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AA Flashcards

1
Q

Audit level of assurance

A

Type: Reasonable
Level: High
Opinion: Positive

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2
Q

Review of business plan level of assurance

A

Type: Limited
Level: Moderate
Opinion: Negative

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3
Q

Audit threshold

A

2/3 of the following:

  • No more than 50 employees
  • Revenue does not exceed £10.2m
  • Gross assets do not exceed £5.1m
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4
Q

8 elements of audit as per ISA 500

A

Inspection of documentation; inspection of assets; observation; external confirmation; recalculation; reperformance; analytical procedures; inquiry

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5
Q

Three areas of Financial Reporting Council

A
  • Codes and standards committee
  • Conduct committee
  • Supervision comittee
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6
Q

Potential penalties for accountants for non-compliance with money laundering legislation

A

Up to 14 years in prison

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7
Q

Procedure when onboarding new client

A

Check the client’s identity and hold these records for 6 years after they cease to be a client

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8
Q

Who do auditors report suspicions of bribery to?

A

National Crime Agency (NCA)

Under: Bribery Act 2010 & Proceeds of Crime Act 2002

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9
Q

ICAEW code of ethics - principles

A 
Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behaviour
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10
Q

FRC code of ethics - threats to objectivity and independence

A 
Self-interest
Self-review
Management
Advocacy
Familiarity 
Intimidation
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11
Q

FRC code of ethics - safeguards

A

Training
ICAEW central counselling service
ICAEW helpline
Quality control procedures

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12
Q

Quality control procedures

A

Planning, supervision and review
Hot and cold file reviews
Regulatory inspections

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13
Q

Partners involved in audit

A 
Engagement partner
Ethics partner (unless three or less partners in firm)
Independent partner (if listed/PIE)
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14
Q

Two years rule

A

Senior employee of client joins audit firm –> cannot participate in audit for two years
Audit partner appointed as senior employee at audit firm within two years of auditing firm –> firm must resign as auditors

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15
Q

Time limits on single engagements for key audit staff - PIE and Listed

A

Five years in post
Can be extended to 7 years where need arises
Five years before they can be reappointed

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16
Q

Time limits on single engagements for key audit staff - Non-listed

A

Reviewed after ten years
Considered whether objective, reasonable and informed third party would conclude that independence/objectivity are compromised

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17
Q

Fee limits for PIE/Listed Audits

A

No more than 10% of firm’s fee income (ethics partner consulted between 5% and 10%)
Non-audit services total must be no more than 70% of average audit fee income for last 3 years

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18
Q

Fee limits for non-listed Audits

A

No more than 15% of firm’s fee income (ethics partner consulted between 10% and 15%)

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19
Q

Audit related services and approaches - other

A

IT services - not allowed if large impact on accounting system and/or FS production
Valuation - not allowed if subjective and/or material
Tax services - allowed if firm is not advocate in court over material issue
Corporate finance - allowed with safeguards

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20
Q

Prohibited non-audit services

A

Internal audit - prohibited
Legal services - prohibited unless non-subjective
Recruitment - prohibited
Restructuring - generally prohibited

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21
Q

Fee dependence

A

One client regularly provides 10-15% of fee

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22
Q

Elements of firm’s quality control system

A 
Leadership
Ethical requirement
Acceptance of engagements
Human resources
Engagement performance
Monitoring
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23
Q

Hot review vs cold review

A

Hot review - takes place before audit opinion is formed

Cold review - takes place after assurance engagement is completed

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24
Q

Penalty for “knowingly/recklessly causing an audit report to include any matter that is misleading, false or deceptive in a material particular”

