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Audit & Assurance > W1 > Flashcards

W1 Flashcards

1
Q

What is an assurance engagement ?

A

An assurance provided by auditors to examine financial information for its credibility and reliability for stakeholders

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2
Q

What is an external audit ?

A

An external audit examines a companies historical financial information to assure that it is both ‘fair and true’

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3
Q

What are external audits judged against ?

A

External audits are judged against relevant accounting standards and regulations.

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4
Q

What type of information may an audit company use to examine a company ?

A

Profit or Loss, Balance Sheet

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5
Q

What is the goal of an external audit ?

A

To ensure that they provide true and fair view of a companies position and performance.

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6
Q

What is a statutory audit ?

A

This is a type of external audit that is required by government

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7
Q

Why do some countries choose to do an statutory audit ?

A

To ensure that companies are abiding to rules/laws e.g. tax

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8
Q

What is an example of a statutory audit that a government may deploy in its country ?

A

The review of financial statements by an external auditor

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9
Q

What seperates external audits from other audits

A

It’s a higher level of assurance in comparison to an internal review. It is a independent opinion with the goal of improving investor confidence if the reliability of a companies statements

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10
Q

What is meant by the term reasonable assurance ?

A

An external audit is merely an opinion that financial statements are free from material mistreatment using a sample. The are not 100% accurate

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11
Q

How may an auditor utilise detailed testing ?

A

From sample transactions an auditor may trace the transaction back to the source using supporting documents and testing

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12
Q

How does a review engagement vary from an audit

A

It is a moderate level of confidence that financial statements are free from material mistreatment

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13
Q

How does an review engament vary from an audit

A

Less detailed examination of evidence utilising inquiries and analytical procedures

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14
Q

Why are review enegements utilised ?

A

Genrally when an external audit isn’t fully required

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15
Q

What are the elements if an assurance engagement ?

A

Practitioner, Criteria, Subject Matter, Users, Responsible party

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16
Q

What is a practitioner ?

A

A practitioner is the person responsible for conducting the engagement which could be a firm or person

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17
Q

What is a criteria ?

A

Criteria is the benchmark to which your assessing the data used for the audit. This could be set by governments or regulatory bodies.

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18
Q

What is the subject matter ?

A

Subject matter is the thing that is actually being examined. For example internal controls, financial statements e.t.c.

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19
Q

What are users ?

A

Users are the party that the audit is going to aid in making decisions. This could include Stakeholders such as creditors or auditors

20
Q

What is the responsibility ?

A

Both the practitioner and the party share responsibility in engagement

21
Q

What are the two types of assurance engagements the framework permits to be performed ?

A

-Reasonable assurance engagements such as a statutory audit
-Limited assurance engagement such as a Review engagement

22
Q

What are the two statements of opinion ?

A
  • A Positive statement of opinion
  • A Negative statement of opinion
23
Q

What is the difference between a positive statement of opinion

A

Given in a reasonable assurance engagement and expresses confidence that the subject matter meets the criteria in a fair way

24
Q

What is a negative statement of opinion ?

A

A statement that indicated doubt, reservation or concern. Genrally associated with a limited assurance engagement

25
Q

Why would shareholders want an audit to be conducted ?

A

It’s an opportunity for an independently appointed practitioner to measure performance of a compay they own

26
Q

Why would directors want an audit ?

A

Add credibility to the work that they have been managing as they run the company for the shareholders who appoint them.

27
Q

What is agency theory ?

A

Agency theory is the concept that an agent (director) will more times than not work for their own gain as opposed to the gain of the principal (investor)

28
Q

What is stewardship theory ?

A

Stewardship theory suggests that agents (managers) aren’t out for themselves and stewards for the principle (investors) Stewardship promotes the idea of managers utiliseing the resources of a company for the benefit of the principal

29
Q

What are some terms that ISA suggest should be used to express an opinion ?

A

“give a true and fair view” “presently fairly in all material respect”

30
Q

What is meant by true ?

A

Factual and comply with accounting standards

31
Q

What is meant by fair ?

A

Clear

32
Q

What are the objectives for an external audit ?

A

Credibility, Limited responsibility for fraud detection, accuracy

33
Q

What are some of the advantages of an external audit ?

A

Decision Making, Warning signs, Protect interests, Ensure stewardship, Tax purposes

34
Q

What are some limitations of audit ?

A

No Absolute, Requires judgement & Est, Not everything is tested, No certainty

35
Q

What is the expectation gap ?

A

There is a variance between auditors actually do and what people think they do

36
Q

What are some examples of expectation gaps the public may have about audit companies ?

A
  • The prepare financial statements
  • The detect fraud
  • The go through every piece of material
  • Provide 100% certainty
37
Q

How do auditors and accountants vary ?

A

Accounts will prepare financial statements whereas auditors are experts in the field who will examine these financial statements

38
Q

What governs auditors ?

A

External auditors are governed by the UK Corporate governance code, companies act, Recognised supervisory bodies and ISA, Financial reporting council

39
Q

What qualifies some one to be appointed as an auditor under the companies act ?

A
  • They are with a recognised supervisory body and they’re recognised for appointment under those rules
40
Q

Who does companies act say can be appointed as an auditor for a company ?

A

Either a firm or a person

41
Q

What are some examples of recognised supervisory bodies in the UK ?

A

ICAEW, ACCA, ICAS CAI

42
Q

What are some rights of auditors ?

A

Rights of removal, rights for access of information, rights for explanations, rights to be heard at meetings

43
Q

What are some duties of auditors ?

A
  • Report on true and fair financial statements
    RAPIDD
    Returns from branches
    Accounting record agree with FS
    Proper accounting records
    Info and explanations recovered
    Directors remuneration disclosed
    Directors reports consistent with FS
44
Q

How are auditors removed ?

A

Auditors may be removed with a majority, the auditor will receive a notice, the auditor can appeal the notice, the notice appeal will be sent to all the members in the board and the auditor will be heard at meetings

45
Q

Why may an auditor be removed ?

A

Operational reasons or ethical reasons

46
Q

Explain some policies in UK corporate governance

A
  • Comply or explain
  • Numeration, renumeration and audit committee
  • Chairman and Ceo seperation
  • Balanced board
  • At least one NED with financial expertise
  • Transparency
  • Audit contract rotation
  • Directors re-relected reg basis
  • Internal audit function
47
Q

What is the role of the audit committee ?

A
  • Review external audit
  • Review internal audit
  • Ensure law compliance
  • ## Receive report from external audit

Audit & Assurance (8 decks)

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