Chapter 1: Basics Flashcards
1
Q
Elements of assurance engagement (5)
A
- 3 party relationship
- Subject matter
- Suitable criteria
- Evidence
- Assurance report
2
Q
3 party relationship (3)
A
- Practitioner (audit firm)
- Responsible Party (directors and management)
- Intended users (shareholders)
3
Q
Subject matter (3)
A
- Data such as F/S
- prepared by responsible party
- for practitioner to evaluate
4
Q
Suitable criteria (3)
A
- Rules against which the subject matter is evaluated
- in order to reach an opinion
- AFRF
5
Q
Evidence (3)
A
- Information (Sufficient & Appropriate) used by the practitioner
- in arriving at the conclusion
- on which their opinion is based
6
Q
Assurance report (3)
A
- Report with practitioner’s option
- Issued to intended users
- after evidence collection
7
Q
Advantages of statutory audits (5)
A
- Increases credibility of F/S
- Confirms mgmt to have performed their statutory duties correctly
- Assurance to mgmt to have complied with non-statutory requirements
- Provides feedback on effectiveness of internal controls.
- Internal controls = weak/inadequate, auditor will give recommendations for improvement. (reduce risk and improve performance)
8
Q
Inherent limitations of an Audit (7)
A
- High cost
- Disruption to the staff of the company
- Subject matter could be based on estimates > subjective opinion > truth and fairness uncertain
- Frauds deliberately misrepresent info and conceal the truth
- Use of sample testing
- Client’s system are going to have some degree of limitations regardless of being really strong
- Audit evidence = persuasive rather than conclusive
9
Q
Stewardship (4)
A
- Directors have stewardship role of a company
- They look after its assets
- manage them on behalf of shareholders
- Act as agent of shareholders
- legal duty to act in best interests of the principal (sh)
10
Q
Accountability (4)
A
- Directors as agents of SH are accountable to SH
- To show accountability
- by preparing annual F/S
- presented to SH for their approval
11
Q
(true and fair view presentation) (3+2)
A
- True = free from error
- Fair = no undue bias in F/S or way they are presented
- True and fair = judgement being given that
- F/S can be relied upon
- prepared properly in acc. with appropriate AFRF
12
Q
MGMT responsibility relating to audit (5+3)
A
- Prevention/detection of fraud
- Preparation of F/S
- Design and implementation of effective internal controls
- Providing auditor with
- access to info for prep of F/S
- additional info relating to audit
- unrestricted access to person whatever he requires to perform audit - Providing written representations to the auditor at the end of the audit.
13
Q
Professional Skepticism (5)
A
Maintaining Professional Skepticism throughout the audit is necessary to reduce the risk of:
- Overlooking unusual transaction
- Over generalizing when drawing conclusion from audit observation
- Using inappropriate assumptions in determining the nature, timing and extent of audit
procedures and evaluating result thereof - Critical assessment of audit evidence
- identification of material misstatement
14
Q
Professional judgement meaning (4)
A
- a professional accountant making informed decisions
- about courses of actions that are appropriate in the circumstances during audit engagement
- in context of auditing, accounting, and ethical standards
- by applying relevant training knowledge, and experience
15
Q
Uses of Professional Judgement (5)
A
Necessary for decisions relating to:
- Materiality and audit risk
- Nature, timing and extent of audit procedures used to obtain audit evidence
- Evaluate whether sufficient appropriate audit evidence has been obtained
- Evaluation of management judgement in applying appropriate financial reporting framework
- Drawing conclusion based on audit evidence obtained. For e.g. assessing the
reasonableness of the estimates by the management
