Podcast
Questions and Answers
What is performance materiality set by the auditor?
What is performance materiality set by the auditor?
- It refers to the amount set at less than the materiality levels for specific transactions. (correct)
- It is a fixed amount determined annually.
- It is always equal to the materiality level.
- It is only applicable to bank balances.
Which of the following factors is considered when identifying material by size?
Which of the following factors is considered when identifying material by size?
- Related party transactions only
- Legal compliance of transactions
- 1% of revenue (correct)
- Internal audit effectiveness
What is an example of material by nature?
What is an example of material by nature?
- Final reporting deadlines
- Fraud or unlawful transactions (correct)
- Meeting with management
- Industry-specific reporting requirements
What aspect does the timing of the audit include?
What aspect does the timing of the audit include?
Which of the following influences the overall approach to the audit?
Which of the following influences the overall approach to the audit?
What is one of the normal timetables for an audit?
What is one of the normal timetables for an audit?
Which of these is NOT considered a key factor in the timing of an audit?
Which of these is NOT considered a key factor in the timing of an audit?
Which scenario is an example of material by nature related to accounting policies?
Which scenario is an example of material by nature related to accounting policies?
What is the first action an auditor should take before accepting an audit client?
What is the first action an auditor should take before accepting an audit client?
Which factor should a firm consider regarding the client's management before accepting an audit engagement?
Which factor should a firm consider regarding the client's management before accepting an audit engagement?
What is the auditor's obligation regarding the outgoing auditor before accepting an engagement?
What is the auditor's obligation regarding the outgoing auditor before accepting an engagement?
What should be assessed concerning the audit fee before accepting a new client?
What should be assessed concerning the audit fee before accepting a new client?
Which of the following is NOT a consideration before accepting an audit client?
Which of the following is NOT a consideration before accepting an audit client?
Why must an auditor communicate with the outgoing auditor?
Why must an auditor communicate with the outgoing auditor?
What must be considered about risk before accepting an audit engagement?
What must be considered about risk before accepting an audit engagement?
What should an auditor assess regarding compliance issues before accepting an audit client?
What should an auditor assess regarding compliance issues before accepting an audit client?
Which of the following is NOT considered an example of effective computer-based controls?
Which of the following is NOT considered an example of effective computer-based controls?
What is the primary objective of application controls in a computer-based accounting system?
What is the primary objective of application controls in a computer-based accounting system?
Which of the following is an example of an input control?
Which of the following is an example of an input control?
What do range checks help to ensure in data input controls?
What do range checks help to ensure in data input controls?
Which of the following controls would be categorized as a data processing control?
Which of the following controls would be categorized as a data processing control?
What do uninterruptible power supplies serve to protect?
What do uninterruptible power supplies serve to protect?
Which of the following is a component of input data controls?
Which of the following is a component of input data controls?
What is the role of a disaster recovery plan in computer-based systems?
What is the role of a disaster recovery plan in computer-based systems?
What is the purpose of exception checks in processing controls?
What is the purpose of exception checks in processing controls?
Which of the following best describes a sequence check?
Which of the following best describes a sequence check?
How do control totals help with data input?
How do control totals help with data input?
What do existence checks ensure during data input?
What do existence checks ensure during data input?
What is the primary function of check digit verification?
What is the primary function of check digit verification?
How do document counts contribute to the completeness of input?
How do document counts contribute to the completeness of input?
What is the approach of one-for-one checking?
What is the approach of one-for-one checking?
Why are processing controls necessary in data input?
Why are processing controls necessary in data input?
What is the primary formula for calculating audit risk?
What is the primary formula for calculating audit risk?
What does inherent risk refer to?
What does inherent risk refer to?
Which of the following increases inherent risk?
Which of the following increases inherent risk?
What does control risk signify in the context of auditing?
What does control risk signify in the context of auditing?
Which factor is NOT associated with increasing inherent risk?
Which factor is NOT associated with increasing inherent risk?
In which scenario would control risk likely be high?
In which scenario would control risk likely be high?
