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Accounting > assurance new > Flashcards

assurance new Flashcards

1
Q

what is an assurance

A

a positive declaration intended to give confidence

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2
Q

explain an assurance engagement

A

where a practitioner provides a conclusion to enhance degree of confidence of intended users other than the responsible party about evaluation outcome or measurement of subject matter against criteria

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3
Q

what are the key elements of an assurance engagement

A 
three party relationship
- practitioner
- intended users
- responsible party 
subject matter
subject criteria
written report provide opinion on subject matter
sufficient appropriate evidence to support assurance opinion
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4
Q

what are the two types of assurance engagements

A

reasonable assurance

limited assurance

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5
Q

explain why you can never get absolute assurance

A

not practical OR possible

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6
Q

explain reasonable assurance

A

high level of assurance
provides a positive opinion
true and fair view
sufficient and appropriate evidence - full range of tests

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7
Q

explain limited assurance

A

moderate level of assurance
nothing come to attention the misstated
provides negative opinion
sufficient and appropriate evidence - enquiry and analytical procedures

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8
Q

what is a negative opinion

A

no other evidence has come to light to contradict the opinion
so cannot confirm by showing evidence like positive

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9
Q

give examples of assurance engagement

A 
statutory audit - external
pension scheme audit 
bank audit 
due diligence 
reports business plan or projections
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10
Q

why have an audit

A

mandatory by law for businesses of certain size
allows auditor to express opinion on financial statements in material respects accordance applicable financial reporting framework

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11
Q

define true

A

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

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12
Q

define fair

A

information free from discrimination and bias compliance expected standards and rules, accountant reflect commercial substance of company underlying transactions

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13
Q

why have external carry out assurance engagement

A

don’t have the correct professional knowledge on subject matter or criteria
enhances credibility

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14
Q

who benefits from assurance engagement and explain how and who

A

responsible party - directors helps act as a deterrent in preventing detecting errors or fraud reduce risk of bias
third party -Future investors and banks. even though not normally for them it can still provide professional verification and independent review
intended users - shareholders professional verification and independent review

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15
Q

limitations of assurance

A

clients staff may collude in fraud so misrepresent/hide
estimates so may not be accurate
accounting systems reliance on have inherent limitations
don’t oversee whole process/every transaction
subjective and projessional judgement required
audit evidence persuasive rather than conclusive

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16
Q

what is the expectation gap

A

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

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17
Q

how does expectation gap arise

A

from economic + commercial scandals

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18
Q

how to reduce expectation gap

A

regularly review and complete forms

issue engagement letter

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19
Q

what is corporate governance

A

the way a business is controlled/ run

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20
Q

what is shareholder role in corporate governance

A

to appoint auditor directors and satisfy appropriate governance structure in place

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21
Q

what are the main governance needs of stakeholders

A

adhere to good business ethics
adhere to good practice in good corporate governance
interests to be reflected in companies objectives
scope conflicts to be reduced

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22
Q

what is the agency problem

A

managers lose sight on who they’re seeking to benefit and shouldnt harm others

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23
Q

who is a company owned by and managed by

A

shareholders own

directors manage

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24
Q

what is the agency issue

A

conflicts between individuals who control and who own it

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25
Q

when agency issue is discussed what’s it called

A

agency theory

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26
Q

what does OECD stand for

A

organisation for economic corporate development

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27
Q

what are the principles of OECD

A

promote transparent + efficient financial market consist rule of law
protect and facilitate shareholder rights
equitable treatment of all shareholders
recognise rights of shareholders
timely and accurate disclosure on material matters
ensure board is effective

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28
Q

what are institutional shareholders

A

term for organisation that invest money on behalf of other people

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29
Q

examples of institutional shareholders

A

insurance companies
pension funds
investment trusts

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30
Q

what is the code

A

UK corporate governance code
code of practice embodying shareholder led approach to corporate governance sets out underlying principles off all good governance;
accountability
transparency
probity
focus on sustainable success of entity over longer term

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31
Q

how to obtain audit clients

A

tender for engagements - reactive

advertise - proactive

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32
Q

what are the processes nominee auditors carry out

A

obtain professional clearance communicate with present auditors
ensure adequate existing resources
ensure professionally qualified
ensure management team integrity –>obtain references

