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Accounting > assurance 2 > Flashcards

assurance 2 Flashcards

1
Q

what is a revenue system

A

the process a business goes through to sell goods to customers

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2
Q

what are the key steps in the revenue system

A

sales order
goods despatch note(GDN)
sales invoice
receipt (remittance Alice slip)

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3
Q

what is a purchase system

A

the process a business goes through to buy goods from suppliers

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4
Q

what are the key steps in the purchase system

A

purchase order
goods received not (GRN)
purchase invoice
payment (supplier statements)

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5
Q

what is the payroll system

A

process a business goes through to pay employees for their services

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6
Q

what are the key steps in the payroll system

A

calculated wages
record wages
pay wages

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7
Q

what is the difference between risk understood by management and auditor

A

management need to understand all risks BUT auditors need only understand risks that could materially affect the financial statements under consideration

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8
Q

name some risks associated with the revenue system

A

goods supplied to customers who can’t/won’t pay
wrong goods could be despatched to customers
despatch not recorded
sales not properly recorded

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9
Q

name some risks associated with the purchase system

A

poor quality goods could be accepted by the company
could pay a supplier late/not pay supplier
goods used for personal use
blank cheques
recorded in wrong period

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10
Q

name some risks associated with the payroll system

A

hourly paid employees paid for time they haven’t worked
pay employees who no longer work for company
incorrect recording of wages and cash paid

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11
Q

what is a control objective

A

desired response to mitigate an identified risk

start with “to ensure that”

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12
Q

name some internal controls for revenue systems

A

perform credit checks on all new customers
set credit limits for all customers
authorisation of despatched goods
examination of goods inwards and outwards

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13
Q

what is an internal control

A

a policy or procedure implemented in response to a control objective to manage an identified risk

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14
Q

name some internal controls for purchase systems

A

inspect all goods inwards prior to accepting them
authorise order forms
segregate duties
record arrival + acceptance of goods
communicate efficiently and effectively with HR

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15
Q

name some internal controls for payroll systems

A

require all staff to complete timesheets
require all timesheets to be approved by a manager/supervisor
record of advances of pay
staff and segregation duties
maintain separate employee personnel records

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16
Q

what is test of controls

A

to check whether the internal controls implemented in response to control objectives in respect of identified risks, are effective

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17
Q

what is audit documentation

A

the form of working papers provide the evidence of the work done in support of the audit conclusion

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18
Q

why is there a need for audit documentation

A

evidence for auditors conclusion
evidence audit was well planned and performed
assists audit team to plan and perform
assist team to direct and supervise work
holds individuals accountable
record of matters of continuing significance
so experienced auditor can carry out quality control reviews

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19
Q

what affects the forms and content of working papers

A 
size and complexity of client
nature of audit procedures
identified risks of material misstatement
significance of audit evidence obtained
nature and extent of exceptions
need for a documented conclusion
audit methodology and tools used
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20
Q

what should working papers include

A
  1. client
    name and year end
  2. audit team members involved
    name who performed and who reviewed works
  3. work performed and conclusions reached
    record details of audit procedure, exceptions + reasons for this + follow up work performed
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21
Q

how are working papers split for recurring auditors

A

permanent (information of continuing importance to the audit) and current ( contains any information relevant to the current years audit) audit files

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22
Q

examples of permeant audit files

A

engagement letter
control system notes
prior years signed financial statements

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23
Q

examples of current audit files

A

draft financial statements + final signed financial statements
list of uncorrected misstatements
review notes

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24
Q

what are the possibilities for items in the financial statements

A
  1. fairly states
  2. misstated
    - overstated (existence/occurance)
    - understsated (completeness)
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25
Q

Name some of the routine audit procedures

A

obtaining and totalling a list of items and agreeing total to trial balance
agreeing item total from trial balance to draft financial statements
agreeing comparative information to prior year signed financial statements

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26
Q

what are some risks for non current asset balances being misstated in financial statements

A 
company not actually owning assets
assets not actually existing 
omission of assets owned by the company
assets being under or over valued
assets being incorrectly presented in financial statements
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27
Q

what is the objective of assurance in respect of non current asset

A

to prove that these assertions about the assets are correct

28
Q

name some sources of information about non current assets

A

non current asset register
purchase invoices for assets purchased within the year
registration documents or other documents of titles
valuations carried out by employees or third party valuers
leases or hire purchase documentation

29
Q

what are the major risk os misstatement of inventory balance in financial statements

A

inventory doesn’t exist beeng included in financial statements
not all inventory exists being included in financial statements
inventory included in financial statements at full cost when obsolete or damaged
inventory included in financial statements at wrong value, due to miscalculation of cost or fact cost been used instead of NRV

30
Q

what is the objective of assurance tests in respect of inventory

A

to prove assertions about assets are correct

31
Q

what are sources of information for inventory

A

companys controls over inevntory counting
auditors attendance at annual inventory count+physical inventory
confirmations with third parties holding inventory on behalf of entity

32
Q

why is inventory count attendance important

A

confirm the amount of inventory in existence rather than undertake count itself

33
Q

what are the main controls over the inventory count

A

organisation of count: supervision restriction and control, identification of damaged, obsolete slow moving and third party and returnable inventory
counting inventory: systematic counting, teams of two counters, independent counts
recording of the count: serial numbering, control and return of all inventory sheets,

34
Q

how is inventory valued

A

lower of cost or NRV

35
Q

when is NRV likely to be less than cost

A

damage
obsolete
sale items
loss leaders

36
Q

what are the major risks of misstatement due to receivables

A

trade receivables being unrecoverable
trade receivables in wrong period
credit notes issued not being recorded
trade receivables not being recorded

