Week 2 Flashcards
key syllabus areas = ?
audit framework & regulation
planning & risk management
internal controls
audit evidence
review & reporting
assurance assignment = ?
an assurance engagement is one in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party
key elements on an assurance assignment = ?
3rd party involvement
subject matter
suitable criteria
sufficient appropriate evidence
written assurance report
assurance assignment when buying a house = ?
practitioner = surveyor
intended user = buyer
responsible party = seller
subject matter = house
suitable criteria = building regulations
sufficient evidence = physical check
practitioner = ?
a person actively engaged in doing something
two levels of assurance = ?
limited assurance
reasonable assurance
limited assurance = ?
moderate/low levels of assurance
conclusion is negative, stating assumptions don’t provide reasonable basis for doubt
e.g., assurance engagement to review a forecast
reasonable assurance = ?
high, but not absolute assurance
opinion is positive, statements give a true & fair view
e.g., audit of financial statements
examples of assurance engagements
audit of FSs
review of a forecast/business plan
review of internal controls
fraud investigation
due diligence
environmental audit
external audit = ?
common type of assurance engagement is the audit of a company’s financial statements
in the UK, audits are governed by…?
companies act 2006
international standards on auditing (ISAs)
differences between reasonable & limited assurance?
more regulations & standards
procedures are more thorough
evidence needs to be of high quality
objectives of independent auditors
obtain reasonable assurance
express audit opinion
report on auditor’s findings
purpose of an audit?
auditors provide external verification to ensure no fraud
stewardship = ?
job of supervising/taking care of something
an auditor must…
comply with regulations
plan & perform audit w/ professional scepticism
exercise professional judgement
obtain audit evidence that is sufficient & appropriate
professional scepticism = ?
an attitude that includes a questioning mind, being alert to conditions and a critical assessment
professional judgement = ?
application of relevant training, knowledge & experience to make an informed decision regarding appropriate auditing behaviour
benefits of an audit?
(H.I.R.E.D)
higher quality of information
independent scrutiny helps management
reduces the risk of management bias, error & fraud
enhances FSs credibility
deficiencies in FSs are highlighted
limitations of an audit?
(F.I.R.E.D)
financial statements include subjective estimations & judgements
internal controls may be relied upon by auditors
representations from management aren’t always reliable
evidence isn’t always conclusive
doesn’t test all transactions - only samples
expectations gap regarding audits?
- belief that all transactions are tested
- belief that auditors detect all fraud
- belief that auditors prepare FSs
- belief that clean audit guarantees going concern
- belief that a SOFP shows the true value of a company (goodwill, reputation)
who carry out an audit?
member or recognised supervisory body (ICAEW/ACCA)
authorised by the state
organisation must hold audit registration
to sign off an audit, must hold an audit qualification
who can’t carry out an audit?
anyone that manages or works for the company
anyone with a business or personal connection to the company
code of ethics for auditors?
independent
competent
keep all information confidential
who appoints auditors?
shareholders/directors
can auditors resign or be removed?
yes
rights of an auditor?
access to the company’s books
right to explanations
attend general meetings
duties of auditors?
duty to audit FSs & provide opinion
examine whether FSs have been prepared in accordance with laws
IFAC = ?
international federation of accountants
promotes international regulation of the accounting profession
IAASB = ?
international audit & assurance standards board (IAASB)
a subsidiary of IFAC
material error = ?
big, impactful error
what do IAASB & IFAC promote?
ISA’s
international standards of auditing
what is the purpose of ISA’s?
provide guidance to auditors, not legal requirements, for the audit of FSs
do different countries have different auditing standards?
yes
if there’s conflict between local regulations and ISA’s, which takes precedence?
local regulations
the role of professional bodies?
promote quality within the profession through
- rigorous qualifications
- support to members
how does one obtain membership in an accounting body?
complete exams
demonstrate at least 3 years of practical experience
complete ethical assessment
how does one maintain a membership in an accounting body?
demonstrate continuing CPD
comply with code of ethics
can professional bodies take disciplinary action?
yes
e.g., fines, reprimands, withdrawal of membership
corporate governance = ?
framework of rules & practices by which a board of directors ensures accountability, fairness & transparency in a company’s relationship with all stakeholders
purpose of good corporate governance?
ensures companies are well run
reduces risk of directors abusing their power
advantages of good corporate governance?
greater transparency
greater accountability
efficiency of operations
less risk of mismanagement
what does good corporate governance result in?
higher quality audit
greater communication w/ auditors
lower risk of misstatements
stronger control environment
