• Susceptibility of mistreatment
• Susceptibility to asset loss missaportion
• unusual transactions

Question 14

What is meant by materiality in audit ?

Answer 14

Material is anything that could influence the the decisions of financial statements if not included

Question 15

What are some of the qualitative estimates ?

Answer 15

matenal in nature
-EPS
- Directors ‘remuneration
- Disclosures ie Gc
- RPT

Question 16

What are the quantitative etsimates ?

Answer 16

5-10% of PBT
1-2% of total assets
1/2-1% of revenue