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33
Q

what are the sources used to find information about client

A

published info
management team
company lawyers or other auditors
specific regulations and laws applying to that industry

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34
Q

what are the procedures carried out after the engagement acceptance

A

ensure outgoing removal/resignation properly conducted
send and receive back engagement letter
ensure new auditor appointment valid
perform money laundering checks and procedures

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35
Q

what are auditing standards

A

auditor and client agree terms of engagement in writing

–>done through engagement letter

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36
Q

what MUST engagement letter include

A 
managements responsibilities if auditor needs information report etc in respect of audit should hand it over
audits responsibility
reporting framework 
scope of audit
objective of audit
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37
Q

what are the objectives of an audit plan

A

ensure appropriate evidence to important areas
identify potential problems +resolve on timely basis
ensure audit properly organised + managed
assign work to engagement team members
- overall: efficiency, cost and risk management

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38
Q

what is an audit strategy

A

sets scope timing and direction of audit whilst guiding audit plan

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39
Q

what is an audit plan

A

sets nature timing and extent of audit, to obtain sufficient appropriate audit evidence

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40
Q

why develop audit plan and strategy

A

comply with ISAs

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41
Q

what is included in the audit strategy

A

understand entity + business environment
understand entity accounting + internal control system
materiality + risk
resources

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42
Q

when are analytical procedures

A

used at risk assessment stage of the audit procedure as part of understanding the entity and environment

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43
Q

what is materiality

A

matter or material of mission or misstatement influence economic decisions on users on basis of financial accounting

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44
Q

how is materiality calculated

A

a matter of judgement but general basis

profit before revenue 5-10
revenue 1/2-1
total asses 1-2

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45
Q

why is the level of materiality constantly reviewed

A

draft accounts altered and overall materiality needs to be changed
external factors cause changes in risk assessment leading to reassessment materiality

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46
Q

what is audit risk

A

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

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47
Q

what is audit risk made up of

A

detection
inherent
control

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48
Q

what is professional scepticism

A

applying a questioning mindset

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49
Q

what is audit evidence

A

information used by auditor to arrive at conclusion auditors opinion is based on

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50
Q

what are the tests associated with audit evidence

A

test of control - preventing detecting and correcting misstatement at assertion level
substantive procedures - audit procedure designed to detect material misstatement two types
test of detail
substantive analytical procedures

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51
Q

what does sufficient and appropriate refer to

A

measure quantity of evidence

measure quality of evidence or relevance, reliability

52
Q

how do auditors gain evidence

A 
Analytical procedures 
Inspection
Observation
recalcUlation
Enquiry
53
Q

what is CAAT

A

Computer Aided Auditing Techniques

54
Q

what are the two tests of auditing

A

test data testing integrity of clients system

audit software used to assist auditor to perform procedure

55
Q

name types of audit sampling techniques

A 
random
systematic
hapahazrad
sequence/block
monetary unit
56
Q

what effects the sample size auditor takes

A

level of assurance
auditors assessment of risk
misstatement auditor expected to find
use of analytical procedures

57
Q

what is internal control

A

process designed implemented and maintained by those charged with governance management and other personnel provide reasonable assurance about achievement of entity objectives regard to;

  • effectiveness + efficiencies of operations
  • reliability of financial reporting
  • compliance with applicable laws and regulations
58
Q

response for internal controls

A

minimise companys business risk
ensure continuing effective functioning
ensure company complies with relevant laws and regulations

59
Q

what is business risk

A

risk resulting from significant conditions events circumstances actions or inactions adversely affect entity achieve objectives and strategies

60
Q

what are the limitations of internal control

A

expense
human elements
collusion
unusual transactions

61
Q

what are the components of internal control

A
  1. control environment
  2. risk assessment process
  3. information systems
  4. control activities
  5. monitoring
62
Q

5 stages of control activities

A 
authorisation 
performance review
information processing
segregation of duties 
physical controls
63
Q

what are factors of internal audit

A

FTSE350 no legal requirement
improve operational effectiveness and efficiency
report to board, audit committee head of department
no need to be professionally qualified
maybe employees or external

