Week 5 - Seminar Notes

Question 1

What are four key aspects of audit strategy?

Answer 1

• Characteristics of the Engagement
• Significant Factors & Preliminary Engagement Activities
• Reporting Objectives, Timing & Communication
• Nature, Timing & Extent of Resources

Question 2

What should the audit plan include?

Answer 2

• 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 e.g. interim or final audit

Question 3

What are the characteristics of the timing for an interim audit?

Answer 3

• Completed part way through the year
• Early enough not to interfere with year-end procedures
• Late enough to enable sufficient work to be done to reduce the pressure on the final audit

Question 4

What is the purpose of an interim audit?

Answer 4

Allows the auditor to spread out their work and cope with a tight reporting deadline.

Question 5

What kind of work is performed on an interim audit?

Answer 5

• Documenting systems
• Evaluating controls
• Detailed testing e.g. sales & purchases

Question 6

What are the impacts of the interim audit on the final audit?

Answer 6

• If controls are working well, fewer substantive tests can be performed on final audit.
• If controls are not working well, more substantive testing will be needed on the final audit.

Question 7

What are the characteristics of the timing for a final audit?

Answer 7

• Takes place after the year-end once they have their final numbers (trial balance).
• Done after the client has completed the year-end procedures.
• Before the company files their financial statements with the relevant authorities by the required deadline.

Question 8

What is the purpose of a final audit?

Answer 8

To ensure the auditor has sufficient appropriate evidence to give an opinion on the financial statements in the audit report.

Question 9

What kind of work is performed on a final audit?

Answer 9

• Audit Statement of Financial Position balances (only available at year-end)
• Perform transaction testing for transactions that have 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 and subsequent events
• Perform an overall review of the financial statements
• Communicate misstatements to management

Question 10

Define ‘fraud’.

Answer 10

An intentional act using deception to obtain an unjust or illegal advantage.

Question 11

What are the two types of fraud?

Answer 11

• Fraudulent Financial Reporting - Intentionally misstating the financial statements to make them look better or worse than is really the case.
• Misappropriation - The theft of a company’s assets such as cash or inventory.

Question 12

Define ‘error’.

Answer 12

An unintentional misstatement.

Question 13

What is a director’s involvement in the responsibility for fraud & error?

Answer 13

• Primarily responsible for the prevention & detection of fraud
• Implementing effective internal controls to prevent fraud
• Create a culture that reduces the risk of fraud e.g. a culture of integrity, ethical behaviour & active oversight
• Consider the need and role of an internal audit department to reduce the risk of fraud e.g. testing the effectiveness of controls; performing fraud investigations; performing surprise testing e.g. assets inventory checks