37
Q

what sources of information can be used for an assurance test

A

receivables ledger information
confirmation from customers
remittance advice slips
settlements received from customers after year end

38
Q

explain the confirmation methods undertaken when requesting information from customers

A

Positive customer is requested to give balance or to confirm amount of balance shown or state in respect that are in disagreement with the balance stated -ACTIVE
Negative customer requests to reply only if amount stated is disputed

39
Q

when should the negative method be used for requesting information from customers

A

risk of material misstatement is low
relevant controls are operating effectively
large number of small balances involved
substantial number of errors not expected
auditor has no reason to believe customers will disregard request

40
Q

which classes of sample should receive special attention when constructing assurance sample

A 
material high risk accounts
old unpaid accounts
accounts written off
accounts with credit balances
accounts settled by round sum payments
accounts with nil balances
41
Q

alternative procedures to verify existance/ rights and obligations of receivables

A

review post year end cash received form customers
examine the account to see if the balance from outstanding represents specific invoices and confirm their validity to despatch noted
obtain explanations for invoices remaining unpaid after subsequent ones have been paid
review account balances and obtain explanations for growth in balances
test companys controls over the issue of credit notes and write off of bad debts

42
Q

what are some major risks of misstatement of the bank and cash balance in financial statements

A

inclusion of banks not owned by client
omission of bank accounts owned by client
reconcilliation differences between bank balance and cash book balance being misstated
material cash floats being omitted or misstated

43
Q

for bank and cash balances what sources can be used to help test assertions

A

cash book
confirmation from bank
bank statements
bank reconciliation carried out by client

44
Q

what is the procedure to obtain direct confirmation from bank is

A

bank requires explicit written authority from client to disclose information requested
assurance providers request must refer to clients letter of authority and dat of letter
request should reach branch manager at least two weeks in advance of clients year end

45
Q

what are the major risks of misstatement for payables

A

entity understanding is liabilities in financial statement
timing between receiving goods inward and recording corresponding liability being incorrect
non existant liabilities being declared

46
Q

payables sources of information

A

payables ledger records
confirmation from suppliers
supplier invoices

47
Q

major risks of misstatement for long term liabilities

A

not all long term liabilities have been disclosed
interest payable hasn’t been calculated correctly and included in correct accounting period
disclosure is incorrect

48
Q

what are the sources of information for long term liabilities

A 
schedule of loans/prior year audit file information
statutory books
loan agreements 
bank letter+direct confirmations
cash book
49
Q

what are the tests of detail to verify payroll costs include

A

inspect a sample of payroll records ensuring time worked been correctly included employees exist, and being paid at correct rate
sample of employees recalculate monthly payroll and agree to payroll records ensure payroll was correctly calculated
agree sample of payments from payroll records to bank statements to ensure that payments made correctly

50
Q

what is ethics

A

a system of behaviour which is deemed acceptable in society or context under consideration. “tell us how to behave” morality +conscience

51
Q

what is ethics culture

A

a business culture where basic values and beliefs in a company encourage people within the company to behave in line with acceptable business ethics

52
Q

define business values and examples

A 
in a company as a whole underpin both policy and behaviour throughout the company 
examples 
integrity 
objectivity 
accountability 
openness
honesty 
fairness
trust
53
Q

what are business ethics

A

the way in which a company behaves in a society which has certain expectations of how decent company should behave. represent moral standards that are expected

54
Q

how can ethical culture be promoted by combination

A

ethical leadership from BOD
code of ethics or business conduct to formalise moral principles, values and expectations
policies and procedures to support ethical behaviour

55
Q

what are advantages of a framework of principles over system of ethical rules

A

active consideration and demonstration of conclusions
broad interpretation of ethical situations
individual situations covered
flexible to changing situation
can incorporate prohibitions

56
Q

what are the fundamental principles of IFAC code of ethics

A 
integrity
objectivity
profesional competente and due care
confidentiality
profesional behaviour
57
Q

what are types of ethical threats

A 
self interest
self review 
advocacy
familiarity 
intimidation
management
58
Q

some examples of safeguards created by profession, legislation or regulation

A

educational training and experience requirements for entry into profession
CPD
corporate governance regulations
profesional standards
external reviews
professional or regulatory monitoring and disciplinary procedures

59
Q

some examples of safeguards created by work environment

A

involve an additional professional accountant to review work done
consulting an independent third party
rotating senior personnel
discussing ethical issues with those charged with governance
declaration of independence

60
Q

how self interest threat occurs and safeguards for

A

service with assurance client
internal audit services
valuation services
tax services
-
using separate team for audit and non audit services
independent partner review of work performed by a compromised individual

61
Q

advocacy threats occur and safuaguards

A

percentage or contingent fee services
providing legal services
providing corporate finance services
-
using separate teams
discuss matter giving rise to threat with audit committee
declining engagements that create this threat

62
Q

how familiarity threat happens and aren’t limited to

A 
personal relationships
recruitment
long association
employment with an assurance client
- 
removing individual from team
rotating key personnel 
not allowing compromised individuals onto team for a period of time
63
Q

how could conflicts of interest arrive in the practice environment

A

auditing competitor companies in same industry

two clients ask assurance firm to act for them in relation to corporate transaction

64
Q

what is a practice environment and non practice environment

A

practice working in a firm of accountants

non practice is working in industry rather than an accounting firm

65
Q

how should accountant react to threats

A

see resolve matter internally using formal dispute resolution process, audit committee or whistleblowing procedure
contact their institute
seek legal advice
resign from their appointment

66
Q

when can confidential information be disclosed

A

consent been obtained from client, employer or other proper source
public duty to disclose
legal or professional right or duty to disclose

Accounting (17 decks)

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