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BUS165 - Foundations of Assurance > Week 6 > Flashcards

Week 6 Flashcards

1
Q

what is the purpose of audit documentation?

A
  • provide proof that we have carried out audit work
  • give basis for audit report
  • give evidence that audit was planned & performed in accordance with auditing standards / regulatory requirements
  • allows the audit to be supervised & reviewed
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2
Q

in what format must audit documentation be?

A

can be electronic or on paper

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3
Q

if legal action is taken against an auditor, can audit files be used in court?

A

yes

audit files will be used in court to prove/disprove negligence

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4
Q

what must an audit documentation contain?

A

must be sufficient to allow an experienced auditor with no connection to the audit to understand:
- work performed
- evidence obtained
- significant matters
- conclusions drawn

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5
Q

what 12 elements should all working papers in an audit documentation include?

A
  • client name
  • year end date
  • file reference
  • name of preparer & date
  • name of reviewer & date
  • subject
  • objective of test
  • source of information
  • sample size
  • work performed
  • conclusion made
  • errors
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6
Q

does audit documentation working papers need to be kept confidential?

A

yes

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7
Q

how long should working papers from an audit documentation be kept for?

A

all working papers should be kept for 5 years from the date of the audit report

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8
Q

what 2 qualities must audit evidence have?

A
  • sufficient (must be enough evidence - enough quantity)
  • appropriate (must be reliable and relevant - good quality)
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9
Q

in which cases will more audit evidence be required?

A
  • if risk is higher
  • if items are material
  • if internal controls are weak
  • if the evidence is not as reliable
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10
Q

which evidence is more reliable - auditor generated or client generated evidence?

A

auditor/third party generated evidence is more reliable than client generated evidence

client generated evidence is more reliable if it generated from strong internal controls

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11
Q

which evidence is more reliable - original/written evidence or copy/oral evidence?

A

original/written evidence is more reliable than a copy/oral evidence

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12
Q

what makes audit evidence relevant?

A

if it proves one or more of the financial statement assertions

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13
Q

what are the 6 financial statement assertions in the P&L?

A
  • occurrence (transactions occurred & relate to the entity)
  • completeness (all transactions have been recorded)
  • accuracy (amounts are recorded appropriately)
  • cut off (recorded in current period)
  • classification (transactions were recorded in correct accounts)
  • presentation (disclosures are clear)
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14
Q

what are the 6 financial statement assertions in the SOFP?

A
  • completeness
  • classification
  • presentation
  • existence (do assets, liabilities and equity exist)
  • rights & obligations (does entity actually own assets/have rights to obligations)
  • accuracy & valuation (assets, liabilities & equity are recorded at appropriate values)
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15
Q

what are the types of procedures in audits?

A
  • tests of controls
  • substantive testing
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16
Q

purpose of ‘tests of controls’?

A

designed to test if controls are operating effectively in preventing or detecting material misstatments

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17
Q

purpose of ‘substantive testing’?

A

designed to test the figures in the FSs and detect material misstatements

includes:
- test of detail (test individual transactions & balances)

  • analytical procedures (evaluate the FSs through analysis of plausible relationships)
18
Q

plausible = ?

A

reasonable or probable

19
Q

what do substantive testing procedures constitute?

A
  • test of detail
  • analytical procedures
20
Q

what needs to be done when performing ‘tests of controls’?

A
  • understand how the system operates
  • document the system
  • test the controls to assess their effectiveness
  • determine the impact of the audit
21
Q

what needs to be done when performing ‘substantive procedures’?

A

test the numbers in the FSs

22
Q

what does substantive procedures does ISA 330 require auditors to carry out?

A
  • check FSs to the underlying records
  • examine material journal & transactions
  • examine adjustments made in FSs
23
Q

how do auditors gather evidence?

A
  • inspection of assets/documents
  • observation
  • inquiry
  • confirmation
  • recalculation
  • re-performance
  • analytical review
24
Q

what does ISA620 ‘using the work of an auditor’s expert’ state?

A

that an auditor should obtain sufficient evidence that the work of the expert is adequate for audit purposes

  1. assess the expert’s competence
  2. assess objectivity/independence
25
Q

criteria for using the work of an expert?

A
  • work of the expert must be agreed
  • work of the expert must be evaluated to ensure consistency with other evidence and that auditors are comfortable with the methods & assumptions used by the expert
26
Q

should external auditors rely on the client’s internal audit department?

A

they can

27
Q

what are the responsibilities of the internal audit department?

A

to ensure:

  • test of controls
  • risk assessments
  • fraud investigations
  • compliance with laws & regulations
28
Q

what does ISA 610 ‘using the work of internal auditors’ state?

A

that auditors must assess the effectiveness of the internal audit function and if the work is adequate for audit purposes

29
Q

must an external auditor re-perform the work of the internal audit team?

A

yes to ensure they’ve reached the same conclusions

30
Q

what does the extent of checking the internal auditor’s work depend on?

A
  • amount of judgement involved
  • risk of material misstatements
31
Q

what does ISA 402 ‘audit considerations relating to an entity using service organisations’ deal with?

A

deals with the auditor’s responsibility to obtain sufficient appropriate audit evidence when a client outsources functions to service organisations

e.g., payroll, receivables, entire finance function

32
Q

what should the auditor do regarding ISA 402 ‘audit considerations relating to an entity using service organisations’?

A
  • gain an understanding of the services being provided
  • assess the design & implementation of internal controls of the service provider
  • visit the service provider and perform tests of controls
  • contact the service provider’s auditor to obtain an opinion on the system’s suitability of controls
33
Q

sampling = ?

A

the application of audit procedures to less than 100% of the items within a population to draw generalised conclusions

34
Q

what must an auditor do regarding sampling?

A

must choose a representative sample so accurate conclusions can be drawn

to reduce audit risk, sample size can be increased

35
Q

stratification = ?

A

involves breaking down a population into smaller subpopulations

each subpopulation has similar characteristics

36
Q

examples of statistical sampling methods?

A
  • random selection
  • systematic selection
  • monetary selection
37
Q

examples of non-statistical sampling methods?

A
  • haphazard selection
  • block selection
  • sequential selection
38
Q

deviations = ?

A

issues identified during tests of control

39
Q

misstatements = ?

A

issues identified during substantive testing

40
Q

when would substantive testing be required?

A

if the deviation rate is above a tolerable level

41
Q

when are misstatements acknowledged/ignored?

A

ignored when isolated and non-representative of the population

if misstatement exceeds a tolerable level, the auditor will need to extend the sample

BUS165 - Foundations of Assurance (14 decks)

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