64
Q

what are factors of external audit

A 
legal requirement for most companies 
give evidence on truth + fairness of financial statements 
report to shareholders 
professionally qualified 
independent not employees
65
Q

what are the internal audit function

A

examine financial operating information
review of compliance with laws and regulations + other external requirements
review of economy efficiency + effectiveness of operations
monitor effectiveness of internal controls
special investigations
evaluate significant exposure to risk + recommend where improvements in risk management + control systems could be made

66
Q

what is a control objective

A

desired response to mitigate an identified risk

–> when mentioning can say “to ensure that”

67
Q

what is an internal control

A

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

68
Q

what is test of control

A

need to know whether the internal control is effective in response to control objective in respect of identified risk effective

69
Q

what is a revenue system

A

process a business goes through to sell goods to as customer

70
Q

what are the stages in a revenue system

A

sales invoice –>
Goods despatch note–>
sales order–>
receipt remittance advance slip

71
Q

what are some risks associated with the revenue systems

A 
goods not received by customers
goods not correctly matched to customers
goods given to customers who can’t pay 
goods given to customers who take along time to pay 
orders not correctly recorded
72
Q

what are some control objectives associated with the revenues systems

A

goods only supplied to customers with good credit control
orders are correctly matched to customers
ensure orders are correctly fulfilled

73
Q

what are controls associated with revenue systems

A

orders only accepted of high rated credit customers
segregation of duties
authorisation of credit terms from well rated customers
set credit limits for customers

74
Q

what are test of controls for the revenue systems

A

check references obtained from customers
check segregated duties
take a sample of customers to test
observe despatch process

75
Q

what is the purchase system

A

the process a business goes through to buy goods from suppliers

76
Q

what are the key stages in a purchase system

A

Purchase order–>
Goods received note–>
Purchase invoice–>
Payment supplier statement

77
Q

what are some risks associated with the purchase system

A

poor quality goods accepted
may pay extenuate prices
pay supplier late/not pay supplier
incorrect goods accepted

78
Q

what are control objectives associated with the purchase system

A

only accept good quality goods
pay a reasonable price for items
ensure suppliers paid on time

79
Q

what are some controls associated with the purchase system

A 
check goods before accepting them 
take extra care with notes of due date 
monitor os supplier terms 
authorisations from senior members
safeguard blank order forms
80
Q

what are some test of controls in the purchase system

A

taks sample
observe the process
check process steps
(AIEOU)

81
Q

what is the payroll system

A

process by which a business pays its employees for service provided

82
Q

what are the key stages in the payroll system

A

calculate wages–>
record wages–>
pay wages

83
Q

what are some key documents associated with the payroll system

A

timesheet
payslips
contracts

84
Q

what are some risks associated with the payroll system

A

pay employees for work not done

pay former employees even though they no longer provide the service

85
Q

what are some control objectives associated with the payroll system

A

correctly pay employees
correctly record the amount of time employees worked
ensure valid employees paid

86
Q

what some controls put in place associated with the payroll system

A

ensure timesheets are checked by senior management

communicate effectively with HR to check employees who have left

87
Q

what are some test of controls for the payroll system

A

take a sample
observe a process occurring
enquire from HR
recalculate wages ensure they are worked out correctly

88
Q

what is audit documentation

A

working papers to provide evidence in support of the conclusion that the auditor has reached

89
Q

why have audit documentation

A

provides evidence for conclusion reached in reason to objectives
helps to show for matters of continuing importance for the auditor
keeps individual accountable
enables experienced auditor to carry out quality control review
evidence for well performed and planned in accordance to the ;legal + regulatory requirements
assists certain team members to direct and supervise work

90
Q

what is the audit documentation effected by

A

sizer and complexity of client
nature of audit procedures to be performed
identified risk of material misstatements
significance of audit evidence
nature and extent of exceptions
need documentation conclusion
audit methodology and tools used

91
Q

what is included in the audit documentation

A

client name and year end
audit team involved, name who performed and who received
work performed and conclusion reached and record details exceptions and reasons for

