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Accounting > Assurance > Flashcards

Assurance Flashcards

1
Q

what is assurance

A

a positive declaration intended to give confidence

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2
Q

what is assurance engagement

A

practitioner creates conclusion designed to enhance degree of confidence of intended users about outcome measuring subject matter to criteria

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3
Q

what are the types of assurance engagement and explain them

A 
1. Reasonable 
positive declaration
said as “true + fair”
full range of test 
2. limited 
negative declaration
enquiry + analytical tests
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4
Q

give an example of assurance engagement

A

statutory audit

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5
Q

what are the key elements of assurance engagement

A 
three party relationship
-      practitioner
-      intended users
-      responsible party
subject matter
 subject criteria
 written report providing opinion on subject matter
 sufficient appropriate evidence to support assurance opinion
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6
Q

what is the objective of an audit for financial statements

A

enable the auditor to express a true and fair opinion on the financial statements
to give an element of credibility

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7
Q

Define True (from “true + fair”)

A

information is factual conforms with reality not false + information conforms with standards and law, accounts correctly extracted from books and records

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8
Q

Define Fair ( from “true + fair”)

A

information is free from discrimination + bias compliance with expected standards and rules accounts reflect commercial substance of company underlying the transaction

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9
Q

name an example for each of the following
1. untended users
2.third parties
3.responsible party
+ explain how each benefits from assurance

A

1.shareholders
independent personal verification
2.future investors and banks
give confidence to others other than intended users
3.directors
prevent or detect errors or fraud + reduce risk of bias

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10
Q

list some limitations of assurance

A
  • subjective + professional judgement is required
  • clients staff may collude in fraud
  • most audit evidence persuasive than conclusive
  • reliance on accounting systems have a degree of inherent limitations
  • fact testing is used - can’t tell 100% of procedures
  • some figures are estimates so uncertain
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11
Q

what is the expectation gap

A

difference between what the users think that the auditor does and what the auditor actually does

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12
Q

how to reduced expectation gap

A

issue engagement letter

regularly review forms and content of assurance repots

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13
Q

why does expectation gap occur

A

lack of knowledge of the limitations of an assurance

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14
Q

Explain some governance needs of stakeholders

A

interest and expectations reflected in objectives
scope for conflicts to be reduced
adhere to good practice in corporate governance
adhere to good business ethics

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15
Q

what is the agency problem

A

managers lose sight of who they are seeking to benefit and that they should not harm others

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16
Q

what is the role of directors and what are they also referred to as

A

manage interests of shareholder

also referred to as agents of shareholders

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17
Q

what is the agency issue- agency theory

A

ownership and control are separated sometimes conflicts arise those who control vs those who own it
shareholders vs directors

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18
Q

name some principles of the organisation for economic co operation and development

A
  1. promote transparent and efficient financial markets with rile of law
  2. protect and facilitate shareholder rights
  3. equitable treatment os all shareholders
  4. recognise shareholder rights
  5. timely and accurate disclosure on all material matters
  6. board is effective
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19
Q

what is an institutional shareholder

and name some examples of this

A

a broad term for organisations who invest money on behalf of others examples include

  • pension scheme
  • insurance companies
  • investment trusts
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20
Q

what is the code short for

A

uk corporate governance code

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21
Q

What is the code

A

code of practices embodying a shareholder led approach to corporate governance sets out underlying principles of good governance

  • accountability
  • transparency
  • probity
  • focus on sustainable success of entity long term
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22
Q

what is stewardship

A

accountability of management resources entrusted to them as a gents of company

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23
Q

Explain the planning stage in the audit process

A 
Client acceptance/continuance this involves 
- profesional clearance 
- money laundering
- engagement letter
then engagement planning this involves 
-  understanding the entity 
- assess + respond to risk of material misstatements 
- audit strategy and plan
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24
Q

Explain the testing and field work stage in the audit process

A

left
test controls
restricted substantive testing

right
don’t test controls
report to management
full substantive testing

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25
Q

Explain the completion stage in the audit process

A

sufficient appropriate evidence
finalisation
letter of representation / report and opinion

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26
Q

how to obtain clients

A

pro active -advertise

reactive - respond to tenders

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27
Q

what are the acceptance procedures nominee auditors carry out

A

ensure professionally qualified to act
ensure existing resources adequate
consider integrity of management/ obtain references
communicate + present auditors

28
Q

what are the sources used to asses the risk of undertaking a client

A

published information
company lawyers or other advisors
specific regulated + laws apply to industry
management team

29
Q

what are the processes conducted “after acceptance”

A

outgoing auditors removal or resignation properly conducted
ensure new auditor appointments valid
signed letter of engagement
money laundering checks and procedures