What is a potential consequence of high inherent risk?
What is a potential consequence of high inherent risk?
Which of the following illustrates a condition affecting control risk?
Which of the following illustrates a condition affecting control risk?
What is a primary advantage of using flowcharts to illustrate the internal control system?
What is a primary advantage of using flowcharts to illustrate the internal control system?
Which disadvantage is associated with narrative notes?
Which disadvantage is associated with narrative notes?
What is a significant drawback of flowcharts mentioned in the content?
What is a significant drawback of flowcharts mentioned in the content?
Flowcharts help facilitate understanding of a system because they:
Flowcharts help facilitate understanding of a system because they:
Why might flowcharts be time-consuming to create despite their advantages?
Why might flowcharts be time-consuming to create despite their advantages?
Which system is flowcharting not generally suitable for?
Which system is flowcharting not generally suitable for?
What can be a permanent feature of flowcharts?
What can be a permanent feature of flowcharts?
Which disadvantage of narrative notes is highlighted in the content?
Which disadvantage of narrative notes is highlighted in the content?
Flashcards
Client Acceptance/Continuance Steps
Client Acceptance/Continuance Steps
Steps taken before accepting a new audit client or continuing an existing audit engagement.
Outgoing Auditor Communication
Outgoing Auditor Communication
Auditors must communicate with the outgoing auditor to understand potential ethical or professional issues related to the client.
Client-related Issues
Client-related Issues
Factors related to the client that might affect the audit's ethical or professional aspects, such as management integrity and risk levels.
Client Permission (Outgoing Auditor)
Client Permission (Outgoing Auditor)
Signup and view all the flashcards
Practitioner-related Issues (Audit Firm)
Practitioner-related Issues (Audit Firm)
Signup and view all the flashcards
Client Screening
Client Screening
Signup and view all the flashcards
Audit Risk Assessment (Client)
Audit Risk Assessment (Client)
Signup and view all the flashcards
Engagement Refusal (Client)
Engagement Refusal (Client)
Signup and view all the flashcards
Audit Risk
Audit Risk
Signup and view all the flashcards
Risk of Material Misstatement
Risk of Material Misstatement
Signup and view all the flashcards
Inherent Risk
Inherent Risk
Signup and view all the flashcards
Control Risk
Control Risk
Signup and view all the flashcards
Audit Risk Model
Audit Risk Model
Signup and view all the flashcards
Detection Risk
Detection Risk
Signup and view all the flashcards
Material Misstatement
Material Misstatement
Signup and view all the flashcards
Internal Controls
Internal Controls
Signup and view all the flashcards
Application Controls
Application Controls
Signup and view all the flashcards
Input Controls
Input Controls
Signup and view all the flashcards
Format Checks
Format Checks
Signup and view all the flashcards
Range/Reasonableness Checks
Range/Reasonableness Checks
Signup and view all the flashcards
Compatibility/Dependence Checks
Compatibility/Dependence Checks
Signup and view all the flashcards
Data Backup
Data Backup
Signup and view all the flashcards
Disaster Recovery Plan
Disaster Recovery Plan
Signup and view all the flashcards
Segregation of Duties
Segregation of Duties
Signup and view all the flashcards
Compatibility Check
Compatibility Check
Signup and view all the flashcards
Exception Check
Exception Check
Signup and view all the flashcards
Sequence Check
Sequence Check
Signup and view all the flashcards
Control Total
Control Total
Signup and view all the flashcards
Existence Check
Existence Check
Signup and view all the flashcards
Check Digit Verification
Check Digit Verification
Signup and view all the flashcards
Document Count
Document Count
Signup and view all the flashcards
One for One Checking
One for One Checking
Signup and view all the flashcards
Performance Materiality
Performance Materiality
Signup and view all the flashcards
Materiality by size
Materiality by size
Signup and view all the flashcards
Materiality by nature
Materiality by nature
Signup and view all the flashcards
Key Audit Considerations
Key Audit Considerations
Signup and view all the flashcards
Audit Timing
Audit Timing
Signup and view all the flashcards
Interim Visit
Interim Visit
Signup and view all the flashcards
Related-party transactions
Related-party transactions
Signup and view all the flashcards
Fraud/unlawful transactions
Fraud/unlawful transactions
Signup and view all the flashcards
Narrative Notes
Narrative Notes
Signup and view all the flashcards
Flowchart
Flowchart
Signup and view all the flashcards
Advantages of Flowcharts
Advantages of Flowcharts
Signup and view all the flashcards
Disadvantages of Flowcharts
Disadvantages of Flowcharts
Signup and view all the flashcards
Benefits of Narrative Notes
Benefits of Narrative Notes
Signup and view all the flashcards
Disadvantages of Narrative Notes
Disadvantages of Narrative Notes
Signup and view all the flashcards
Why are Flowcharts Easy to Understand?