25
Steps taken when nominated by prospective client to become their auditors
1. Explain to client professional duty to contact existing auditor 2. Client gives written authority to existing auditor to discuss matters with prospective auditor 3. Prospective auditor writes to existing auditor 4. Existing auditor responds (unlawful acts, unpaid fees, differences of opinion)
26
Opinion shopping
Asking another assurance firm to provide an opinion on something where assurance has already been provided
27
Contents of engagement letter
``` Objectives and scope of audit Management's responsibility for FS Form that reports will take Some material misstatement may remain undiscovered Unrestricted access to records ```
28
Audit strategy vs audit plan
Audit strategy - overall approach to be taken in audit (materiality, team, deadlines, risks) Audit plan - detailed document with actual procedures that will be undertaken
29
External sources of information regarding client
Credit reference agencies Industry surveys and publications HMRC Business Economic Notes Companies House searches
30
Procedures for briefing audit team
Read: last year's file; permanent file; correspondence file; tax file Talk to: audit partner; audit manager; tax contactl last year's senior; firm specialist
31
Procedures for gaining initial information from client
Talk to people in department/area you are auditing Read internal correspondence and board minutes Read internal audit report Access website and read brochures
32
Six areas to look for in client's business
``` Entity Environment Industry Laws/regulations External factors Internal factors ```
33
Five key types of audit procedure
``` Analytical procedures Enquiry of management Inspection Observation Recalculation ```
34
Business risk
Risk inherent to company due to the nature of its business and the environment in which it operates Three categories: financial; operational; compliance
35
Audit risk equation
Audit risk = (Inherent risk x Control risk) x Detection risk
36
Inherent risk
Susceptibility of assertion about a transaction to a misstatement that could be material i.e. how likely it is that a certain balance will be wrong --> how likely this will lead to FS being materially misstated
37
Inherent risk factors
Complexity Subjectivity Change (in something) Management bias or fraud risk
38
Control risk
Risk that a misstatement is not prevented, detected or corrected by the entity's internal controls
39
Detection risk
Risk that the auditor's procedures to reduce audit risk will not detect a misstatement that is material (or material when aggregated with other misstatements)
40
Sampling risk
Possibility that opinions formed from results of sample are different than opinion formed if whole population had been examined
41
Non-sampling risk
Possibility of coming to wrong conclusion about FS for any reason other than sampling risk E.g: lack of understanding of client, drawing inappropriate conclusions from samples, failure to investigate certain assets/transactions
42
Examples of significant risks
``` Property purchase/sale Acquisition/disposal of business Decision to factor receivables Potential sale of business Diversification into new sectors ```
43
Significant risk
Inherent risk assessment in upper end of spectrum (likelihood and/or impact) Specific one off transactions
44
Sources of audit confidence
Controls Tests of details Analytical procedures
45
Two elements of substantive approach
Analytical procedures | Tests of details
46
Analytical procedures
Appropriate for large volumes of predictable transactions | e.g. profit margins, receivables days
47
Tests of details
Appropriate to gain information about account balances (existence and value) e.g. inventory value, value of trade receivables
48
How should internal audit work be used by external auditors
Walkthrough testing Reperforming sample of internal audit's tests Can lead to reduced assessment of control risk if internal audit work is satisfactory
49
Examples of tests on charities
Controls for collecting tins, gift aid receipts and fundraising activities Loss of income through fraud Recognition of all income
50
Consequence of getting audit opinion wrong
Sued by someone if they can demonstrate auditor owed them a duty of care (suffered loss relying on FS) Fines and penalties from ICAEW
51
Items that are material regardless of size
Non-compliance with regulations Masking a change in trends/ratios Management compensation Documents included in FS
52
What class of balances should auditors pay particular attention to when they are appointed for a new audito
Opening balances
53
Procedures auditors must undertake to ensure going concern principle is met
Discuss with management Test the assumptions made Obtain written representations from management regarding how they will ensure going concern basis is appropriate Review disclosures in FS
54
Adjusting events after end of year
Resolution of court case Bankruptcy of major customer Fresh evidence of inventory NRV Discovery of fraud or errors
55
How must significant deficiencies in internal controls be reported to management
In writing
56
Types of audit report
Unmodified | Modified
57
Opinions given - FS are materially misstated
Material but not pervasive - Qualified opinion ('true and fair except for') Material and pervasive - Adverse opinion (not true and fair)
58
Opinions given - inability to obtain sufficient and appropriate audit evidence
Material but not pervasive - Qualified opinion ('true and fair except for') Material and pervasive - Disclaimer of opinion ('do not express a opinion')
59
Emphasis of matter paragraph
Used to draw users attention to particular matter in FS | Also used when there is uncertainty over future event that may affect FS

Audit and Assurance (1 decks)

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