Questions and Answers
What does the inspection of tangible assets provide conclusive evidence of?
What is a primary purpose of conducting an enquiry during an audit?
What is the main goal of analytical procedures in an audit?
What does the confirmation process in auditing typically involve?
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What is the purpose of performing recalculation in the audit process?
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Management's responsibility in financial statements involves making which of the following?
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What is the minimum frequency for reviewing directors subject to re-election?
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What is one of the main aspects of corporate governance mentioned?
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What is a requirement for the composition of audit committees?
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What role do audit committees play regarding external auditors?
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What should audit committees develop and implement policies regarding?
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Which of the following is a responsibility of audit committees?
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What experience is required for at least one member of the audit committee?
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What is crucial for maintaining public confidence in financial information?
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What is the basis for assessing materiality in financial statements?
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Which of the following is NOT a common measure for initial assessment of materiality?
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What can misstatements in financial statements arise from?
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When should materiality be reassessed during an audit?
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Sampling risk can be defined as the risk that the auditor's conclusion based on a sample may differ from what?
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Which type of risk cannot be directly influenced by the auditor?
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What is the initial purpose of assessing inherent and control risk?
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How should auditors respond if they assess that inherent and control risk are high?
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Why is audit sampling usually preferable to testing all items?
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What does statistical sampling involve?
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When is audit sampling not appropriate?
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What are the two types of audit risks mentioned?
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What is a key requirement of statistical sampling?
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What is one benefit of adequate planning for an audit?
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What do errors identified in a sample represent?
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Which option is NOT a step in the planning process?
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What is the auditor's responsibility regarding audit evidence?
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How does non-statistical sampling differ from statistical sampling?
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How does adequate planning reduce risks associated with auditing?
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What is the goal of conducting an audit using sampling methods?
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What should be built into the audit planning process according to best practices?
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Which of the following audits is listed as part of Section A for audit exam kit questions?
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What is the impact of fraud often assessed during the planning process?
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Which of these is an objective of the planning phase in an audit?
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Study Notes
Corporate Governance
- Key directors are subject to re-election by shareholders at least every three years.
- Separation of roles is crucial, specifically between the chairman and CEO to improve governance.
- Primary aspects include audit committees, risk management, nominations, and remuneration.
Audit Committees
- Composed of three non-executives, at least one member must have financial expertise.
- Responsibilities include monitoring the external auditor's independence and effectiveness.
- Develop policies regarding the engagement of external auditors for non-audit services.
- Promote confidence in the integrity of published financial statements and handle whistleblower reports.
Risk Management
- Materiality is judged based on professional discretion, unique company circumstances, and user information needs.
- Common benchmarks for assessing materiality:
- ½ to 1% of revenue
- 5 to 10% of profit before tax
- 1 to 2% of assets
- It is advised to continuously reassess materiality during audits due to emerging information or risks.
Audit Risks
- Sampling risk involves the possibility that conclusions from a sample may not represent the entire population.
- Audit risks include risks of material misstatement and detection risks.
- Inherent and control risks are outside an auditor’s control but can inform detection risk adjustments.
Audit Planning
- Effective planning ensures focus on significant areas, identification of potential issues, and efficient organization of audit engagements.
- Timetable must be established alongside risk assessments and team assignments.
- It emphasizes the efficiency and effectiveness in evidence gathering while considering the potential impact of fraud.
Gathering Audit Evidence
- Types of evidence include:
- Inspection: Provides evidence of existence and valuation through physical examination.
- Observation: Verifies procedure effectiveness.
- Enquiry: Gathered through questioning, corroborated by other evidence.
- Confirmation: Involves obtaining confirmations from third parties.
- Recalculation: Checks accuracy in calculations.
- Reperformance: Reassesses management procedures.
- Analytical Procedures: Identifies unusual trends or variances requiring further investigation.
Management Assertions
- Management must ensure financial statements present a true and fair view.
- Assertions are made for each financial statement item regarding accuracy, completeness, and valuation.
Audit Sampling
- Statistically, sampling is preferred over testing all items due to cost and efficiency.
- Statistical sampling involves random selection, while non-statistical sampling relies on auditor judgment for item selection.
- It is not suitable for small populations where the entire population can be audited directly.
Evaluating Sample Results
- Auditors must document each procedure performed on selected samples and the conclusions drawn.
- Errors in samples can be projected across the whole population to evaluate financial statement accuracy.
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Description
Explore key concepts of corporate governance, focusing on the roles of directors and their accountability to shareholders. This quiz delves into the processes of selection, compensation, and re-election of directors. Test your understanding of these critical governance mechanisms and their impact on company management.