Why are Flowcharts Easy to Understand?
Signup and view all the flashcards
Why are Flowcharts Not Suitable for All Systems?
Why are Flowcharts Not Suitable for All Systems?
Signup and view all the flashcards
Study Notes
Assurance
- Practitioners examine subject matter, matching it to criteria, providing evidence to intended users.
- Assurance engagements involve three parties: intended users, responsible party, and practitioner (accountant).
- Suitable subject matter is required, data prepared by the responsible party needing verification.
- Subject matter is evaluated against criteria to form an opinion.
- Sufficient appropriate evidence is gathered for the required level of assurance.
- Assurance reports provide opinions to intended users.
Types of assurance assignments
- Reasonable assurance (high, not absolute): provided by external audits.
- Limited assurance (moderate): provided by reviews of financial statements.
- Practitioners gather evidence ensuring subject matter is plausible.
- Procedures are less comprehensive than in audits.
- Negative assurance: nothing has come to light to suggest errors or problems.
Assignments where no assurance is given
- Agreed-upon procedures: report of factual findings, no assurance.
- Compilation engagements: collecting, classifying and summarising information.
Inherent Limitations of audit
- Sampling: Auditors don't test 100%, some errors may not be detected.
- Subjectivity: Financial statements use judgements.
- Internal control systems: Human error and management override possibility.
- Audit evidence: Persuasive, not conclusive; reliance on estimations/judgments.
- Materiality issues: May overlook small errors.
Auditor's Duties
- Form an opinion on financial statements accuracy and preparation according to framework.
- Issue audit reports ensuring accuracy and compliance with legislation
- Auditor's rights include access to company documents, information, meeting attendance.
Client Acceptance/Continuance
- Outgoing auditor communication: Assess any ethical or professional reasons for not accepting appointment
- Client-related issues: Assessing client's reputation, risk and potential.
- Practitioner-related issues: Ethical considerations, competence and resources for audit.
Preconditions for an audit
- Acceptable financial reporting framework
- Assess the nature of entity and financial statements.
- Management agreement: Responsible for the financial statements, and internal controls.
Changes to engagement letters (recurring audits)
- Revisions needed if there are significant changes in management, ownership, nature of business, legal or regulatory matters or financial reporting framework.
Audit Planning
- Planning helps proper attention to important areas of the audit
- Identifying and resolving problems promptly.
- Proper audit organization for efficiency and effectiveness.
- Choosing competent team members with appropriate capabilities, delegation.
- Direction and supervision of team, review of their work.
Audit Risk and Risk Response
- Assessing risk at planning stage focuses attention on areas of material misstatement.
- Understanding the entity is vital for effective audit.
- Early risk identification leads to more efficient and cost-effective audit.
- Selection of skilled audit team members.
- Assessing and reducing risk for inappropriate audit opinion.
- Understanding risks of fraud, money laundering, going concern concerns, etc.
- Evaluating risk factors, and using suitable procedures to appropriately respond to them.
Audit Risk Model
- Audit risk = Risk of material misstatement x Detection Risk
- Risk of material misstatement includes inherent risk and control risk.
- Detection risk relates to the auditor's procedures in efficiently detecting any material misstatement.