92
Q

what is a permeant audit file and examples

A

any informations which is of continuing importance to the audit

  • engagement letter
  • control system notes
  • prior year signed financial statement
93
Q

what is a current audit files

A

any information of relevance to current years audit

  • draft financial statements + final signed financial statements
  • list of uncorrected misstatements
  • review notes
94
Q

when can working papers be destroyed

A

at least 6 years from end of accounting period

95
Q

who do working papers belong to

A

assurance provider

96
Q

who do audit report belong to

A

client

97
Q

what are the outcomes for items tested in the financial statements

A

fairly stated

misstated - overstated -understated

98
Q

when is risk higher for overstated and

understated

A

overstated - assets

understated - liability

99
Q

what is common audit procedures

A

obtain total item lists and agree total to trial balance
agree total from trial balance to draft financial statements
agree comparative information to prior year signed financial statements
–>also substantive analytical procedures only sometimes though

100
Q

what are the sources of information for tangible non current asset

A 
non current asset register
purchase invoices
registration document 
leases or hire purchase documentation
physical asset inspection
depreciation records or calculations
101
Q

what are the main controls over inventory count

A

organisation of count
counting of inventory
recording of the counts

102
Q

what is inventory valued at

A

lower of NRV or cost

103
Q

when is NRV normally lower than cost

A 
when goods are;
obsolete
damaged 
sale items 
loss leaders
104
Q

what are the sources of information for receivables

A

receivables ledger information
customer confirmation
remittance advance slip
settlements receive from customers at year end

105
Q

what are the types of confirmation process

A

positive - either way have to respond ACTIVE

negative - only respond if amount stated is disputed PASSIVE

106
Q

which is preferred method over positive and negative

A

positive as more reliable

107
Q

when would you use negative method over positive

A

assessed low risk
relevant control operating effectively
large number of small balances involved
substantial number of errors not expected
auditor no reason customer disregard request

108
Q

what should receive special attention when constructing a sample

A 
material high risk accounts
old unpaid accounts
accounts written off during period under review
accounts with credit balances 
accounts settled by round sum payments 
accounts nil balances
109
Q

what are the sources for bank and cash

A

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

110
Q

procedure of auditor confirmation from the bank

A

The banks require explicit written authority from their client to disclose the information requested.
􏰀 The assurance providers’ request must refer to the client’s letter of authority and the date of the letter. Alternatively the request may be countersigned by the client or it may be accompanied by a specific letter of authority.
􏰀 The request should reach the branch manager at least two weeks in advance of the client’s year-end and should state both the year-end date and the previous year- end date.
􏰀 The request should confirm that the bank confirmation should be returned directly from the bank to the assurance provider.

111
Q

what are the sources of information for payables and accruals

A

payable ledger records
confirmation from suppliers
supplier invoices
supplier statement reconciliation

112
Q

what are the long term liabilities/ non current liability sources of information

A 
schedule of loans 
statutory books
loan agreements
bank letter + direct confirmation
cash book 
board minutes
client schedule and calculations
113
Q

what is ethics

A

systems of behaviour which is deemed acceptable in society or context under consideration. somewhat tells us how to behave
–>morality + conscience

114
Q

what is ethical culture

A

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

115
Q

what is business value

A 
underpin both policy and behaviour throughout the company from top down includes
integrity 
objectivity 
accountability 
openness
honesty 
fairness
trust
116
Q

what are business ethics

A

the ways in which a company behave in a society which has certain expectations of how decent company should behave. represent the moral standards that are expected
–> culture + expectations

117
Q

what are some examples of good business ethics

A

paying a fair wage
offer opportunities for personal development and promotion
being open and transparent with staff
giving back to local community / charity work
minimise negative impact on environment

118
Q

how can ethical culture be promoted

A

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

119
Q

what are the fundamental code of ethics for IFAC

A 
integrity 
objectivity
professional competence and due care 
confidentiality 
professional behaviour
120
Q

what are threats

A

things that could compromise your ethical behaviour (objectivity)

121
Q

what are safeguards

A

ways to manage/mitigate

122
Q

why are independence and objectivity important

A

provide an objective assurance

public interest

123
Q

what are the types of ethical threats

A 
self interest
self review
advocacy 
familiarity
intimidation
management
124
Q

what are appropriate safeguards for conflicts of interests

A 
separate teams for different clients 
professional information barriers
informed client consent to act 
briefing on confidentiality for staff
confidentiality agreements
125
Q

in situations threats occur what should an accountant do

A

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

126
Q

informations acquires in course of professional work only disclosed where

A

consent has been obtained from client, employer or other proper source
there’s a public duty to disclose
there’s a legal or professional right or duty to disclose

Accounting (17 decks)

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