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Assurance Flashcards

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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
Explain the completion stage in the audit process
sufficient appropriate evidence finalisation letter of representation / report and opinion
26
how to obtain clients
pro active -advertise | reactive - respond to tenders
27
what are the acceptance procedures nominee auditors carry out
ensure professionally qualified to act ensure existing resources adequate consider integrity of management/ obtain references communicate + present auditors
28
what are the sources used to asses the risk of undertaking a client
published information company lawyers or other advisors specific regulated + laws apply to industry management team
29
what are the processes conducted "after acceptance"
outgoing auditors removal or resignation properly conducted ensure new auditor appointments valid signed letter of engagement money laundering checks and procedures
30
what is the purpose of an audit plan
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
what is an audit strategy
formulation of general strategy for audit sets cope coming and direction of audit gives development of audit plan
32
what is an audit plan
more detailed than the strategy sets nature timing and extent of audit procedures perform engagement team members to obtain sufficient appropriate audit evidence
33
what does the audit strategy include
understanding of entity behaviour and environment understanding entity accounting + internal control system materiality and risk resources
34
what is materiality
significance of an omission to misstatement could influence economic decision of users taken on timely basis of financial statements
35
how to calculate materiality
value % profit before tax 5-10 left is low revenue 1/2-1 high is on right total assets 1-2
36
what is audit risk
the risk that the auditor expresses an inappropriate opinion when financial statements are materially misstated
37
what is audit risk made up of
1. inherent 2. control 3. detection
38
what is professional scepticism
attitude that includes a questioning mindset
39
what is audit evidence
the information used by a auditor in arriving at the conclusions which auditors opinion is based
40
what is test of control
tests for audit evidence | evaluated operating effectiveness of controls in preventing detecting and correcting material misstatements
41
what is substantive procedures | and name some
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
explain what is meant by sufficient
measure quantity of evidence
43
explain what is meant by appropriate
measures the quality of evidence relevance and reliability
44
what re the procedures used to gather evidence
``` analytical procedures enquiry inspection observation recalculation ```
45
what is CAAT and what are the two types
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
what are the assertions auditors make about class of transactions and events for period under audit
``` occurrence completeness accuracy cut off classification ```
47
what are the assertions auditors make about presentation and disclosure
occurrence + rights + obligations completeness classification+ understandability accuracy + valuation
48
what are the assertions auditors make about account balances at period end
existence rights +obligations completeness valuation + allocation
49
what is audit sampling
application of audit procedures to less than 100% of items within a population of audit relevance
50
explain random sampling
all items have equal chance of being selected
51
explain systematic sampling
using a constant interval between selection
52
explain haphazard sampling
auditor reflects at random
53
explain sequence/block sampling
check certain items have particular characteristics
54
explain monetary unit sampling
ensures every £1 has equal chance of selection also all materials are used
55
name factors that would increase audit sample size
auditors desired level of assurance increased amount go misstatement auditor expected to find in population decrease use of analytical procedures test same balance
56
what is internal control
process designed implemented and maintained those charged with governance to provide reasonable assurance about achievement of entity objectives
57
why is an internal control implemented
minimise business risk ensure continuity effective functioning of company ensure compliance with relevant laws and regulations
58
what are limitations of internal controls
expense human element collusion unusual transactions
59
name some components of internal control
``` risk assessment process information systems monitoring control environment control activities ```
60
types of control activities
``` authorisation performance review information processing segregation of duties physical controls ```
61
what are some examples of application controls
control over input accuracy and completeness controls over input authorisation control over processing of inputs
62
what are some examples of the general controls
development of and changes to computer application prevention detection of unauthorised changes to programme controls ensure continuing of company operations
63
what is the function of internal audit function
appraisal activity provide service to entity to examine evaluate and monitor adequacy and effectiveness
64
name factors of internal audit
no legal requirement to undertake impose operational effectiveness and efficiency no requirement for professional qualification
65
name factors of external audit
legal requirement for most companies give opinions true and fairness of financial statements must be professionally qualified must be independent
66
what are activities if internal audit
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

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