30
Q

what is the purpose of an audit plan

A

ensure appropriate attention to important areas of audit
identify potential problems and resolve them
audit is properly organised + managed
assign work to engagement team members
facilitate direction and supervision of engagement team members
facilitate review of work
all summarised
cost efficiency
risk management

31
Q

what is an audit strategy

A

formulation of general strategy for audit sets cope coming and direction of audit gives development of audit plan

32
Q

what is an audit plan

A

more detailed than the strategy sets nature timing and extent of audit procedures perform engagement team members to obtain sufficient appropriate audit evidence

33
Q

what does the audit strategy include

A

understanding of entity behaviour and environment
understanding entity accounting + internal control system
materiality and risk
resources

34
Q

what is materiality

A

significance of an omission to misstatement could influence economic decision of users taken on timely basis of financial statements

35
Q

how to calculate materiality

A

value %
profit before tax 5-10 left is low
revenue 1/2-1 high is on right
total assets 1-2

36
Q

what is audit risk

A

the risk that the auditor expresses an inappropriate opinion when financial statements are materially misstated

37
Q

what is audit risk made up of

A
  1. inherent
  2. control
  3. detection
38
Q

what is professional scepticism

A

attitude that includes a questioning mindset

39
Q

what is audit evidence

A

the information used by a auditor in arriving at the conclusions which auditors opinion is based

40
Q

what is test of control

A

tests for audit evidence

evaluated operating effectiveness of controls in preventing detecting and correcting material misstatements

41
Q

what is substantive procedures

and name some

A

tests for audit evidence
designed to detect material misstatements
-test of detail : tracing figures to documentation ensure accuracy
-substantive analytical procedures : comparison of data from sources

42
Q

explain what is meant by sufficient

A

measure quantity of evidence

43
Q

explain what is meant by appropriate

A

measures the quality of evidence relevance and reliability

44
Q

what re the procedures used to gather evidence

A 
analytical procedures
enquiry
inspection
observation
recalculation
45
Q

what is CAAT and what are the two types

A

Computer Assisted Audit Techniques
assist with gathering and processing audit evidence
two types
- test data tests integrity of the clients systems
- audit software asset auditor to perform substantive audit procedures

46
Q

what are the assertions auditors make about class of transactions and events for period under audit

A 
occurrence 
completeness 
accuracy 
cut off 
classification
47
Q

what are the assertions auditors make about presentation and disclosure

A

occurrence + rights + obligations
completeness
classification+ understandability
accuracy + valuation

48
Q

what are the assertions auditors make about account balances at period end

A

existence
rights +obligations
completeness
valuation + allocation

49
Q

what is audit sampling

A

application of audit procedures to less than 100% of items within a population of audit relevance

50
Q

explain random sampling

A

all items have equal chance of being selected

51
Q

explain systematic sampling

A

using a constant interval between selection

52
Q

explain haphazard sampling

A

auditor reflects at random

53
Q

explain sequence/block sampling

A

check certain items have particular characteristics

54
Q

explain monetary unit sampling

A

ensures every £1 has equal chance of selection also all materials are used

55
Q

name factors that would increase audit sample size

A

auditors desired level of assurance
increased amount go misstatement auditor expected to find in population
decrease use of analytical procedures test same balance

56
Q

what is internal control

A

process designed implemented and maintained those charged with governance to provide reasonable assurance about achievement of entity objectives

57
Q

why is an internal control implemented

A

minimise business risk
ensure continuity effective functioning of company
ensure compliance with relevant laws and regulations

58
Q

what are limitations of internal controls

A

expense
human element
collusion
unusual transactions

59
Q

name some components of internal control

A 
risk assessment process
information systems 
monitoring
control environment
control activities
60
Q

types of control activities

A 
authorisation
performance review
information processing 
segregation of duties
physical controls
61
Q

what are some examples of application controls

A

control over input accuracy and completeness
controls over input authorisation
control over processing of inputs

62
Q

what are some examples of the general controls

A

development of and changes to computer application
prevention detection of unauthorised changes to programme
controls ensure continuing of company operations

63
Q

what is the function of internal audit function

A

appraisal activity provide service to entity to examine evaluate and monitor adequacy and effectiveness

64
Q

name factors of internal audit

A

no legal requirement to undertake
impose operational effectiveness and efficiency
no requirement for professional qualification

65
Q

name factors of external audit

A

legal requirement for most companies
give opinions true and fairness of financial statements
must be professionally qualified
must be independent

66
Q

what are activities if internal audit

A

review of compliance laws and regulations and. external
review of economy efficient and effectiveness of operations
monitor effectiveness of internal controls
special investigations
examine financial + operating information
evaluating significant exposure to risk

Accounting (17 decks)

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