Understanding the Client/Knowledge of the Business
- Prior year financial statements.
- Previous auditor's files for prior years.
- Discussions with the client.
- Any other available information (e.g., client's website).
Measurement and Review of Financial Performance
- Performance measures, such as KPIs, budgets, targets
- Internal controls- design and implemented to control risk
- Identify any issues in previous year's audit
- Evaluate if the company is using e-commerce operations
Substantive procedures
- Analytical procedures: Comparing financial statement data to identify any major discrepancies with estimates.
- Tests of details: Inspecting documents and records to support balances of accounts, individual transactions, etc. (e.g. to ensure that credit balances for any receivables exist).
- Tracing: Verifying from supporting documents to records.
- Vouching: Verifying from records to supporting documents.
Receivables Circularization
- Methods for sending confirmation to those owed money by the client.
- Positive or negative confirmations (Positive require reply from debtor about correct balance and negative request for a response if the balance is not correct).
- Non-replies: Following-up to obtain sufficient appropriate audit evidence.
Inventory
- Review prior year audit files, discuss with management about any significant inventory issues.
- Confirm procedures for identifying and segregating any damaged goods.
- Testing the count itself, matching physical stock numbers to the records.
- Investigating any significant fluctuations.
- Cut-off Procedures
- Procedures for inventory held by third parties.
Substantive Testing: Property, Plant, and Equipment
- Obtain sample to check, physically verify assets or enquire third parties
- Review repairs and maintenance
- Ensure all disposals are authorised and correctly recorded
Substantive Testing: Revenue and Capital Expenditure, Depreciation
- Ensure expenses are correctly categorised and recorded appropriately
- Confirm accuracy of depreciation calculation
- Review depreciation policy’s consistency with prior years and standard industry practices.
Substantive Testing: Payroll
- Check total payroll expense against prior year.
- Recalculate for a sample of employees.
- Confirm details of employees included in payroll.
- Agree that amounts paid relate to correct employees.
- Reconcile with bank statements.
Substantive Testing: Corporation Tax
- Agreeing tax liability to tax schedule and payments made.
- Verify amounts are correctly reflected in financial statements.
Substantive Testing: Long Term Loans
- Agree loan balances to loan statements.
- Confirm loan is properly recorded.
- Verify existence of loan agreements.
Substantive Testing: Accounting Estimates
- Review management process, controls
- Identify any significant assumptions.
- Testing the effectiveness of controls over estimates.
- Obtaining representations of management (significant assumptions).
Audit Procedures
- Inspection, observation, analytical procedures, re-performance, recalculation, and confirmation.
Other Matters
- Prior period financial statements (if audited by different auditor).
- Restriction on the use of the auditor's report.
- Subsequent events after the report date.
Going Concern
- Auditors need to consider if the entity can continue as a going concern.
- Look for indicators of going concern difficulties (e.g., losses, debt)
- Evaluate management judgments and strategies to address the issues.
Other procedures
- Communication with those charged with governance
- Any other matters the auditor thinks are significant.
Audit Sampling
- Random, systematic, haphazard, block selection methods.
- Evaluate if the sample is representative of the population (to avoid sampling risk).
- Statistical versus non-statistical sampling.
Audit Procedures on Specific Areas
- Specific audit procedures focus on the key assertions of particular accounts/classes.
Internal Control Systems Components
- Control environment, risk assessment process, information systems and communication, control activities, and monitoring of controls.
Internal Audit
- Independent appraisal activity, evaluating the adequacy and effectiveness of existing controls.
- Types include: value-for-money, IT and operational.
Conflict of Interest
- Avoiding conflicts of interest by placing client's interests first.
- Using suitable safeguards to mitigate potential threat.
- Disclosure of potential threats to those charged with governance.
Quality Control
- Engagement quality control review of important judgments and conclusions.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
Test your knowledge on key auditing concepts, including performance materiality, factors affecting audit timing, and considerations before accepting an audit engagement. This quiz covers essential aspects that auditors must be aware of to ensure compliance and effectiveness in their work.