Week 5 Flashcards
what should an audit plan include?
- what tests should be performed
- who should do them
- how much work should be done (e.g., sample sizes)
- when the work should be done (interim or final audit)
timing of an interim audit?
- completed part way through the year
- early enough to not interfere with year end procedures
- late enough to enable sufficient work to be done to reduce pressure on the final audit
purpose of an interim audit?
allows the auditor to spread out their work and cope with a tight reporting deadline
what work is performed in an interim audit?
- document systems
- evaluate controls
- detailed testing (e.g., samples, purchases)
what are the impacts of the interim audit on the final audit?
if controls are working well, fewer substantive tests can be performed on the final audit
if controls aren’t working well, more substantive testing will be needed on the final audit
timing of a final audit?
- after the year end once they have their final numbers
- done after the client has completed their year end procedures
- before the company files their financial statements with the relevant authorities
purpose of a final audit?
to ensure the auditor has sufficient appropriate evidence to give an opinion on the financial statements in the audit report
what work is performed in the final audit?
- audit SOFP balances
- perform transaction testing for transactions that occurred after the interim audit
- audit year end journals and adjustments
- ensure controls tested at the interim stage continued to operate up until the year end
- look at going concern an subsequent events
- perform an overall review of the FSs
- communicate misstatements to management
fraud = ?
an intentional act using deception to obtain an unjust or illegal advantage
what are the two types of fraud?
- fraudulent financial reporting
- misappropriation
fraudulent financial reporting fraud = ?
intentionally misstating the financial statements to make them look better or worse than reality
misappropriation fraud = ?
the theft of a company’s assets such as cash or inventory
error = ?
an unintentional misstatement
subsequent events = ?
major events that occur after the year end
who’s responsible for preventing fraud and error in a company?
directors
- primarily responsible for prevention/detection of fraud
- implement effective internal controls
- consider implementing an internal audit department
- create ethical culture
what does the internal audit department do?
- test effectiveness of controls
- perform fraud investigations
- perform surprise testing (e.g., inventory/assets checks)
role of auditors regarding fraud and error?
to obtain reasonable and appropriate evidence to give an opinion regarding whether the FSs are free from material misstatements caused by fraud or error
what must auditors do to be professionally sceptical?
- have a questioning mind
- critically assess audit evidence
- be alert
what should auditors discuss with management regarding fraud/error?
- consider if management/employees have incentive to commit fraud
- discuss in the audit team the risk of fraud in this assignment
- ask management how they assess the risk of fraud
- ask management if they’re aware of control weaknesses
- ask management if they’re aware of fraud
what constitutes auditors’ response to the risk of fraud?
- obtain written representations from management that they’ve informed us of known/suspected fraud
- test year end journals/adjustments
- make audit procedures unpredictable
- test accounting estimates and areas requiring judgement
can fraud be likely even if auditors do a good job?
yes
who is fraud reported to?
- management
- those charged with the company’s governance
- 3rd parties if there’s a duty to report
- shareholders if material by giving modified audit opinion
what are auditors’ responsibilities regarding laws & regulations?
must consider laws & regulations when auditing the FSs in ‘ISA 250 Consideration of laws and regulations’
what does non-compliance with laws and regulations lead to?
misstatement in FSs
e.g., contingent liabilities are missed, going concern is affected
